Copyright 2002 Federal News Service, Inc.  
Federal News Service
June 13, 2002 Thursday
SECTION: CAPITOL HILL HEARING

LENGTH: 13241 words

HEADLINE: PANEL TWO OF A HEARING OF THE SPECIAL OVERSIGHT PANEL ON THE MERCHANT MARINE OF THE HOUSE NATIONAL SECURITY COMMITTEE
 
SUBJECT: VESSELS OPERATING UNDER FLAGS OF CONVENIENCE
 
CHAIRED BY: REPRESENTATIVE DUNCAN HUNTER (R-CA)
 
PANEL II LOCATION: 2212 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: REAR ADMIRAL PAUL PLUTA, U.S. COAST GUARD CAPTAIN WILLIAM SCHUBERT, U.S. MARITIME ADMINISTRATION
 


BODY:
REP. HUNTER: Panel two will be Captain Schubert, maritime administrator for the United States Maritime Administration, Department of Transportation, and Rear Admiral Paul Pluta, assistant commandant for marine safety and environmental protection for the U.S. Coast Guard in the Department of Transportation.

Gentlemen, thank you for being with us. We greatly appreciate you. I'll tell you what. What do you think, gentlemen? Do you want to run over and vote and come back? Are we going to have two or are we going to have one? Do you know?

STAFF: Two votes.

REP. HUNTER: We've got two. Well, why don't we go ahead and get our opening statements out of the way here. And Captain Schubert, do you want to lead off here? We'll go ahead and take opening statements. Then we'll go vote and come back and get into questions.

CAPT. SCHUBERT: Okay, thank you. Good morning, Mr. Chairman, members of the panel. I'd like to request that my formal statement be entered into the record.

REP. HUNTER: Without objection.

CAPT. SCHUBERT: Thank you. I appreciate the opportunity to appear before you today to discuss flags of convenience and the potential impact on national security posed by these vessels.

First, I would like to thank you for holding this hearing. Our heightened need for homeland security requires that we examine the current lack of transparency within open registries, which could ultimately lead to a serious threat to our nation's safety and security.

Ship operators, seeking to lower costs, register their vessels in open registries for several reasons. They feature unrestricted laws and have low tax liability, vessel registration fees and crew costs. There is a considerable variation among open registries. While some are considered quality registries, others are not enforced -- do not enforce minimum vessel safety or design standards. Foreign crews are often paid low wages and live in terrible conditions, with little or no oversight or recourse in case of abuse or mistreatment.

For these reasons, the International Labor Organization, or ILO, has undertaken the ambitious task of updating and consolidating of seafarers welfare conventions. And my agency, MARAD, is leading the effort on behalf of the United States.

Many crews aboard flags-of-convenience vessels do not have the same high-quality training as U.S. merchant mariners and mariners from OECD member states. Also, a ship owner who registers his or her vessel in an open registry does not need to have any connection or link to the country sponsoring the registry. As a result, the flag- of-convenience regimes can inadvertently open the door for criminal and terrorist activity.

Between 1980 and 1998, countries with developed market economies, including the United States, Western Europe and Japan, lost almost half of their vessel tonnage to major open registries, countries like Liberia, the Bahamas, Panama, Cyprus and Malta. Open registries have captured approximately 60 percent of the capacity of the world merchant fleet. In the year 2000, four of the top five registries were open registries. The United States, the world's largest trading nation, was in 13th place in the year 2000.

REP. HUNTER: Captain Schubert, why don't you describe for us what an open registry is.

CAPT. SCHUBERT: Okay, an open registry -- or it's actually more commonly referred to as a flag of convenience -- are countries where you don't necessarily have to be -- well, they don't require that the nationals actually own the vessels. It's open to any country, any registry -- excuse me, any vessel owner for any country can use that registry, irrespective of the citizenship issues.

REP. HUNTER: So it's totally a matter almost of administration or paperwork. I mean, can you register online and without ever seeing the country, even knowing where it is?

CAPT. SCHUBERT: I would imagine it's possible, yes.

REP. HUNTER: Okay.

CAPT. SCHUBERT: Absolutely so. Open registries, as I said, have captured 60 percent of the capacity of the world fleet. And as I said, we're in the 13th place as of 2000. It is critical now, more than ever, to have a strong U.S. Merchant Marine and U.S. crews. U.S. crews employed on U.S. flagships provide the pool of seafarers for both commercial and government sealift fleets in times of national emergency or crisis.

Encouraging ship owners to return to the U.S. flag is a daunting task, especially when compared to the economic advantages of open registries. However, the best way to protect our homeland and national security interests across the globe is for a strong U.S. flag fleet manned by U.S. citizen mariners.

If we did not have the Jones Act, cargo preference, the MSP program and visa programs, I can assure you that it is unlikely that ships would remain under the U.S. flag. And the U.S. citizen mariner pool needed for the Department of Defense in times of national emergency or war would simply disappear.

Many maritime scholars, industry experts, and some members of Congress have suggested a re-examination of the tax laws which govern merchant shipping in order to create more incentives for investment by ship owners to return to the U.S. flag. These and other options to increase the number of vessels under the U.S. registry should be fully explored and given the highest consideration.

While it would be difficult to eliminate the lack of transparency and other problems inherent in the international operations of the open registries, there are things that we can do to further deter the threats from the maritime domain.

Pre-screening of crew identification before seafarers arrive in U.S. waters is critical. U.S. authorities should have a positive and verifiable identification card for all crew members to help deter crews from using seafaring positions to illegally enter the United States.

Unfortunately, a recent IMO study found that the incidents of fraudulent practices was found to be, quote, "much higher than anyone thought." The IMO study confirmed that 12,635 cases of forged certificates. In addition, around 85 percent of employers had detected fraud over the previous five years. MARAD is currently working through the ILO to achieve a new international agreement on positive and verifiable identification for all seafaring personnel.

In conclusion, I would like to stress that the United States does not need to lower its labor and environmental standards, but should continue to work with the IMO and the ILO to assure international standards are fair and universally implemented. We should, however, explore ways to make the U.S. flag more attractive to potential U.S. citizen investors who market in financial incentives that have been successful in other seafaring countries. In today's environment, we should not compromise our security, and there's no better assurance to our nation's national security interests than a strong U.S. flag merchant marine.

As a final comment, I would like to see that the truly bad flag of convenience, or open registries, as I've referred to them, are regulated to a role of flags of inconvenience. We must vigorously lead international efforts to eliminate the underlying traditions that have led to notoriously weak vessel registries and we must continue to pursue the elimination of sub-standard vessels, utilizing our port state control authority to its fullest extent.

That concludes my opening remark, and I would be happy to answer questions after Admiral Pluta makes his comments.

REP. HUNTER: Thank you very much, Captain Schubert. We probably have about seven minutes left on this vote, so gentlemen, what do you think about, so we can have Admiral Pluta can have plenty of time to give a full statement -- maybe go down and make this vote, and make the second one, and then come on back, and then Admiral Pluta, we'll pick up with you.

RADM. PAUL PLUTA: Thank you, sir.

REP. HUNTER: Okay. We'll -- we'll be out of session for a few minutes here.

(Recess for vote.)

REP. HUNTER: Okay. The hearing will resume. And Captain Schubert, you wrapped up your statement, and Admiral Pluta, the floor is yours, sir.

RADM. PLUTA: Thank you, Mr. Chairman.

Good morning, Mr. Chairman and distinguished members of the committee. As the assistant commandant for marine safety, security and environmental protection for the Coast Guard, I want to thank you for this opportunity to appear before you today to discuss the Coast Guard's maritime security efforts for addressing the national security aspects of foreign flag ships, cargo and crew members entering the United States, specifically vessel ownership transparency and positive identity of vessels, vessels owners, operators and crew members.

The importance of our nation's marine transportation system cannot be overstated. Maritime industries contribute approximately $1 trillion annually to the gross domestic product of the United States. Over 95 percent of our overseas commerce is carried through our nation's seaports. More importantly, foreign flag vessels now carry well over 90 percent of the international commercial freight arriving in or departing from the United States. More than 7,500 foreign flag ships, originating from 92 different flag states, make approximately 51,000 port calls annually.

As the lead federal agency responsible for the protection of U.S. ports and waterways, the Coast Guard has taken a lead role in addressing these challenges through its port state control program and enforcement of domestic and international standards. Prior to September 11th, our program focused primarily on the quality of foreign flag ships, posing the greatest safety risk to the U.S. commerce and the environment.

More recently, the important role played by the mariners, the human element, has been addressed through a convention for standards for training, certification and watch-keeping, or STCW, in 1978, as amended in 1995. In 1998, the International Safety Management Code, or the ISM code, became effective under the Safety of Life at Sea convention, dealing with proper management and maintenance of vessels.

As the Coast Guard continues to enforce domestic and international safety standards on the foreign shipping community at home, we continue our campaign to engage open registry flag states in reaching an objective of vessel information transparency worldwide.

REP. HUNTER: Well, what does that mean? What do you try to get from them?

RADM. PLUTA: Mr. Chairman, we want to do whatever we can, both domestically and internationally, to try to get as much information about who is owning and operating a vessel. We have good laws in place domestically. We would like to put the same sort of procedures in place internationally.

REP. HUNTER: Give us an example -- and I don't mean to cut your testimony off, but that's really a key point -- give us an example of what information you want from a vessel of open -- it's -- it comes from open registry or the flag of convenience.

RADM. PLUTA: Mr. Chairman, we have a -- there is a proposal to create a continuous synopsis record for every vessel that would have to be maintained by both the company and the ship, and it would include the name of the registered owners and their registered addresses, the name of the company, its registered address and addresses from where it carries out its safety management activities, and the name of the classification societies with which the vessel is classed. These pieces of information would have to be recorded over time so that with every transfer of ownership or transfer of operator, these would be recorded, and we could track back. In the United States, we require a 96-hour advance notice of arrival of this and much more information. We are about to go to a final rule on this issue. And we will require all that information well in advance so that our people can share it among the other government agencies interested in the vessel, the owners, the crew, the passengers, the cargo on board, and we can vet it through the information and intelligence systems that we have domestically to see if there's anything that we ought -- that ought to raise our attention on it.

REP. HUNTER: Now, they give you names and information about the crew members coming in?

RADM. PLUTA: Yes sir. They --

REP. HUNTER: I mean, obviously that's key, right?

RADM. PLUTA: Sir?

REP. HUNTER: That's obviously key, is to have some background on the -- on the folks that are driving this ship.

RADM. PLUTA: Yes sir. It's absolutely critical to our maritime domain awareness. And so we're -- the existing requirement had been a 24-hour advance notice of arrival. We extended that to a 96-hour, to four days ahead of time, or even earlier, so that we could capture those names and run them through our databases and see if there's anybody on board that we ought to -- to be threatened by or we'd like to handle specially.

REP. HUNTER: Okay. How accurate is that information, from your experience?

RADM. PLUTA: There are definitely flaws in the way that we process this information now, Mr. Chairman. It's -- the way that we collect it right now is by fax, by mail, and we -- we don't have authority yet to collect it electronically, but that's exactly what we're working on --

REP. HUNTER: But, I mean, do you have any way of -- if they send you a bunch of John Does, basically, or a bunch of made-up names, first, you don't even have any way to tell if they're made up in terms of the crew, right?

RADM. PLUTA: That's correct.

REP. HUNTER:: And they certainly aren't going to send you their arrest records or any background.

RADM. PLUTA: Well, no sir, they won't. But we -- with the information that we get, we screen it for whether or not it makes sense, whether or not there are names that don't seem to fit there, whether there are too many people on board -- the crew should be smaller -- and we'll vet that information through all the agencies, and then we will meet the suspect vessels or anybody that seems suspicious before we let them enter port. And we'll have Coast Guard as well as other agency boarding people on board to not only -- to deal with this list that was submitted, check it against the identification of the crew members who are on board, individually, so that we can vet whether or not they're the people that they claim to be.

REP. HUNTER:: Fingerprints -- do you do any fingerprints?

RADM. PLUTA: On -- not on foreign flag mariners as yet, Mr. Chairman. We have a fingerprint requirement for U.S. mariners, but we are working on an international effort through IMO and ILO -- there is an international convention on identification for seafarers, and we're working on a biometric system that will give positive and verifiable identification of all seafarers world wide.

REP. HUNTER:: Okay. Okay. Go ahead then, Admiral. I didn't mean to cut in there, but that's kind of a -- (inaudible) --

RADM. PLUTA: That's okay, Mr. Chairman. Thank you for asking.

Post -- after the attacks of September 11th, port state control has evolved and taken on a new and expanded role. Maritime security has centered on the ship, its contents, including cargo, passengers and crew, with an emphasis on vital information collection and analysis to gain a better understanding and awareness of our maritime domain. Maritime domain awareness is a concept that serves to reconcile sometimes competing interests of security and mobility in our ports and waterways, and involves recognizing threats well in advance and anticipating our vulnerabilities. This 96-hour advance notice of arrival has been instrumental in early evaluation of vessel and crew.

A critical component of improving maritime security and information transparency worldwide is ensuring that the seafarers involved in the maritime transportation of goods and passengers have positive identification documents. Equally important for maritime domain awareness is information transparency on owners and operators of ships with potential for use in supporting terrorist activities, either directly or indirectly. Currently, ships arriving in the United States ports are required to report the name of the registered owner as well as the operator of the vessel. However, in many cases, the registered owner is no more than an entity created solely for the purpose of being designated as a vessel owner, with no actual control of the vessel. The need for this information of actual ownership is highlighted by the recent media report on Osama Bin Laden's fleet and the supplies delivered to suicide bombers for the destruction of the U.S. embassies in Kenya and Tanzania. Although media reports, the idea of a terrorist organization owning and utilizing commercial ships for terrorist activities is very real.

Mr. Chairman, partnering and internal coordination is key to our efforts, networking and relationship-building among agencies and stakeholders is a core competency of the Coast Guard and we've been very active, both domestically and internationally. We've been working with the Congress' staffs on an excellent legislation initiative package to improve domestic maritime security. We've been working within the Department of Transportation with the Maritime Administration and other agencies to make sure that our efforts at security is harmonized. We've been working with other federal agencies, state and local governments, and the private sector.

As an example, the secretary of transportation chartered a credentialing direct action group to evaluate and develop credentialing for all U.S. transportation workers. The Coast Guard has been involved in a new initiative to establish a national priority in investigating and prosecuting fraudulent mariner's credentials and vessel documents. We are working with the Department of Justice to place a higher priority on investigations referred by the Coast Guard, and we've gotten a very favorable response.

Internationally, the Coast Guard represents the United States at the U.N. agency, the International Maritime Organization, and our outreach and partnering efforts have been through that vehicle. We have made significant progress since we instituted the Maritime Security Initiative at the November general assembly meeting of IMO last November. And we made great progress at this May's meeting of the Maritime Security Safety Committee. And we will have international standards in place in December of this year. We will have amendments to the Safety of Life at Sea convention, chapter 11, backed up by a new, mandatory, international ship and port facility security code, including a new draft regulation requiring governments to maintain, and ships to hold a continuous synopsis record of key information on vessel and owner operators.

In summary, Mr. Chairman, as an open society, we cherish our freedoms with our nation's busiest harbor complexes remaining wide open to thousands of maritime workers and ships from all corners of the world. The challenge we face today is balancing the security and the economic needs of our country. A key in meeting this challenge and preventing terrorist threats from being realized is better awareness, not only of the tremendous amount of cargo entering the cargo, but of the people who own, operate and service the thousands of vessels entering the United States every year. The solution will involve information transparency and having access to detailed and accurate intelligence about our adversaries -- perhaps a topic for another forum -- and sharing that information more effectively with our domestic and international partners, in both the public and private sectors. The dynamics of a global system and the resultant demands on our already stressed transportation system will require a continued, coordinated, national and international effort to meet both the existing and emerging challenges for our marine transportation system.

Thank you, Mr. Chairman.

REP. HUNTER:: Thank you, Admiral. And it looks to me like you've got a lot of work to do here.

RADM. PLUTA: Yes sir, we do. And we've been working very hard.

REP. HUNTER:: You know, if you break down the -- some basic requirements with respect to this new age of trying to hold off terrorists with high technology and homeland defense and all the rest of the new challenges that we have, probably one of the basics is we're going to have to know what's coming into the country, and two, we're going to have to know who's coming into the country. A lot of the "what" and a lot of the "who" is going to involve folks coming in in maritime carriage.

Now, with these thousands of ships that supply our harbors each year, coming in from the four corners of the earth, as you've stated, if you were going to rate your ability to really know who is coming in, with respect to the people operating the ships, on a one to 10 scale, where do you think you are -- given the information that they give you when they come in?

RADM. PLUTA: Mr. Chairman, it's hard for me to say, but just as a wild guess, I think we're 80 percent. Really it's just a guess on my part, Mr. Chairman. We are getting the basic information that we demand by our regulations. The validity of it is another question. And that's why we ask so far in advance.

REP. HUNTER: But, I mean, if somebody gives you -- I mean, if this is the equivalent of a bunch of kids giving phony IDs to get into the discotheque and all you've got to know is that somebody gave you a phony ID, then we're not accomplishing much, right? You're getting a bunch of John Does.

Have you had any -- have you undertaken any experiments to figure out whether you're getting real credentials when you -- what information will you request when you have a ship, if a foreign flag ship comes into a given harbor? And you say 96 hours ahead of time, you ask them for a manifest of their members, right?

RADM. PLUTA: Yes, sir, we do.

REP. HUNTER: What do you ask them? What will you get typically? How many crew members will you have on a big ship?

RADM. PLUTA: Roughly somewhere in the vicinity of 30 people, 25 to 30 people, something like that, sir.

REP. HUNTER: Okay. What kind of paperwork will you get from them?

RADM. PLUTA: The types of things that we'll request are their names, their date of birth, their passport number, if they have seamen's documents, some indication of what their role is on board, whether they're crew, passenger, what their function is; those kinds of things, so that we can get the information to cross-check data bases. And there could be many people with the same name, different birthdays, different nationalities, that sort of thing, Mr. Chairman.

REP. HUNTER: Well, do you ever get cross-checks? Now, you'll take that list. You'll have John Doe, Iraq, right? And his job is seaman first class or whatever.

RADM. PLUTA: Yes, sir.

REP. HUNTER: So that's what you'll get.

RADM. PLUTA: Yes, sir.

REP. HUNTER: Now, who will you send that to?

RADM. PLUTA: Well, Mr. Chairman, perhaps that would be a topic for another forum. But, you know, the intelligence community, the law enforcement, do help us vet all those names.

REP. HUNTER: Well, do you ever get any hits on --

RADM. PLUTA: Yes, sir, we do. And, in fact, we have a system of identifying vessels that are of heightened interest to us well before they come to the United States.

REP. HUNTER: I understand that. But what I'm saying, is anybody dumb enough, if they're really a wanted person internationally or if they're part of a terrorist operation, is anybody dumb enough to put down their real name?

RADM. PLUTA: Yes, sir, they are. (Laughter.) Yes, sir, we do have hits on personnel, people that have been previously deported from the United States or people whose names appear. And we just need to get the right folks in physical touch with them before they enter our port to make sure they are or they aren't the person we're worried about.

REP. HUNTER: Okay, if they give you a phony name, do you have any way of telling them?

RADM. PLUTA: Mr. Chairman, some registries have data bases online of the people that they license and document to sell under their credentials from that country. And so we can check, and we have ways of checking if we suspect that the name is bogus.

REP. HUNTER: Why would you suspect it's bogus?

RADM. PLUTA: If it doesn't fit, Mr. Chairman -- I don't think this happens an awful lot, but if the entire crew is Filipino and all the officers are Indian and we have one stray Iraqi who doesn't fit, we may want to check further, Mr. Chairman.

REP. HUNTER: Okay. Now, Mr. Schubert, Captain Schubert, do you have anything to add on that?

CAPT. SCHUBERT: Yes, I would like to add just a brief overview or update on what's happening with the ILO, which is really where we -- just like the IMO, on several of the Coast Guard issues, the ILO, International Labor Organization, is on a pretty fast track to try to get a new convention in place on seamen's documents. And they had the privilege to meet with the deputy director two days ago to get an overview.

But the purpose of the new convention would be to strengthen reliability of the seamen's documents, the same issues that you just raised. And they contemplate the use of positive verification/identification, using biometrics, which is something in the United States we feel is very essential. They're also working with us to --

REP. HUNTER: Now, where are these -- people love to use that term, biometrics. When are we going to get something to accompany the term?

CAPT. SCHUBERT: Well, actually, that's another -- that's a related issue that our agency has also been working on, even prior to 9/11. And we are going to conduct some testing of some -- smart cards is another word for what we're talking about, on some of our own RRF ships. And we found some other volunteers to do some pilot testing of these cards. These will be -- I think primarily are going to be used to try to develop standards for the enter and exit ports. We can also use them for our own seamen documents.

But we don't want to do -- we'd like to see the rest of the world follow this. And the ILO is the forum where we can get an international agreement on this. And I would also like to say that they're very keen on getting the U.S. -- getting the concerns from the U.S. satisfied so that we can move forward on this.

The current time track is to have this completed by June of next year, which, in international regimes, is pretty fast. And currently they're sending out questionnaires to all the member states, including the United States, to get their feedback on this.

So it is a serious issue, and I think the rest of the world recognizes that this is something -- I mean, as I addressed in my opening remarks, just the falsification of seamen's documents is a safety issue, let alone the possible terrorist threats. I mean, you get people on these ships that don't have the right STCW qualifications, and it presents a safety hazard. So this is on the fast track, and pretty much this is the update that I got from the deputy director.

REP. HUNTER: Okay. Mr. Taylor, did you have any questions you wanted to ask?

REP. TAYLOR: Oh, absolutely.

REP. HUNTER: Go right ahead. And Mr. Saxton, we'll go right to you.

REP. TAYLOR: Admiral, what's a cruise to nowhere?

RADM. PLUTA: Mr. Taylor, I think that's a term used for foreign- flag cruise ships and gaming vessels that operate in the United States and sail from a U.S. port, go out and entertain their passengers, doughnuts in the ocean, and then they come back in.

REP. TAYLOR: In a cruise to nowhere, in effect, home port out of an American port, never really have to go back to the country of origin or even sail to another country?

RADM. PLUTA: Yes, sir, that's correct.

REP. TAYLOR: And they have a totally foreign crew.

RADM. PLUTA: Yes, sir, they can.

REP. TAYLOR: Are they foreign-owned?

RADM. PLUTA: Yes, sir, they are.

REP. TAYLOR: Are they foreign-built?

RADM. PLUTA: Most likely, sir. Yes, sir.

REP. TAYLOR: So that ship's doing everything that the American vessel is, American-built, American crew, American-owned is doing right across the dock from them; enjoy all the same privileges, in effect, do they? I mean, if something goes wrong, you guys are going to go bail it out or put the fire out.

RADM. PLUTA: Yes, sir, that's correct.

REP. TAYLOR: If there's a disturbance at the dock, will the local police go help out?

RADM. PLUTA: I would assume so, sir, yes.

REP. TAYLOR: The channel that the Corps of Engineers dredges at American taxpayer expense, they get to use?

RADM. PLUTA: Yes, sir, they do.

REP. TAYLOR: What do they pay in taxes?

RADM. PLUTA: I don't know, sir. Nothing.

REP. TAYLOR: Admiral, I was amazed years ago, when I was running small boats for y'all, that I considered once getting a license to run crew boats one summer while I was in college. I went down to the maritime office. I've been running small boats for you all for, I don't know, eight, 10 years. I went to get a license. They said, "What kind of time do you have?" I said -- (inaudible). They said, "Well, Coast Guard time only counts for half," or something like that; maybe y'all's change the rules, and I was kind of amazed at that.

If I wanted to be the master of one of these vessels, what would it cost me to go to Panama or Liberia and get an unlimited-tonnage license?

RADM. PLUTA: I don't know --

REP. TAYLOR: (Inaudible.) What would it cost me? How much would I have to bribe somebody? You've got to know. (Laughter.) Give me a ballpark figure.

RADM. PLUTA: I've actually got one. (Laughs.)

REP. TAYLOR: I'm not talking about an American license. I'm talking about going to Liberia, Panama.

RADM. PLUTA: Okay. There is, in the IMO report that I referenced earlier in my opening remarks -- and it's also in my detailed remarks submitted for the record -- there's reference that they had tested that very theory about what it would take to get a master's license. And I believe it was Panama, but I'm not 100 percent sure. It was -- I think they went in with about $2,000 in some documents and they got a license.

REP. TAYLOR: Nobody checked the documents.

RADM. PLUTA: That's what, in the IMO report, it was alleged.

REP. TAYLOR: Okay. So that guy, who may really have no (on time?), paid the $2,000, can be operating one of these cruises to nowhere in any American port right now, as long as he's in a position to sail 12 miles out to sea, turn around and come back?

RADM. PLUTA: Theoretically, sir -- and I think the company might be worried about the risk to their investment, but theoretically, the answer to your question is yes, sir.

REP. TAYLOR: Well, can't they be -- an interesting phenomenon; we passed -- I believe all of us were here in 1990 -- a very tough law called the Oil Pollution Act, which made that vessel owner liability, unlimited liability. But their insurance companies are overseas, aren't they?

RADM. PLUTA: Most likely, sir.

REP. TAYLOR: So you basically have to deal with Liberian justice to collect the fine. Is that accurate?

RADM. PLUTA: Yes, sir, I think it is.

REP. TAYLOR: I've always considered Liberian justice to be sort of an oxymoron. Does that trouble you, Admiral? Because it does trouble me, this whole concept of the cruises to nowhere. I think it is a -- it really is an insult to all of the Americans who live by the rules. I think it's unfair.

RADM. PLUTA: Yes, sir. There are distinct elements of that that are truly troublesome. And that's why we work ever so hard internationally to try to get a flag-state auditing system in place through IMO to make sure that the flag states are enforcing the requirements they're signatory to.

That's why we worked so hard on the STCW convention to get minimal baseline requirements for all mariners that must be met, and can be challenged by port states, and we do. We make them do fire and boat drills when they come into port so that we avoid having those unqualified mariners operating out of U.S. ports or entering U.S. ports. But it's certainly not a foolproof system, sir.

REP. TAYLOR: So to go back to the line where -- obviously you are a master. I mean, you deserve it. But I could take a mechanic from Waveland, Mississippi down to Panama with 2,500 bucks and make him an instant unlimited-tonnage master is what you're telling me.

RADM. PLUTA: I'm not exactly -- I was quoting from the IMO sort of review that they did recently, and they did allege that this was a relatively simple process to get a license. But I'm, just to be honest with you, not an expert on Panamanian licensing.

REP. TAYLOR: So if you can get a master's license, that would mean that almost anybody on that vessel could have bogus papers for probably a lesser fee. Do we accept those documents on face value? Is that all they need to enter our country?

RADM. PLUTA: No, sir. We send boarding teams on board vessels and we observe these drills. And if the crew doesn't seem to know what they're doing, leading us to suspicions about the validity of their licenses and documents, then we will probe further. And if they have an unqualified crew on board, they're going to cease operations and replace them with qualified members. That's how our port state control system works, sir.

REP. TAYLOR: Okay. But if you wanted to arrange for, in effect, a place for a terrorist cell to live and operate and sit there as long as they wanted until they were activated, I mean, wouldn't one of these cruises to nowhere be an ideal setup?

RADM. PLUTA: Certainly it and other vessels could be used for that, sir. And that's why we want to work so hard to get meaningful seafarers' documents across the board. And that's why we asked for the information far in advance and why we vet it through all the agencies and we put eyes on the people that we suspect may be problematic, Mr. Taylor, sir.

REP. TAYLOR: Mr. Chairman, I'm sure you recall that, with your help, and I believe Mr. Saxton's help -- I'm fairly certain of that -- we passed through this body, on three or maybe even four occasions, language to tighten the rules on cruises to nowhere, and unfortunately it went to the Senate and nothing happened. But I would ask that under your leadership we take one more crack at that. I think it needs to be addressed.

I think it is unfair to the shrimpers, the tugboat operators and all the other guys out there who live by the rules -- buy an American vessel, hire an American crew, Coast Guard-inspected. It's simply not fair to have the guy across the dock, who's got a foreign crew, foreign boat, could well be harboring a future terrorist, being able to operate out of our country under the sham of going 12 miles out to sea and turn around. I'm going to ask that the chairman of this panel would resuscitate that and let's take another run at it.

REP. HUNTER: That sounds like a fertile field for us to plow here. But that leads us to another question, though, Mr. Taylor, and that's this. Reading the U.N. directorates to these flag-of- convenience countries, they're supposed to have maritime administrations that operate credentialing service, if you will. And yet Mr. Wolf led off with the operative statement in Liberian law that says all flagging will take place at the president's palace and Mr. Taylor will take care of everything.

REP. TAYLOR: That Taylor; that's distant cousin Charles. (Laughter.)

REP. HUNTER: Charles Taylor. If this Taylor took care of it, we might be okay. But that implies to me there's not much of an operation going on there outside of greasing a few palms when you get to the president's palace, right?

RADM. PLUTA: Mr. Chairman, that's exactly why Mr. Schubert and I went to Tokyo to the ministerial to sit down, and he signed a document on behalf of the United States urging IMO to enter into a flag-state audit program so that we could ensure that the flag states are not only meeting their safety requirements, but also their requirements under the STCW convention of credentialing their mariners.

REP. HUNTER: But in real life, that hasn't happened. And I don't think you're going to see a big -- see a maritime institute blossom in Liberia, which is forthwith going to institute stiff standards for operators' credentials, right? I mean, we know that's not going to happen. You're going to continue to basically have a state that operates in payoffs, and that's how they run the thing. And so you are not going to have this credential. So, in your estimation, how should we proceed if you accept that as a -- Mr. Johnson says or Tonga or Malta, and some other fine candidate flags of convenience. But if that's the case, how do you think we should proceed? I mean, we have to live in the real world. So you are asking these international bodies to enforce this discipline on countries who make money, because they have a low overhead, right? When you just come in and pay off the head of the country, your interaction with bureaucracy is fairly limited.

CAPT. SCHUBERT: I'm sure that's happening in some places, Mr. Chairman. The way I would suggest we proceed is we try to get this IMO/ILO partnership in place to get a positive verifiable biometric identification for all mariners. And meanwhile we are working with both the INS and the State Department to tighten the reins on mariners that come to the United States through our own national provisions. If we can get other countries to tighten up their systems, and then we cross check it, as we do today for mariners that come here today, and use the intelligence means available, those are the best ways of doing it. I think we may wind up, if it is not an international initiative, having to come with some sort of unilateral U.S. requirements that compliment our existing requirements to ensure a positive verifiable biometric identification, so that we can see exactly who is coming to our country. And that's about the best you can do, Mr. Chairman. I think that would be a lock on who is coming.

REP. HUNTER: Mr. Saxton.

REP. SAXTON: Thank you very much. Let me just ask one quick question, and I hope that you have as specific as possible an answer to it. Mr. Hunter and Mr. Taylor and I over the past several years have asked questions similar to this from time to time, because we know that in today's case of the Coast Guard and the Maritime administration is oftentimes stretched pretty thin. We have given particularly the Coast Guard, from my point of view at least, more jobs to do with less resources than any other agency I know of. But we ask the Navy and the Army and the Air Force and the Marine Corps this question, and it's a good question. And if you can give us some idea, because now is a good time -- what kind of resources do you need in order to enable you to do do what you need to do, what we expect you to do, what the American people expect you to do? I know you don't have enough resources. Can you give us some specific notion of what kind of an increase you need resource-wise?

CAPT. SCHUBERT: Sir, I can thank you for the support that the Congress has given us in the supplementals for this year, and the support that we expect over the coming years. It's going to take us time to build the capacity that we need in order to fulfill our domestic maritime homeland security role here.

I think that if we follow the augmented budget for '03 that we have submitted and the follow-on expectations to annualize that and add the capacity in '04 and '05, our commandant has put us on a three- to five-year growth plan to get to where we need to be to do exactly that, sir. I don't have the details of all of that sitting in front of me, but I know that we have well thought it out. We vetted it through the process. I don't know what any reorganization impact there might be on that, but I think we have well defined where we would like to be. And if -- I could only say that if you would continue your generous support for our requests that we would be where you want us to be, sir.

REP. SAXTON: So there. (Laughter.) Now let me use a Chairman Hunter trick. Tell us the three things you need most. (Laughter.)

CAPT. SCHUBERT: We need the capability to do better maritime domain awareness. And that's a large bag of things, sir. We are a member of the intelligence community. We are way behind in having our people in the field have access to classified information directly at their desks. And we need to continue along as part of our plan. That's probably the biggest slice. We need the resources to respond, both domestically and in the deepwater arena. We need smaller boats, more people, maritime safety and security teams, sea marshals to board and control vessels as they move into our boats. And then should we need to interdict offshore, we need the deepwater assets of our cutters, our aircraft, in order to perform that mission.

REP. SAXTON: Lockheed Martin just won a contract, or is in the process of being awarded a contract for the deepwater, so-called deepwater contract.

CAPT. SCHUBERT: Yes, sir.

REP. SAXTON: That's part -- Lockheed Martin is the electronics part of the effort to provide the assets that you need for the deepwater mission? Is that right?

CAPT. SCHUBERT: I think they're the systems integrator --

REP. SAXTON: Correct.

CAPT. SCHUBERT: -- contractor that is being responsive to our --

REP. SAXTON: And the deepwater project -- not just the Lockheed Martin part -- I probably shouldn't mention that -- the deepwater project, will that give you, once completed, the capabilities that you need offshore?

CAPT. SCHUBERT: If the entire package -- and that contract hasn't been awarded. There were three different organizations competing for it, and that bid hasn't been awarded y et, sir. But if we get all the assets over that time span of up to 20 years or 15 to 20 years -- I forget exactly what it is -- but all of those assets will put us in a position to defend our country offshore, yes, sir.

REP. SAXTON: I also saw some paper the other day where there is a proposal out for something like 150 40-foot boats for other purposes. Is that a different program? Obviously it is.

CAPT. SCHUBERT: Yes, sir. The deepwater contract -- again, it hasn't been run out to its conclusion yet -- has not been awarded, so I don't know who the winning company is. But the smaller boats are part of our maritime homeland security package, in order to provide more Coast Guard presence on the water, like Mr. Taylor used to do not too long ago. But we need additional Coast Guard presence on the water to protect our critical infrastructure. We have new maritime safety and security teams that are going to need those assets to surge to where the next threat might be. We can't afford to protect every port all the time 100 percent. So we have to use risk-based decision- making, and deploy them so that they can quickly go to where they are needed. And those small boats and assets, the chem-bio response type equipment, we have responded to those threats to our country as well. All of that has to be put on line over the next few years, and that I think is a part of what you are alluding to, sir.

REP. SAXTON: Well, obviously we are not your funding mechanism, but we can help. And so we want to do that.

CAPT. SCHUBERT: Thank you, sir.

REP. HUNTER: Thank you, Mr. Saxton. Let me run over a few questions here, Captain Schubert and Admiral Pluta that I think we need to get on the record. Captain Schubert, on page four of your testimony, you talk about the so-called effective U.S. controlled fleet, EUSC -- ships that are owned by U.S. citizens by fly another country's flag. Can you describe the arrangement that the U.S. has with these other countries that might allow us to requisition the ships in time of an emergency?

CAPT. SCHUBERT: Yes, sir, Mr. Chairman. The -- first of all, with regards to the EUSC, I would like to use this opportunity to, let's say, debunk a theory out there that some people have that these ships are really in our control. They are really not in our control. And many of these ships are not even military-useful ships, in my opinion. But there are approximately --

REP. HUNTER: So they can't be counted on to be part of our commercial sealift capability?

CAPT. SCHUBERT: I think it would be very dubious to say the least to look at -- we estimate there's approximately 462 vessels that are flag of convenience, and another 63 other ships. But we have looked at this, especially over the last six months in view of maybe some potential requirements we might have. In our agency's opinion, we should not look at the EUSC as a strategic sealift in this day and age.

REP. HUNTER: Okay. That kind of leads to the next question, maritime security program. Your testimony suggests that reauthorization of that program is critical. What happens if we don't do that?

CAPT. SCHUBERT: Well, if we don't reauthorize the -- in 1995 the MSP program, in my opinion, we will not have a presence in -- any measurable presence at all in international trade, and that could be very devastating to both our national security interests that we have, the military requirements. Another impact would be that the military may have to replicate the same -- it's not just the ships, it's the whole intermodal network that they get with the ships through the MSP program. They get the trailers, they get the containers, special equipment. If they had to replicate that, sir, it would be another -- at least another nine to twelve billion dollars that the taxpayers would have to pay out.

REP. HUNTER: Okay. You once did a study on foreign flag vessel crewing. What's the relationship between the flag of the vessel and the crew nationality? Is there any relationship to the flag of the ship?

CAPT. SCHUBERT: We -- yes, we have done a study on that, and there really is very little relationship to the actual flag of the vessel. And I have some examples here I was going to give you, if you give me one second. Here we go. For example, the Panamanian flag, which is the largest flag of convenience -- Philippines is the largest -- is the primary crew nationalities from the Philippines. For the Liberian flag, the largest single nationality for crew is China. Cyprus it's India. The Bahamian flag is Russia. In Greece their largest crew nationality is from Ukraine. And this is from a study that we did in 2000, based on 1998 data.

I would like to also mention that I will be directing staff, especially after the implementation of STCW requirements, I think you are going to see a lot of other countries' crew members -- is going to change substantially. For example, I believe China and Russia will quickly overtake, if not completely overtake the Philippines eventually -- because of the STCW requirements.

REP. HUNTER: Okay. You've talked, and a number of us have talked about reexamining tax laws to encourage ship owners to return to the U.S. flag. First, in light of y our question -- your answer to the last -- the question that preceded this last one -- what do you see as advantages if we could induce companies, especially American companies like some of the ones I read off that are presently flag Liberian, to return to the U.S. flag? What are the general benefits of doing that?

CAPT. SCHUBERT: Coming to the U.S. flag?

REP. HUNTER: Yeah.

CAPT. SCHUBERT: Well, currently, we -- you know, I want to reflect back to the MSP, for example. We -- that is a retainer pay of $2.1 million per vessel currently under the current program. I want to emphasize that that does not completely offset the cost of U.S. and foreign flag, on just a pure cost basis. So that's an issue there.

REP. HUNTER: Well, let me ask you in light of that -- and not to digress -- what is the motivation then for companies to be in that program if they are not breaking even, as you say? You're saying that the payment that we are giving them isn't making up for the added cost --

CAPT. SCHUBERT: It does not --

REP. HUNTER: -- of flagging American, if you will?

CAPT. SCHUBERT: It does not pay the dollar cost -- completely offset the dollar cost compared to, for example, a flag of convenience vessel, no, sir. The incentives are -- I would say a lot depends on how much cargo preference we have -- that is the set aside cargos that the military and other programs -- government-impelled cargo.

REP. HUNTER: So what you are saying is you get -- there are several advantages of flying American. One is you can be MSP. You can also have some cargo preference?

CAPT. SCHUBERT: That's correct. And that's very critical --

REP. HUNTER: So in bits and pieces you may pick up enough benefits to offset the additional costs?

CAPT. SCHUBERT: That's correct.

REP. HUNTER: Okay.

CAPT. SCHUBERT: But I wanted to make a point that even if there was cost parity between U.S. and a foreign-operated vessel under flag of convenience, even if there was a cost parity somehow, that there is still a pretty significant tax disadvantage.

REP. HUNTER: Okay, and that's because the company that flags American is an American corporate citizen --

CAPT. SCHUBERT: That's correct.

REP. HUNTER: -- by dint of their flagging American, and therefore subject to corporate tax laws -- is that right? I mean, you're paying --

CAPT. SCHUBERT: That's correct.

REP. HUNTER: -- income tax, you're paying corporate taxes.

CAPT. SCHUBERT: You're paying corporate taxes.

REP. HUNTER: If you flag Liberian you are only paying Charles Taylor, right?

CAPT. SCHUBERT: Whatever that is, correct. But it is certainly not equivalent to what the IRS collects.

REP. HUNTER: Okay. Then what do you -- generally, what are the advantages from your perspective of inducing -- if we could put together a program that would induce a number of our American companies to flag American? What benefits would we receive as a country?

CAPT. SCHUBERT: Okay, well the benefits are -- and it's very germane to the purpose of this hearing, is I believe the more U.S.- flag vessels with U.S. crews on board, it does add to our security. It's simply -- because we -- as the admiral said, we have very good control over our -- how we license and document and train our mariners.

REP. HUNTER: If you have got Americans on the ships, it's a lot easier to know that when somebody says John Doe from Iowa, you can probably verify that.

CAPT. SCHUBERT: That's correct. And --

REP. HUNTER: But now explain to me again the relationship between the flagging and the crewing. Didn't you say at one point that your studies have shown there isn't a big relationship between flagging and crewing.

CAPT. SCHUBERT: Under the --

REP. HUNTER: So let's say we induced a number of companies that are now flagging Liberian to flag American. Would that mean that they necessarily would take on American crews?

CAPT. SCHUBERT: Yes, they would have to take on American crews.

REP. HUNTER: So if you flag U.S., you have got to take on a U.S. crew?

CAPT. SCHUBERT: Yes, sir.

REP. HUNTER: Okay, what is a -- if we totally undid, if you would, the corporate taxes, and we tried to -- we took a scale, for example, that took the flags of convenience and arrayed them and said we are going to put -- we are going to have a little commission that puts together what we call a flagging fee that maybe is somewhere in the middle of these, and that's going to be what you pay, and it's very ascertainable, predictable, and it's a flat fee. Do you think that would bring some of these companies, especially American companies, back to our flag?

CAPT. SCHUBERT: I would suggest that if we use the models that primarily the Europeans have used recently, and the successes that they've had -- and we look at what's worked and what hasn't worked -- I think it would make a big difference in decisions to re-flag, do the U.S. flag. What's commonly referred -- the European model would be what's commonly referred to as a tonnage tax or a flat tax in lieu of an income tax.

REP. HUNTER: And so the Europeans use the tonnage tax, if you will?

CAPT. SCHUBERT: Yes. I can rattle off a whole list of them here for you, Mr. Chairman -- Denmark, Germany, Greece, Ireland, Netherlands, Norway, Pakistan, Spain and the United Kingdom.

REP. HUNTER: Okay. Well, let's take one of these big companies that's presently flagging with Charles Taylor -- let's say Dole company. I presume the pineapples, not the senator. (Laughter.) You've got -- what incentive, if he is looking at his costs that he's going to incur if he flags American -- he's going to have -- at least at this point will have corporate taxes, right, on that particular subsidiary or company that's doing that shipping. He'll also have operating costs, because he'll have to take on an American crew, right? So he'll have increased operating costs. If you're looking at this as a shipper, what is your biggest cost? Is it the corporate taxes, the flagging fee, or is it the operating cost?

CAPT. SCHUBERT: Well, the flagging fee is relatively small, and --

REP. HUNTER: Just what it incurs or embodies that makes it difficult for you?

CAPT. SCHUBERT: Correct. The flagging fees. But then we are talking about the issue of meeting U.S. Coast Guard requirements which may be in some cases more strict than the international standards. I will say the Coast Guard has been very cooperative in recent years through the MSP program, for example, if a ship meets international standards, basically from a legitimate classification society then the Coast Guard has been -- has worked with MARAD on that issue, and the same recently for tankers. But the incentives -- I wanted to give you just a brief example of an exercise we did. If a vessel earned, for example, $2 million in a good year in a profit, and were taxed at a 40 percent tax rate, that would be about $800,000 in taxes that they would have to pay. If we use the -- we looked at the U.K.'s, the United Kingdom's tonnage tax regime and we did a similar calculation of what they would pay under that system, and it would be somewhere between 16 and 17 thousand dollars. So there's a big incentive.

REP. HUNTER: Okay.

CAPT. SCHUBERT: Does that answer your question?

REP. HUNTER: Well, it answer at least -- it tells me why they are not -- one reason why they're not flagging American, obviously. But the question becomes if we change that from an American -- from one of these companies that we rattled off -- Exxon, Mobil, Conoco, Dole -- you think they would be -- what would be the benefit of now flagging American? In other words, if we shown them -- Okay, we say, Come back, we are not going to hit you with a giant $800,000 tax any more -- would they still say, Yeah, but we are going to have this increased operator cost -- right? Because we are going to have to crew American. I am just trying to get a realistic appraisal of whether you think we can bring them back?

CAPT. SCHUBERT: I think it would make a difference, yes, sir, it would. And it's made -- if you want to use the --

REP. HUNTER: Okay, when they're sitting in the boardroom, trying to figure out whether they are going to flag American, what would they consider? If you were the guy who was supposed to present the benefits of now flagging American, and you were in the boardroom of one of these companies, what would you throw out? What would you say are the benefits for us to now flag American? Assuming that you are not now going to pay this prohibitive corporate tax rate.

REP. TAYLOR: Mr. Chairman?

REP. HUNTER: Yes.

REP. TAYLOR: Can I ask a question to that point? Believe me, I am in total agreement with you, Mr. Chairman, but it does go beyond that. And I don't know if the captain is in a hurry to get out of here, or maybe some of these things he's just failing to mention. Number one, if the American vessel -- help me out here, commander -- admiral -- geez, please --

ADM. PLUTA: You can call me whatever you want, sir. (Laughter.)

REP. TAYLOR: As a former E1, you guys still scare me. So -- (laughter) -- believe you have got to be, if you are a U.S. vessel, you have to be hauled every year and inspected by the Coast Guard, is that correct?

ADM. PLUTA: Yes, sir.

REP. TAYLOR: A foreign-flagged vessel, you can buy a certificate. All right -- probably buy it over the Internet, that you have been inspected, put it up, so you save that money. And, again, this is why I find the cruises to nowhere so particularly unfair. If you're an American vessel, you are going to pay at least the minimum wage, and let's face it, the guys that Charlie back there represents do a heck of a lot better than that. You're foreign flagged, you don't even have to pay minimum wage.

ADM. PLUTA: No.

REP. TAYLOR: And the truth be known, on the cruises that so many of us take, the crews live in virtual slavery. They work for their meals and about four hundred bucks a month. And where they come from that's big money. So you are competing with that. You can get your officers a heck of a lot cheaper. Foreign-flagged officer, probably if he's well paid makes $45,000 a year. The kid that I sent to the Merchant Marine Academy the first year out of college is making 60, 70 thousand dollars working six months. So there are a lot of things. And, unfortunately, what really troubles me, and I am sure it troubles you, is the simple unfairness that the guys who break all these American rules have the benefit of the Coast Guard sitting there 24 hours a day at their beck and call -- have the benefit of the local police department, have the benefit of the local fire department, have the benefit of the Corps of Engineers dredging that channel for them, just like they're living by the rules. Have the Navy SEALS, should their ship be hijacked -- they don't care where they are, they know if they have got one American passenger on board, they know the United States Navy SEALS are going to come bail them out. And I think that's the part that's particularly unfair, because the American taxpayer bears the cost, the American kids who are performing those duties. And so it's really two things.

I think we have been negligent, as a whole, Congress, in letting those guys have those privileges without paying the costs. And until we start closing some loopholes, like the cruises to nowhere, they are going to continue to take advantage of us.

REP. HUNTER: But, seen, Gene, that's -- my point is you are right, there's a lot of unfair aspects -- a lot of disparities in treatment. What I am trying to ascertain is if you want to -- some of those disparities -- is the guy in the boardroom still going to say, and we still have the operator cost, we still have the sub-minimum wage we're paying the foreign flag, we're paying the foreign crew, we still are not subject to the scrutiny of the Coast Guard on these checkups that you got to do each year -- and so therefore I don't care as a corporate officer whether or not they change the corporate tax to a tonnage fee -- we are still not going to flag American. I mean, I am trying to figure out if they are going to make that call. So what I was trying to elicit was if you gentlemen had any other advantages that you think will be considered by corporate America should we in fact change the tax disparity -- what reasons would they want to flag American? I thought I would just -- patriotism and liking our country.

CAPT. SCHUBERT: Well, the -- I'd like to use the example just recently. We had two ships flagging to the U.S. flag -- one was a heavy-lift ship, which we haven't had one in, I don't know, 20 or 30 years ag least -- operating in commercial -- they are not receiving any MSP. And we also have a tanker application to reflag for the foreign trade now. We are talking for the foreign trade -- not a Jones Act issue. And there are -- you know, we have -- there are benefits to some of our bilateral trade agreements that we have on maritime agreements -- and Brazil is an example.

REP. HUNTER: So there are a few niches that you could fit into?

CAPT. SCHUBERT: Yes, there's niches out there. I wanted to also point out that the European models that we are looking at on tonnage tax weren't just tonnage tax. Some of them combine tonnage tax -- that's the flat tax that I mentioned earlier -- with other provisions through the tax code that help the seamen. For example, if they work offshore for a certain number of months for the year, they don't pay any income tax. So there's sort of equilibrium or agreements between the ship owner and the crew that maybe that will help lower some costs. But the crew members have received some of the benefits of this initiative. It's also that crew side of the tax code also addresses another serious problem we have in the United States, which is retention of crew members that want to go to sea. You know, that's an issue that I am sure you will hear about. But if you take a look at the successes in the Netherlands, who implemented the tonnage tax, their tonnage increased by 40 percent between 1996 and 1998; Norway's increased --

REP. HUNTER: And they have pretty good wages, don't they, for their -- Norway?

CAPT. SCHUBERT: Yes, I would say that they are not --- they are not paying the -- they are not the ships of shame anyway that we've heard about where the crews don't get paid -- you know, get paid very low if any wages. So these are good examples of -- the United Kingdom from July 2000 and 2001, their tonnage increased by 40 percent.

REP. HUNTER: Okay.

REP. TAYLOR: Mr. Chairman, if I may?

REP. HUNTER: Yes, go ahead.

REP. TAYLOR: To the point we represent amazingly similar districts, isn't one of the factors that in order to be U.S. flagged, it's got to be U.S. built, and it costs more money to build in Pascagoula or Southern California than it does in Bangladesh. It's just a simple fact. We have environmental rules. We have federal wage laws. And one of the things that they skirt by foreign flagging is the U.S. built requirement.

But sadly, Mr. Chairman, you know, to a certain extent, Congress has been a factor in that as well, because we have granted Jones Act waivers way too often to foreign-built vessels, you know, that turn around an engage in the American trade against -- again, competing against all the guys who live by the rules and pay all the costs in there.

So, I want to commend you on your line of questioning, and Captain and ADM., I would -- I would ask, and all I can do is ask, that you would provide us a list of the loopholes that need to be closed, in addition to the (facts ?) type questions that the chairman was asking you, and let's come up with a checklist of what we have to do, as a nation -- or at least try to do, convince our colleagues to do, to resolve this problem of people -- with all the foreign flag vessels with cruises to no where --

REP. HUNTER: Yeah, that would be good if we had that list. You might -- you could title it the list of -- list of perceived advantages by other -- for flagging foreign, right? And if you want -- if you don't want to call it loopholes, or if you want to call it loopholes, call it loopholes, but if we could get that, that would be great.

REP. TAYLOR: But I share your common goal of rebuilding the American fleet. The great nations -- the great nations of the world have always been great maritime powers, and I don't see how we can remain a great nation if we're not a maritime power.

REP. HUNTER: Now, we're not receiving much income right now from flagging of vessels anyway, are we? And we have a fairly small contingency of American flagged vessels? Have we got any estimate of the government revenues that flow from that?

CAPT. SCHUBERT: From --

REP. HUNTER: In other words -- the argument is going to be made, if we try to get a tax change, we're going to get a scoring evaluation that will say that here is the amount of tax money that the treasury is losing by knocking down that $800,000 a year you spoke of to maybe the $15,000 or $20,000 in tonnage tax.

CAPT. SCHUBERT: That was just an example.

REP. HUNTER: Yeah, but I mean that's going to be -- they'll look at that type of thing. In your estimation, is there -- is there much, in light of the fairly small membership of American flag ships, is there much in revenues to be lost if we -- if we in fact go to some kind of a flat fee or a tonnage tax fee?

CAPT. SCHUBERT: Well, one of the things about the flat tax regimes that are out there is you pay them whether you make money or you lose money. And you have to -- unfortunately, there are years when carriers aren't making any money. So, this is a rather -- would be a pretty complex, detailed evaluation that we'd have to meet, so I would -- I would really need to take a --

REP. HUNTER: Well, maybe we can let the tax people look at that if we put this initiative before them. But I think it makes sense, if this is an international competition, it makes sense for us to place ourselves squarely in the middle of that competition. And if they're doing the -- if they're doing a flat tax, or a tonnage tax, that's a fraction of what some of our operators would pay, I think we ought to adopt that --

CAPT. SCHUBERT: I'd -- I'd like to just point out one other issue regarding the seamen wages. The -- if you work for Brown & Root or -- or I don't want to mention any company names here, if but if you work for a U.S. construction company overseas and you're working over six months, you do get a certain exemption already for how much -- up to 80,000 -- your first $80,000, I think is exempt from taxation. The U.S. crew -- our crew members on the U.S. flag vessels that are working six months or longer do not get the same privilege under the current law.

REP. HUNTER: Okay. Well, gentlemen, thank you very much. And Admiral Pluta, did you have anything to add that you wanted to --

RADM. PLUTA: Mr. Chairman, just in comment to the Coast Guard rules, and their impact on the costs, I thought it might be worth mentioning that we've been working very hard internationally to try to get the minimum Safety of Life at Sea standards up so that all ships -- there wouldn't be -- we would minimize the differential for whatever U.S. rules were over and above.

REP. HUNTER: Well, let me just ask you kind of a little tougher question here. It's nice to work internationally, but the security of this country shouldn't depend on getting an international consensus as to what we can or can't do as Americans when these ships enter our ports, and people who may wish us ill are -- comprise portions of the crews of the ships that enter our ports. So we have to do what it takes to protect ourselves. Are you confident that you're doing everything that is necessary to protect us in terms of homeland security from the maritime -- from the dangers of having terrorists enter this country, or ship stuff in, through maritime avenues? Do you think -- you think you're in control?

ADM. PLUTA: Mr. Chairman, I think, given the size and the capability of the Coast Guard, and our partners, to focus on this threat under the current circumstances, we can't do everything that we would like to be doing today. And so we're using risk-based decision- making techniques to apply our limited resources to the biggest threats at hand. And over time, Mr. Chairman, I think --

REP. HUNTER: Well, then you think --

RADM. PLUTA: -- we'll get to the point where we can, but we're not there today.

REP. HUNTER: You think we're taking big risks right now?

RADM. PLUTA: I didn't say that, Mr. Chairman, but --

REP. HUNTER: Well, I'll tell you what, you've got to -- this is the only hearing we're going to have on this -- you've got to tell me like it is.

RADM. PLUTA: Mr. Chairman, we're -- we're using the risk-based decision techniques --

REP. HUNTER: I understand --

RADM. PLUTA: -- to find where our vulnerabilities are, and we're applying our resources to where those vulnerabilities are.

REP. HUNTER: Well, risk -- risk-based, we use that all over the place. And what risk-based implies is you're -- you're taking a chance because you don't have enough resources to cover all of the -- all the problems. Now, my question to you is, if you had to give a candid analysis of whether or not you feel confident that we have a reasonable level of security, understanding you don't have all the resources you want, do you think we're there? Or do you think we have major vulnerabilities in terms of port security?

RADM. PLUTA: Mr. Chairman, I think we are not where we want to be. We have a plan to get there. And -- and we are addressing all of the threats and vulnerabilities as they come along.

REP. HUNTER: Are you confident when people -- that you have a handle on the personnel --

RADM. PLUTA: On the seamen coming to the United States?

REP. HUNTER: Yeah. Are you confident you've got a handle on that -- that you have -- that you have a -- that you have a genuine -- an ability to validate the credentials of those people in a real way?

RADM. PLUTA: Not as good as we'd like to, Mr. Chairman, but given that the number of times that a vessel has -- has had a hit on it, and vessels have come to port where we have found things when we got on board, we have done -- and with our networking with INS, partnering with them in the field, we have put a good blanket on what's coming in our direction right now. But it needs to be better because we don't have the validity of the paperwork that you've been asking me about that we're trying to work internationally. The best we can do is demand it domestically right now.

REP. HUNTER: Okay. But so if somebody wanted to come -- if somebody who wanted to come in who is a terrorist, they could -- we've seen these publications that show how you can go down on the streets of Panama and buy credentials off the streets, and assuming that that person has a sufficiently phony name that he -- when you -- when you send it up to the intelligence agencies when it comes in on your 96- hour notice, it does -- it doesn't ring any bells, no red flags go up, that person can enter the country quite easily, right?

RADM. PLUTA: Mr. Chairman, we're working -- and again, this might be another one to delve deeper in a different forum, but we are working with the government of Panama on this issue, and there are special measures in place for that particular threat. We're definitely not nearly as good as we need to be --

REP. HUNTER: Okay.

RADM. PLUTA: -- but I think we're addressing the most vulnerable areas and the highest threats that are coming in our direction.

REP. HUNTER: Okay. And lastly, the cargo containers that are coming in, that's obviously under the aegis of the Customs department in terms of review of what is coming into our ports, right?

RADM. PLUTA: Well, it's a partnership, Mr. Chairman.

REP. HUNTER: Okay. But you folks don't do any of the non- invasive searching of cargo containers, do you?

RADM. PLUTA: Mr. Chairman, we're -- we're embarking on several demonstration projects in cooperation with many, including Customs, to do just that.

REP. HUNTER: Okay. Who buys the -- these big x-ray machines that survey the cargo containers?

RADM. PLUTA: That would be Customs, sir.

REP. HUNTER: Okay.

RADM. PLUTA: But we -- the Customs -- the U.S. Customs Service has been an integral member of our delegations as we go to IMO, and we've encouraged IMO to partner with the world customs organization so that we can solve that problem overseas. If the container with the dirty bomb arrives at the United States and runs through our x-ray machine, in my opinion it's too late. We need to do those kinds of things before it ever gets loaded on a ship coming to the United States. And so we've been working at IMO to make sure that the master has discretion to prevent cargoes that he doesn't know sufficient information about from being loaded on a ship bound for the United States.

REP. HUNTER: Well, don't a -- aren't a lot of cargoes that come into our country coming in from COSCO, from the China Ocean Shipping Corporation?

RADM. PLUTA: Yes sir.

REP. HUNTER: Well, that's -- that's, for practical purposes, controlled by Beijing, and that's, for practical purposes, the Chinese Merchant Marine.

RADM. PLUTA: Yes. Yes sir.

REP. HUNTER: And it's corporatized. How the heck are you going -- are you going to enforce a surveillance or a pre -- a pre-trip check on the Chinese government?

RADM. PLUTA: If we can get an international standard in place -- (inaudible) --

REP. HUNTER: Well, I mean, you know, we -- we were supposed to check the last 163 supercomputers we've sent them, and we've checked precisely -- we've been allowed to check precisely one out of one 18- month period. I mean, they don't let us check anything. We -- I like your discussion about these international groups, but I think you're -- I think those things are good for some small talk and some warm handshakes, and maybe some good food. You're not going to get any agreement to be able to do pre-checks on COSCO containers. You know, we've -- we've found those guys with missile components. We caught them with 2,000 machine guns being shipped into California. The captain claims that they -- that somebody must have put them on while he was at the Dairy Queen. (Laughter.) I mean, this is -- this the Chinese government. So why are you giving me this stuff about the international institutions that are going to regulate the Chinese? That's not realistic.

RADM. PLUTA: Mr. Chairman, I probably am being idealistic as I mention these things, but we -- we don't have the jurisdiction to go past the ships, so what I was describing to you was what's within our own jurisdiction to try to make sure that the masters of ships are on notice not to permit suspect cargoes from coming in our direction, and trying to put an international regime in place to have something because we have nothing today, sir. I know Customs is working on bilateral agreements with different countries. I know that the people who buy all this stuff -- the Wal-Marts and the Targets and the General Motors of the world -- have great influence over this, and so there is a container security working group that's a large inter- agency group with private input as well, trying to work on how do we get a grip on this complicated problem, Mr. Chairman.

REP. HUNTER: Okay. Mr. Taylor.

REP. TAYLOR: Admiral, I remain as concerned about someone either intentionally steering and hijacking a ship and using it as a weapon -- in fact, right now, much more so than an airplane -- I'm pleased to see the steps the FAA has taken. What percentage of the -- of the red flag vessels, the petroleum vessels, the chemical vessels that, say, transit the Port of New Orleans, what percentage of them would have a sea marshal on board now? I know you can't do every vessel, but particularly the benzenes, the styrenes, the gasolines, something that could hurt a lot of people.

RADM. PLUTA: Sir, we -- I can't -- I don't know exactly, but probably no more than 10 to 20 percent, something in that range -- 10 percent, maybe. I mean, we -- the guidance that we've given to our captains of the port is to -- we've given them classified guidance on which kinds of commodities are the highest risks. And so all of those are designated as high-interest vessels, and all of them are dealt with in a special way. The rest of the cargoes that may be very flammable, oils, those sorts of things, are not necessarily included in that group, and so there's a high percentage of those trafficking in the Gulf Coast that would not pop up to be given special treatment. But we -- we've -- that's why we look at the crew. That's why we look at the passengers that might be on board, because even commercial cargo vessels have passengers sometimes, and see whether or not -- from where it's been, from other information that we're collecting, that it causes us to identify it as a high-interest vessel anyway. We board all of those and we vet the crews, and we may very well leave sea marshals on board to make sure that nobody can use this vessel as a weapon. That's the rubric that we've been operating under, sir.

REP. TAYLOR: Given the extremely high-profile case of the American turned al Qaeda in Charleston, and knowing the very large port there and the number of bridges there, what additional steps is the Coast Guard taking to ensure maritime safety there? There's that guy is at the -- published reports -- at the Charleston Naval Station?

RADM. PLUTA: I'm not aware of any special steps. I'd be happy to get back with you --

REP. TAYLOR: Would you please?

RADM. PLUTA: -- on that, sir, but I really don't know whether we've taken any special steps. That would be a local determination or district determination that I may not be aware of.

REP. TAYLOR: I'm curious, and I'm taking a wait-and-see attitude on the president's proposal and Senator Lieberman's proposal to include the Coast Guard in this new agency of homeland defense. One of the things I would like to know is what input is the administration seeking from people like yourself, from the commandant, as to what additional assets and what additional hours does the Coast Guard need to adequately fulfill what I consider is a very strong need and a very obvious vulnerability. I think our waterside security at so many installations is lacking because you don't have the local police to help you out. It really does fall entirely to the Coast Guard, sir.

RADM. PLUTA: Well there are several -- in anticipation that there might be a reorganization, there are several transition teams. One to identify overarching issues and there is a special one dealing with legislative authorities. Both of those I know are actively working to identify those kinds of things should we transition to a different organization. Does that answer your question, sir?

REP. TAYLOR: Well, could I -- hopefully the administration is asking for additional things you need. If that is their request, I would very much appreciate a copy of what you say you need in order to do your job better. And you can't -- let's face it, it has not happened, so you're batting a thousand where we have zero-tolerance constituencies, you know -- we better -- we can't fail, and particularly when the stakes are as high as someone crashing a styrene tanker into the river walk in New Orleans, Super Bowl weekend, Mardi Gras weekend, taking out the Golden Gate Bridge. There's so many horrible scenarios that you all have an extremely tough job. And as the chairman says, let us know the things that you need to make this happen. And if the administration is not asking that question, then it becomes our job to ask that question. And I hope you won't be shy about it.

RADM. PLUTA: Thank you, sir. We definitely are trying not to be shy in what we need, and following the process to get there. And as I said, you've been very generous and the administration has been very supportive and it's just going to take us time to get where we need to be because we just can't -- we can't fill our forces with experienced people overnight. It's going to take time.

REP. TAYLOR: Thank you, Mr. Chairman.

REP. HUNTER: Okay. Thank you, Mr. Taylor. And gentlemen, thank you very much for your testimony, for your patience, and we look forward to working with you.

END

LOAD-DATE: June 14, 2002