Mr. President, in 1997 Congress, as noted by my colleague from Arizona, enacted the U.S.-Flag Cruise Ship Pilot Project in an attempt to ``jump start'' the redevelopment of a U.S.-flag cruise industry. As some of our colleagues know, the…
Mr. President, in 1997 Congress, as noted by my colleague from Arizona, enacted the U.S.-Flag Cruise Ship Pilot Project in an attempt to ``jump start'' the redevelopment of a U.S.-flag cruise industry. As some of our colleagues know, the large oceangoing cruise ships, so familiar in Miami and other United States ports, all operate under foreign flag. This may be a startling fact when one considers that after the Second World War, U.S. flag ships carried some 80 percent of the world's ocean borne cargo and most of America's seagoing passengers. Today, in stark contrast, less than 4 percent of all the world's international cargo moves on ships flying the U.S. flag, and not a single large oceangoing passenger cruise ship in the world operates under U.S. registry.
The enactment of what has become known as the ``Project America'' legislation more than 5 years ago was intended to reestablish a U.S.- flag cruise ship industry. The benefits of creating a U.S.-flag cruise ship industry have long been obvious. Such an industry would maintain America's preparedness for a national emergency by developing a pool of qualified seafarers, help sustain a fleet of U.S.-flag vessels to support our military vessels and a maritime industrial base for times of national emergency, create tens of thousands of seagoing and shoreside American jobs, and stimulate the development of a U.S.-flag cruise ship tourism business with commensurate benefits to the U.S. tax base, the U.S. economy, and U.S. employment.
These were among the guiding principles and objectives of our legislative efforts to restore a U.S.-flag cruise ship industry through the Project America legislation in 1997. Under the terms of that legislation, the re-flagging of one foreign-flag cruise ship was permitted contingent on the operator contracting for construction of two new U.S.-built cruise ships--the first such vessels to be built in the U.S. in more than 40 years.
The project, while proceeding with considerable difficulty, including delays and increased costs in construction, ultimately became a victim of the September 11 attack on our Nation. The terrorist attacks dramatically impacted the U.S. economy, and caused financial difficulties for the entire travel industry. In fact, passenger bookings for American Classic Voyages Co.--AMCV--the company that undertook Project America, decreased by as much as 50 percent, and cancellations of bookings increased by as much as 30 percent in the weeks after the attacks. Ultimately, as a result, AMCV filed for bankruptcy, and construction on the two Project America ships was halted. The re-flagged vessel, the m/v Patriot, was transferred out of U.S. registry.
As a result of these events, thousands of seagoing and shoreside jobs were lost including more than 1,000 crewmembers and cruise ship service providers. Passengers experienced disruptions and lost fares. Yet, the U.S. government paid $185 million on a Title XI shipbuilding loan guarantee for the two cruise ships under construction at Northrop Grumman Ingalls Shipbuilding--
Ingalls--in Mississippi. Project America came to an abrupt halt.
At the time the Senate considered the Project America legislation, there were concerns, and in some cases opposition, expressed about Federal funds being spent for the construction of these ships and a proposed preference in market access for AMCV to serve the coastwise trade among the islands that comprise my State. But no one--not one member of the Senate--voiced an objection to the goal of further developing a U.S. flag cruise industry that would ultimately provide thousands of seafarer and shoreside jobs for Americans. Those jobs, along with the development of a qualified pool of seafarers that this country could rely upon in times of national emergency, should not become the permanent victims of the terrorist attacks. As our Nation restores the buildings and facilities that bore the brunt of that attack, we must also assist in the recovery of economic causalities. Since the demise of Project America, I have searched for a solution that would permit most of the objectives of the original legislation to be accomplished, but without any further expenditure of Federal funds, without any Federal loan guarantees, and without the need for the market preference in the 1997 law.
Last year, the U.S. Maritime Administration and Ingalls put the partially constructed Project America ships up for sale. While the sale was open to any offeror, Norwegian Cruise Line--NCL--the longest established of the U.S.-based cruise lines, placed a bid on the Project America ships that far exceeded all others. After NCL committed to acquiring the hulls, I met with company officials to discuss the possibility of completing Project America in a way that would achieve most of the main objectives of the original legislation without any further expenditure of Federal resources or any Federal loan guarantees. It is my hope that over time the United States will reap the benefits of its investment.
In the course of those discussions, completing the vessels at Ingalls did not seem possible. NCL asked Ingalls to bid on completing the vessels in Mississippi; however, the yard did not bid because it was preparing to build new ships for the U.S. Navy. Unfortunately, NCL's only option was to complete the ships elsewhere. In the meantime however, more than 250 workers in Mississippi worked on the partially completed hull over the summer to make it seaworthy for towing overseas for completion in another shipyard. It has become apparent that further legislation is necessary to reestablish the project to achieve most of the Project America goals, and to respond to concerns expressed by my colleagues about the original legislation.
Therefore, this provision in the Omnibus Appropriations bill will amend the original Project America authority. This provision, like the original Pilot Project, will apply only to cruise ships operating in regular Hawaii service. It was done that way because other areas did not want to have this competition. My provision would allow for the completion of the first hull, with an option to complete the second hull, from the material acquired in conjunction with the Project America ships that were under construction at Ingalls. Either or both of these ships may be completed in a non-U.S. shipyard experienced in cruise ship construction for operation under the U.S. flag in regular coastwise service. These new U.S.-flagged cruise ships will be required to operate with American crews, be subject to all U.S. laws, including tax, labor and environmental laws, and be owned by a U.S. corporation with United States citizens serving as chief executive officer and chairman of the board of directors, and with U.S. citizens controlling the board. Like the original Project America legislation, this bill permits increased foreign equity involvement in the enterprise. While under this new provision, the ultimate beneficial owner need not be a U.S. citizen, the requirement that the vessels be owned by an American company ensures that the ships' operations will be subject to all U.S. laws and that the vessel assets of the U.S. company will be available to our Nation in times of national emergency.
Consistent with the original Project America legislation, the U.S. corporate owner would have the right to reflag a modern foreign-built vessel under U.S. flag for operation in the coastwise trade to facilitate a cost-effective and timely transition to U.S. registry. Like the newly built ships, the reflagged vessel must have a U.S. crew and be subject to all U.S. laws. Before operating under U.S. registry, however, two conditions must be met. First, the reflagged vessel must undergo a complete inspection to ensure compliance with all relevant Federal safety and public health laws of the United States that are applicable to U.S.-flagged cruise ships. Further, any refurbishing or remodeling that may be necessary to assure compliance with these Federal laws must occur in a United States shipyard. Second, the reflagged vessel may commence operating only after the first Project America ship enters service. The U.S. Maritime Administration will be charged with overseeing the implementation of this bill, but reimbursement for costs associated with this oversight shall be obtained from those who operate cruise ships under this new authority.
The result of this provision would be the introduction of multiple modern U.S.-flagged cruise ships in regular Hawaii service. The ships would employ as many as 3,000 U.S. seamen, and all would be subject to U.S. labor, tax, and environmental laws, unlike the major foreign cruise lines. In short, these proposed changes to the original Project America legislation will still allow many of the original principles and objectives to be achieved, without additional cost to the American taxpayer.
While the legislation is limited to Hawaii, at the request of other areas, the benefits go far beyond the shores of my home State. In addition to the thousands of jobs and hundreds of millions of dollars in economic activity generated nationwide, this provision will strengthen our U.S. Merchant Marine. The ships operating under U.S.- flag will be assets available to the Department of Defense in time of national emergency, and these U.S.-flagged cruise ship operations will significantly expand our pool of qualified seafarers that man civilian- crewed military ships such as the Ready Reserve Fleet, a fleet of 76 U.S. Government-owned ships used to meet surge sealift.
The Department of Defense relies heavily on U.S. mariners to crew a large number of non-combatant vessels to deliver a wide range of supplies to United States and allied forces around the globe. In fact, as much as 95 percent of the military's fuel, food, munitions, and spare parts would move by these ships in the event of a major war.
The media have chronicled the concerns of our Nation's military and maritime officials about the Nation's ability to crew these non- combatant ships because of shortages in the numbers of civilian American seafarers. Most recently, in Defense Week, VADM David Brewer, Commander of Military Sealift Command, expressed ``concern'' that the lack of qualified seafarers might ``strain'' activation of the Ready Reserve Fleet.
CAPT Bill Schubert, Administrator of the Maritime Administration, the agency charged with ensuring a viable Ready Reserve Fleet, has been even more blunt in his assessment of the circumstances last year in a Baltimore Sun article entitled, ``Shipping Crew Deficit Called Wartime Risk,'' where he said:
This is a very serious issue that needs to be addressed
now--today . . . I'm not comfortable right now that we have
the ability to respond to an emergency.
Mr. President, I ask unanimous consent that a copy of the Defense Week and Baltimore Sun articles be printed in the Record at the conclusion of my statement.
Mr. President, I think we should remind ourselves that not too long ago there was a war we have referred to as the Yom Kippur war that was fought in the Middle East. It was a war that involved the Republic of Egypt and the State of Israel.
On Yom Kippur Day, a day of very holy significance in Israel, Egyptian troops went across the river, got into the Sinai, and were on the verge of successfully carrying out the military mission. We received frantic calls from Israel to resupply their troops, because their troops had a 90-day amount of
ammo, but because of the intensity of the combat, over half of that had already been used.
We, therefore, called upon every American and American company that owned ships on the high seas but under foreign registry. There are hundreds upon hundreds of vessels owned by Americans or American companies that are registered in Panama, Liberia, or in someplace out in the Pacific in the trust territories. They do not pay taxes. They do not hire American crews. But we felt that because they were Americans, they might come to our aid. We wanted ships to carry these military goods to help the Israelis.
When the word reached them that the Saudis would look upon this as an unfriendly act, the response from our fellow Americans, to help Americans provide help to their allies, the Israelis, was absolutely zero. Not one ship responded. History shows, as a result, we had to carry out cargo on C-5 aircraft, huge aircraft. Two of them were buzzed by Egyptian fighters. Every time I think of this, I shudder, because if any one of them had been shot down, the question arises, would we have been involved? In all likelihood, we would have been.
Therefore, the fact that after the end of World War II we carried 80 percent of all the cargo, and today less than 4 percent, should be of concern to all of us.
What if the war many are suggesting might happen does happen and it becomes not a minor war but a major war? Do we have the vessels to carry necessary troops and equipment abroad? I believe that is a good question we should ask ourselves.
I do not suggest the Project America provision solves this problem. However, virtually every person engaged in the debate over seafarer readiness would agree that a primary way to address the problem is to promote a viable U.S.-flag fleet. My provision does just that.
With international tensions rising, I believe we must do all we can to support the Nation's military readiness. My legislation would do that by creating desperately needed American seafaring jobs that will support a military sealift.
To summarize, let me be clear what this section does. First, no Federal funds may be used to complete the Project America hulls. No Federal loan guarantees may be issued by the U.S. Government to perform work on these ships. The preference in the original Project America law that was criticized as limiting competition among the islands of the State of Hawaii does not apply to these ships. At this moment, if any American company wishes to build a ship in the United States and carry on the business in Hawaii or, for that matter, in any other port of the United States, that company may do so. Or if that company has a foreign flag vessel and believes that vessel should be reflagged to an American flag and would come before us, as we have in the past, it we may do so. This does not close that door. It just gives it a jump start.
We need something to be done. As I pointed out, Federal safety and health inspections on the proposed reflagged vessel must occur in the United States shipyard, not abroad. All future maintenance on these cruise ships and any repairs needed in order to register the vessel in the U.S. must occur in our shipyards. The U.S. Coast Guard safety regulations will govern ship operations, and U.S. mariners operating the vessel will be subject to Coast Guard licensing. The U.S. Maritime Administration will oversee the implementation of this legislation and recapture that cost from the cruise line operators.
I want to stress to my colleagues and those in the maritime industry that this provision will not adversely impact the Jones Act cargo trades where the fleet is vibrant and growing. It is strictly limited to the large oceangoing cruise ships and then only those operating in the regular Hawaii service where there are no U.S.-flag operations.
I would also like to stress I continue to support U.S. domestic shipping requirements that mandate U.S.-built, operated, and crewed vessels. I recognize that in certain circumstances, some degree of relaxation of these requirements may be necessary to stimulate growth in the United States maritime industrial base. While this particular provision is intended to fulfill the completion of Project America, and promote the use of large U.S.-flag passenger vessels in Hawaii, I have supported legislation that will provide similar flexibility for large passenger vessels throughout the United States. This legislation was introduced by my distinguished colleague from Arizona. I will continue to support such proposals that are crafted to strengthen our U.S. maritime industrial base.
However, I feel we need to move forward expeditiously with this proposal to ensure we can realize some of the benefits of the original Project America legislation. Planning requirements and operational changes necessary to complete this project to allow for the use as a U.S.-flag vessel must be made shortly or the vessels will be completed for use under a flag of convenience or foreign flag.
Yes, some $185 million in Federal funds have already been invested in this project as a result of the Maritime Administration loan guarantees that were called upon when AMCV went bankrupt. A U.S.-based cruise company has taken the risk of purchasing the hull and related materials from Project America with no assurance that legislation could be enacted to obtain coastwise privileges.
Instead of simply building the ships overseas for operation under a foreign flag with foreign crews or seeking product exemptions to the Passenger Vessel Services Act to operate these ships, NCL has stepped to the plate and is willing to hire American crews, be subject to American laws, and achieve some of the original benefits of Project America.
I will be the first to admit that the original Project America failed. There is no U.S.-built cruise ship ready for delivery on January 23, 2003, which was supposed to have been the delivery date of the first Project America ship. There is no work proceeding on a second U.S.-built cruise vessel, and the Federal Government is out $185 million for the title XI loan guarantee. While the economic downturn resulting from September 11 was the final nail in the lid of the Project America coffin, the troubles, as noted by my colleague from Arizona, began well before that catastrophic event.
No one will dispute that U.S. shipyards are inexperienced in constructing large oceangoing cruise ships. We recognized this and, through the original Project America, provided the incentive necessary for an $880 million fixed price contract to build modern state-of-the- art cruise ships in the United States.
Throughout the process, the shipyard experienced significant problems in construction of ships. For example, within the first year of construction, the yard was experiencing a projected delay in delivery of approximately 1 year and an escalation in the price of outfitting the interior of the ship by as much as $76 million. Eventually a negotiated settlement was reached, extending the delivery dates, increasing the price, and requiring additional project equity.
After the vessel owner's bankruptcy brought the work on Project America to a halt, the partially completed vessels were auctioned. The successful bidder, NCL, offered the Ingalls shipyard an opportunity to bid for completing the vessels, but Ingalls declined. The yard handled predominantly military construction and was not interested in completing the vessels. Instead, the yard retooled its operation to handle an increased order book for Navy ships.
U.S. shipyards predominantly build Navy ships. Based on past experience, the Government is more willing than the private sector to absorb increases in the price tag or delays in delivery of the vessel. A commercial company requires more stringent pricing and schedule discipline to ensure that projects are economical.
With Project America, that discipline did not exist, and the shipyard opted to concentrate its efforts on government contracts. Other shipyards were in the same situation, with orderbooks filled with government vessels.
I remain committed to our U.S. shipyards and believe they have an important role to play in the future of the U.S. cruise ship industry. My provision will give shipyards additional business that they may not otherwise get--any conversion work necessary for certification of the new cruise ships, and any
future non-warranty repairs and maintenance must be done in U.S. shipyards.
If Section 211 is not adopted, the Federal Government will lose all future benefits from its $185 million investment. My provision gives America another opportunity to jump-start a U.S.-flag cruise industry that will bring the Government a return on its investment.
NCL is the only cruise line willing to step up to the plate today and commit to a U.S.-flag, U.S. crewed operation.
We can choose to write off the Project America investment by not acting, and watching as these completed hulls are introduced into the booming U.S. cruise market under a foreign flag, with foreign crews, operated by foreign corporations without direct benefit to the U.S. economy or American workers.
But if we are to make good on any of that investment, we must act now to generate real and lasting economic benefit to our economy--and to restore pride in the fact that the Stars and Stripes will once again fly on modern oceangoing passenger cruise ships.
By taking action now on Project America, we will begin to recover the investment our nation has made in these hulls both through revenues to the U.S. Treasury in the form of individual income taxes, Federal and State corporate income and payroll taxes, and a broad range of other Federal and State taxes paid by the cruise industry--not to mention the broader benefits this legislation will bring to our military preparedness and to our sagging economy.
No further Federal funds are required, nor are Government financial guarantees permitted. This legislation simply allows for the completion of Project America and for this company to set a shining example as a proud employer of U.S. seafarers and as a proud operator of U.S. flag ships.
I urge my colleagues to support this effort so that we can revive our U.S.-flag cruise industry, increase our military preparedness, stimulate the economy, and create thousands of good jobs for Americans.
Exhibit No. 1
[From Defense Week, Nov. 12, 2002]
Force Protection Is Top Concern for Sealift Commander
(By Nathan Hodge)
Protecting vulnerable cargo ships has become the main worry
for the three-star admiral in charge of the fleet that is
moving weapons and materiel in support of a U.S. military
buildup in the Middle East.
In an interview with Defense Week, Vice Adm. David Brewer,
commander of Military Sealift Command (MSC), said that force
protection is MSC's ``No. 1 priority.''
At some point, that could possibly mean embarking armed
guards aboard foreign-flagged ships that move sensitive U.S.
military cargo. Asked if that was the case, he simply said,
``We're still working that issue,'' and declined to
elaborate. MSC operates a fleet of 120 noncombatant ships to
deliver a wide range of supplies to U.S. and allied forces
around the globe. In event of a major war, ships controlled
by MSC would move as much as 95 percent of the military's
fuel, food, ammunition and spare parts.
The command augments its own fleet by contracting with
commercial shippers. According to U.S. Transportation
Command, the United States military relies on commercial
ships--many under foreign flag-to meet as much as two-thirds
of its sealift requirements.
In an ideal world, said Brewer, the U.S. military would
move all its cargo under U.S.-flagged ships. But he added:
``Right now, we don't have enough. We've seen a steady
decline in U.S. flag shipping over the last 10 years. I think
. . . there's less than 125 U.S.-flagged [commercial] ships
now.''
That means increased reliance on foreign-owned ships for
military sealift, an issue that has prompted concern in
policy circles. In a July report, the General Accounting
Office said the Defense Department ``relinquishes control''
of sensitive military cargo when it contracts out to foreign
ships.
When the U.S. military hires foreign-flagged vessels, there
are no armed U.S. guards on board. When the U.S. military
hires U.S.-flagged ships, sometimes there are guards on
board. But when GAO reviewed many shipments of weapons on
U.S.-flagged vessels, it found them unguarded.
Brewer stressed that U.S. cargo preference laws favor U.S.-
flagged shippers, who get the first opportunity to bid on any
of MSC's contracts for cargo movement. And he said that MSC
very closely scrutinizes all the commercial vessels,
including foreign ones, that carry military cargo.
``If we cannot find a U.S. flag, we sometimes will embark
cargo or equipment on a foreign flag,'' he said. ``But in a
perfect world, we want a U.S. flag.''
When MSC does embark equipment aboard a foreign-flagged
ship, Brewer said, ``We watch those ships very closely and in
some cases embark our personnel aboard those ships to make
sure the cargo is secure.''
Asked if that included armed cargo supervisors, called
supercargoes, Brewer said: ``We're still working that issue.
Armed supercargoes is an issue we're still working.''
investing in upgrades
An attack last month on an oil tanker off the coast of
Yemen spotlighted the vulnerability of commercial ships. In
an incident reminiscent of the attack on the USS Cole (DDG
67) in 2000, a small watercraft laden with explosives struck
the French supertanker Limburg, crippling the ship.
Brewer said MSC takes the threat to merchant vessels as
seriously as it takes the threat to military transport ships
and said his command would be investing more money over the
next several years to upgrade security on board its own
ships.
``We're dedicating significant resources to, number one,
providing . . . force protection in terms of training and
equipment to budgeting a significant amount of money actually
through fiscal 2009 to make sure not only that we not only
install the latest technology in terms of hull-perimeter
lighting, intrusion detection systems, things of that sort,
but also to make sure that we have aboard ships any
technology that may be available in the future,'' he said.
``So we are investing a lot of money.''
The technology upgrades are particularly important because
military transport ships, unlike Navy combatants, have small
crews.
``MSC ships are `manned to mission,' '' he said. ``So that
means they're minimally manned. Therefore there's not extra
people on board our ships to be armed.''
Much of the money that MSC will invest is in equipment and
training. And Brewer said he was working closely with the
Navy's fleet commanders in terms of developing an across-the-
board force-protection policy for Navy ships.
``So we're investing quite a bit of time and money into
force protection and we're working with the fleet in terms of
developing and refining force-protection policy,'' he said.
beans and bullets to mideast
Meanwhile, MSC continues to charter vessels regularly to
move equipment and supplies. Earlier this month, MSC hired
out two commercial ships to move a large shipment (284
containers full) of ammunition along with 28,000 square feet
of rolling stock (including armored vehicles).
The ships were headed for unspecified destinations in the
Middle East, said Marge Holtz, a spokeswoman for the command.
Brewer would not comment directly on deployments in support
of military operations or the destination of cargoes. But he
suggested that his command was keeping pace with the Navy's
increased operational tempo, including the recent deployment
of carrier battle groups to the Persian Gulf region.
``Our workload has increased in the sense that we are
operating with the increased operational tempo with the
battle groups,'' he said. ``But basically we satisfy the
fleet's basic needs.''
Asked whether he is confident that his command can easily
be put on a war footing, Brewer said: ``Ramping up, because
of the planning we've put forth, . . . is not a problem.''
However, he did suggest that a full mobilization might put
a strain on the Ready Reserve Force, a fleet of 76
government-owned ships kept in reserve by the Maritime
Administration to meet surge shipping requirements for the
military.
``Where that would put a strain on the maritime industry is
if we have to activate the Ready Reserve Force ships,''
Brewer said. ``And with the decrease in U.S.-flagged ships,
there's a concomitant decrease in U.S. mariners. So we're
working with the Maritime Administration and the unions in
making sure that if we have to go to war and activate the
Ready Reserve Forces, there are enough mariners to man those
ships.''
Most of those ships are kept in a ``reduced operating
status,'' with small crews aboard for maintenance.
``If we have to take those ships to a full operating
status, there is some concern there, but we're working this
issue very diligently with the Maritime Administration and
the maritime unions and we feel we could satisfy any wartime
requirements,'' he said.
That point, he said, further reinforces the desire of the
government, the shipping industry and unions to increase the
number of U.S.-flagged ships.
In general, said Brewer, ``I want to see more U.S.-flagged
ships. Period. More U.S.-flagged ships, number one, will be
good for the economy. We are a maritime nation. More
importantly, it is essential for our national security.
Because [it means] the less we have to depend on foreign-
flagged shipping today.''