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DEPARTMENT
OF TRANSPORTATION
STATEMENT
OF
BRUCE
J. CARLTON
ACTING
DEPUTY MARITIME ADMINISTRATOR
FOR
THE MARITIME ADMINISTRATION
July
13, 2001
Mr.
Chairman and Members of the Panel:
I
welcome the opportunity to discuss the
Maritime Administration’s (MARAD’s)
authorization request for Fiscal Year 2002.
Throughout
our history, America’s economic prosperity
and national security have been closely tied
to marine transportation.
MARAD is an important part of the U.S.
marine transportation system.
Global economics and the imperatives of
international competition have resulted in
fewer U.S.-flag ships in the foreign trades
today than in 1970.
American vessels and their U.S. citizen
crews have become more productive and more
efficient over time.
U.S.-flag vessels are actually carrying
more cargo now than they did 30 years ago.
The
marine transportation system moves over two
billion tons of goods produced or consumed in
the United States through our Nation’s ports
and waterways each year.
Within the next two decades, cargo is
expected to double.
Many U.S. merchant seafarers crewing
the vessels transporting this cargo are
trained at outstanding institutions such as
the U.S. Merchant Marine Academy at Kings
Point, New York, and the six State maritime
academies.
These mariners serve not only our
commercial vessels, but on government-owned
vessels that support humanitarian and military
operations as well. The end result is a unique partnership of Government,
industry and labor that provides vital marine
transportation services to our Nation.
The
total budget request for MARAD for FY 2002 is
$103,032,000.
Our budget supports the
Administration’s intent to provide tax
relief for American families and pay down the
Federal debt, and it contains a single
requested program increase for ship disposal,
To
help ensure continued competitiveness, we must
also tailor our maritime policy to the
challenges of the 21st century.
Thus, the Administration has proposed
to make some changes affecting MARAD.
I would like to address these first,
and then briefly summarize our budget request
and the contributions of
MARAD’s programs in the past year.
Maritime
Security Program
As
part of the Administration’s policy to
consolidate the management of like programs
and achieve greater efficiencies, the
President’s budget proposes to transfer the
MSP and its funding from MARAD to the
Department of Defense (DOD) in FY 2002.
MARAD is working with DOD to prepare
for the transfer of this program which has
been successful in keeping modern liner ships
in the U.S.-flag fleet.
I would like to stress that the
Administration is not proposing to eliminate
the MSP, but, rather, proposes that it be
administered by DOD at its full funding level
of $98,700,000.
The
Maritime Security Act of 1996 established a
Maritime Security Program (MSP) whose goal is
to ensure the continued competitive presence
of a fleet of U.S.-flag vessels engaged in
international trade that are also able to meet
national security sealift requirements in
times of war or national emergency.
Authorization for the MSP expires in FY
2005. The MSP has had 47 ships enrolled and participating in the
program according to their operating
agreements with MARAD since January 1, 1997.
Shipbuilding
As
this Panel knows, MARAD administers a
Government guaranteed loan program, commonly
referred to as the Title XI program.
Title XI loan guarantees enable ship
owners and shipyards to borrow private sector
finds on more favorable terms than might
otherwise be available.
As part of the Administration’s
policy to reduce corporate subsidies, the
President’s budget request for FY 2002 seeks
no new funding for the subsidy costs of Title
XI. MARAD
will continue to manage the existing loan
portfolio and associated financial activity in
the program with $3.978 million of funds
requested for administration of the program.
The Department of Transportation
anticipates a $10 million carryover in FY 2002
that will be used to continue funding for the
subsidy costs for new loan guarantees.
The
Administration’s bill also contains a
proposed amendment that would restate section
1103(g) of the Merchant Marine Act, 1936
(Act), addressing export loan guarantees.
Those provisions of subsection 1103(g)
that are outdated would be deleted.
Additionally, the authority to provide
Title XI loan guarantees for export vessels
would be eliminated if the United States
entered into a treaty or convention
prohibiting such loan guarantees in the
future.
The
bill also contains an amendment to Title XI of
the Act which would allow MARAD to hold and
invest its cash collateral in the U.S.
Treasury.
Title XI program participants would no
longer be required to expend substantial time
and money associated with negotiating
depository agreements and legal opinions in
Title XI transactions.
Ship
Disposal
The
Department’s Inspector General (DOT IG) has
identified the disposal of obsolete ships in
the National Defense Reserve Fleet (NDRF) as
one of the Department’s “Top 10”
management challenges.
By law, MARAD serves as the U.S.
Government’s disposal agent for
merchant-type vessels of 1,500 gross tons or
more. MARAD’s
fleet of obsolete ships has grown to 122 as of
July 2001, and we expect to receive up to
eight additional, obsolete, non-combatant
ships from the Navy each year in the future.
Our budget contains a request for $10
million in FY 2002 to continue the disposal of
vessels in the NDRF that pose imminent
environmental risk.
Before 1994, MARAD disposed of obsolete
vessels on a regular basis by selling ships
“as is/where is” to the highest bidder,
generally an overseas entity.
However, after the Environmental
Protection Agency (EPA) raised concerns
regarding the presence of hazardous materials
such as polychlorinated biphenyls (PCBs) in
various shipboard components, the sale of
vessels for overseas scrapping was curtailed
in 1994, then halted altogether in 1998.
The few remaining domestic ship buyers
soon found that scrapping under stringent U.S.
worker safety and environmental protection
laws was not profitable under our conditions
of sale.
Meanwhile, MARAD was constrained from
paying for scrapping services by both a lack
of specific appropriations and statutory
authority.
As a result, MARAD’s fleet of
obsolete vessels grew and deteriorated
further. We were forced to expend funds to clean up leaks and remove
fuel from a few of the most decrepit vessels.
If obsolete vessels are not disposed of
systematically, we may eventually be forced to
drydock vessels to prevent environmental
damage while they await disposal.
Drydocking and fuel removal could cost
$900,000 or more per vessel.
Specific
authority to pay for scrapping provided in the
National Defense Appropriations Act for FY
2001 (P.L. 106-259), enacted on October 30,
2000, included $10 million for the accelerated
scrapping of those vessels in the “worst
condition.” This amount was transferred to MARAD early in the fiscal year
to begin disposal of the worst-condition
vessels in the fleet.
Concurrently, the National Defense
Authorization Act for FY 2001 (P.L. 106-398)
extended until September 30, 2006 the deadline
to dispose of all vessels in the NDRF that are
not assigned to the Ready Reserve Force or
otherwise designated for a specific purpose.
P.L. 106-398 also charged MARAD to
develop a program for the scrapping of
obsolete NDRF vessels in a timely, safe and
environmentally sound manner, and to report to
Congress every six months on the program’s
progress.
The initial report was transmitted to
Congress on June 5, 2001.
In
addition to Congressional and DOT IG oversight
of MARAD ship disposal, the General Accounting
Office is conducting a review of MARAD’s use
of a General Agency Agreement (GA) for
scrapping services in the current fiscal year.
As a result of using the GA, I am
pleased to report that four ships will be
removed from the James River Reserve Fleet as
early as this month.
Since enactment of P.L. 106-398, three
vessels have already been removed from the
fleets. Two of these ships were delivered to ship scrapping
facilities and one was transferred, at no cost
to the Federal government, to the State of
Florida for sinking as an artificial reef.
MARAD is
absolutely committed to disposing of the fleet
of obsolete NDRF ships giving consideration to
safety, cost and environmental protection.
Ship disposal remains a priority for
the Administration.
The
National Defense Reserve Fleet and the Ready
Reserve Force
The
National Defense Reserve Fleet (NDRF) was
established in 1946 in order to meet reserve
sealift requirements for national defense
purposes.
NDRF vessels are primarily located at
three major sites:
James River, Virginia; Beaumont, Texas;
and Suisun Bay, California.
There are currently 254 ships in the
NDRF, 76 of which comprise the Ready Reserve
Force (RRF).
RRF ships are maintained in various
states of readiness by commercial ship
mangers, and can sail in either 4, 5, 10 or 20
days.
The
majority of RRF ships are outported throughout
the country in proximity with likely loadout
ports established by the Department of
Defense.
When activated, RRF ships are fully
crewed by civilian merchant mariners working
to support DOD missions.
MARAD’s RRF ships are called upon to
play a critical role delivering supplies to
support our troops and provide assistance
during crises.
In the Gulf War, Somalia, Haiti,
Bosnia, and hurricane-ravaged Central America,
the RRF carried out the DOD mission.
Four RRF ships are currently stationed
in Guam and Diego Garcia as part of DOD’s
prepositioned forces to respond quickly to
regional conflicts throughout the world.
Ten other ships were activated for
various military exercises in the Continental
United States, Caribbean and in Korea.
Readiness
and reliability are the benchmarks for ships
in the RRF.
Readiness is demonstrated by conducting
maintenance sea trials during the year, and
tested by conducting “No-Notice” turbo
activations at the order of the Department of
Defense.
MARAD’s goal is to successfully
activate the RRF ships under no-notice
conditions 100% of the time. To date, in FY
2001, there have been 13 such tests with all
of them meeting or exceeding their activation
timelines. Consistent, high operational reliability is also essential
for effective support of DOD.
MARAD’s goal is to maintain 99%
operational reliability.
Through the first 3 quarters of FY
2001, the RRF has achieved a reliability of
99.7% -- with 14 ships operating for 1674 days
with only 15 days of unscheduled downtime.
This
year, we are observing the 25th
anniversary of the RRF.
The tradition of the American merchant
marine and U.S. citizen seafarers supporting
our Armed services and national interest
continues.
Cargo
Preference
U.S.
cargo preference laws are an important part of
the overall statutory mandate to support the
privately owned and operated U.S.-flag
merchant marine. These laws require that a
certain percentage of cargo generated by the
U.S. government agencies be carried on
U.S.-flag vessels. These laws are important to
the financial viability of U.S.-flag vessel
operating companies.
MARAD
monitors federal agency compliance with the
U.S. cargo preference laws as part of our
overall effort to encourage them to maximize
the use of U.S.-flag vessels, and we provide
an annual compliance report to the Congress.
The
Administration’s proposed authorization bill
contains a provision which would establish a
three-year waiver of the existing requirement
that foreign-built vessels brought under the
U.S. flag must wait three years before
carrying civilian preference cargoes.
This amendment would provide a limited
opportunity for new, foreign-built bulk and
break bulk vessels to register under the
U.S.-flag and be immediately eligible to carry
preference cargo in international trade.
In return, the vessels must have
shipyard work necessary to become U.S.-flagged
performed in the United States.
The provision also requires that
domestic shipyards be given notice before a
contract is let to a foreign shipyard in order
that domestic yards have the opportunity to
build these vessels.
The vessels receiving the waiver would
not be granted pre-approval to leave U.S.
registry under section 9(e) of the Shipping
Act, 1916, or be entitled to any benefit of
the Capital Construction Fund under section
607 of the 1936 Act.
U.S.
food aid programs are expected to generate
about 4.7 million metric tons of bulk grain
shipments this year, including the normal flow
of aid cargoes.
The existing U.S.-flag drybulk ship
capacity may not be able to meet the
anticipated need.
The three-year waiver proposal would
help to ensure that there are enough U.S.-flag
vessels in the future to carry at least 75
percent of the food aid cargoes to developing
countries, as required by law.
This
amendment would allow the U.S. fleet to grow
and add jobs for U.S. merchant mariners, the
same mariners we rely on to crew sealift ships
in a mobilization.
The proposal would also increase the
percentage of U.S. foreign commerce carried in
U.S.-flag vessels.
Additional modern vessels in the
U.S.-flag fleet would increase the competition
for carriage of government-impelled cargoes.
Because these vessels would only be
eligible for foreign trade, this proposal has
no impact on the Administration’s firm
commitment to the Jones Act.
The
Administration also proposes changing the
cargo preference year for determining
compliance so that it coincides with the
Federal Government fiscal year.
This would simplify record keeping and
management of the program without impact on
any involved agencies or shippers.
Maritime
Education and Training
A
significant portion of MARAD’s budget
request is intended for ongoing maritime
education and training activities.
The U.S. Merchant Marine Academy
(Academy) and the six State maritime schools
are the only educational institutions that
produce merchant marine officer graduates with
a four-year bachelors degree which includes
courses in marine engineering and navigation;
a U.S. Coast Guard merchant marine officer’s
license; and practical shipboard training.
These graduates gain first-hand
experience in the mariner’s environment,
thus enabling them to enter this professional
workforce with confidence and self-reliance.
In peacetime, Academy graduates create
and operate efficient, cost-effective marine
transportation systems.
In times of conflict, Academy graduates
crew the ships that support our troops.
Our
total request of $89,054,000 for the
operations and training account includes
$47,822,000 to operate the United States
Merchant Marine Academy at Kings Point, New
York. This
year’s funding request for the Academy
contains a $690,000 increase over funds
appropriated in FY 2001 for salary-related
increases.
Of the total requested for the Merchant
Marine Academy, $13,000,000 is included for
capital improvements, to remain available
until expended.
The $13,000,000 will provide much
needed resources for the Academy to continue
capital improvements based on the Facilities
Master Plan completed in September, 2000. Having these funds available until expended will allow the
Academy to award major construction projects
efficiently, and will allow the Academy to
negotiate better pricing by combining
construction contract deliverables that
optimize the Government’s investment.
In
addition to the funding for the Merchant
Marine Academy, $7,457,000 is requested for the six State maritime academies.
The State academies, like the Merchant
Marine Academy, offer training for qualified
individuals to become officers in the U.S.
merchant marine.
A portion of the requested funding will
support the Student Incentive Payment (SIP)
Program at the State academies, which results
in a service obligation to the maritime
industry and the Armed Forces reserves for the
recipients.
The request also includes Federal
support to the State academies, and supports
the costs of maintenance and repair for MARAD
ships on loan to the State academies as
training ships.
The
balance of the request for Operations and
Training, $33,775,000 is for MARAD operations
which provides professional, technical and
administrative support to all MARAD program
areas.
American
Fisheries Act
Under
the American Fisheries Act (AFA), enacted as
part of the Omnibus Appropriations Act of
1999, MARAD was assigned the responsibility to
ensure that proper citizenship standards are
adhered to for ownership of fishing vessels
100 feet or longer.
Implementation of our new duties is
well under way.
MARAD published a final rule on July
19, 2000, and the new requirements will become
effective on October 1, 2001.
We are currently processing
approximately 650 Affidavits of U.S.
Citizenship and requests for letter rulings
related to the citizenship status of vessel
owners and mortgagees.
All citizenship determinations will
require annual review.
MARAD
has also received 12 petitions from
non-citizen vessel owners and mortgagees
requesting determinations that the AFA and
MARAD’s implementing regulations are in
conflict with certain international investment
agreements.
After consultations with the
Departments of State and Treasury and other
Federal agencies, MARAD recently issued
decisions on three petitions related to vessel
owners covered by Treaties of Friendship,
Commerce and Navigation (FCN) with Japan,
Korea and Denmark finding that there is a
conflict between the AFA and investment
agreements.
As a result of those determinations,
the owners may continue to maintain their
fishery endorsements, but any sale of
interests in the vessels must be to U.S.
citizens until full compliance with the AFA
standards is achieved.
Nine other petitions are under review.
Our budget contains an increase of
$180,000 for staff costs to ensure compliance
with the Act.
Marine
Transportation System Initiative
Over
two billion tons of goods produced or consumed
in the United States move through our
Nation’s ports and waterways each year.
This volume is expected to more than
double over the next 20 years. The number of waterway recreational users is also expected to
grow by over 65 percent to more than 130
million annually in the next 20 years, and
high-speed ferry transportation is
experiencing rapid growth in response to
land-transport congestion.
Cruise ships anticipate attracting 6.5
million passengers annually by the year 2002.
Military reliance on the Marine
Transportation System (MTS) for force
projection and sustainment is also expected to
grow in the new millenium.
The
MTS initiative was launched by the Department
over two years ago.
The Coast Guard Authorization Act of
1998 charged the Secretary
-- through MARAD and the Coast Guard
– with establishing a task force to assess
the adequacy of the nation’s MTS to operate
in a safe, effective, secure and
environmentally sound manner.
In September 1999, the Department
released an initial report to Congress entitled
An Assessment of the U.S. Marine
Transportation System,
representing an intense joint effort by
industry and Government.
On January 13, 2000, MARAD announced
the establishment of the Marine Transportation
System National Advisory Council (Council).
The Advisory Council is composed of
representatives from about 30 non-Federal
organizations from the marine
transportation industry, shippers, and state
and local public entities.
Four Council meetings have been held
since it was established.
MARAD
welcomes its continued leadership in this
initiative.
We look forward to continuing our
partnership with the U.S. Coast Guard and many
others involved in this important effort.
America’s marine transportation
system has always been there to deliver the
goods and we intend to help make sure that
this tradition not only continues, but
improves.
Conclusion
Mr.
Chairman, and Members of the Panel, I
appreciate your recognition of the maritime
industry’s contribution to our Nation’s
economic and national security.
Marine transportation is a vital link
in the intermodal transportation system that
moves people and goods in support of the
Nation’s economy and security.
Your continued support will help us to
do our part in our national mission.
This concludes my prepared statement.
I would be happy to address any
questions you may have at this time.
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