Military

STATEMENT OF 
MR. ROBERT J. ALARIO
PRESIDENT
OFFSHORE MARINE SERVICE ASSOCIATION

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

JULY 16, 2002

Good morning Mr. Chairman, ladies and gentlemen. My name is Robert J. Alario. I am privileged to serve as President of the Offshore Marine Service Association, based in New Orleans, La. My association represents 250 companies engaged directly or in general support of offshore oil and gas exploration, drilling or production, worldwide. A list of our members is attached, for the record. Our members and crews operate in excess of twelve hundred vessels worldwide.

We wish to thank you, Mr. Chairman, distinguished members of the Panel, for this opportunity, first and foremost, to express our fundamental support for an effective reauthorization of the U.S. Maritime Security Program, and at the same time, to express our opposition to the repeal or relaxation of the Section 2 U.S. Citizenship provisions of law governing companies that would own and operate ships under the Maritime Security Program.   

While OMSA companies do not operate ships in the Maritime Security Program, we are concerned that the proposed change to U.S. maritime law governing U.S. Citizenship requirements (Section 2 requirements) for vessels operating under the U.S.-flag poses, in our opinion, a fundamental and potentially corrosive threat to the citizenship requirements for operation of U.S.-flag vessels. We feel that the proposed change would, inexorably and inevitably, erode our ability to truly control the ownership, loyalty and reliability of access to vessels operating in our nation's domestic and offshore maritime sectors that presently fall within the Jones Act, as well as within the MSP. We have been assured that the proposals to modify ownership requirements from Sec. 2 to documentation citizens to qualify for operation of U.S. flag vessels within the Maritime Security Program will not translate into an erosion of citizenship standards relative to Jones Act operations. We want to believe, but our experience does not support this thesis, unfortunately.

If Congress is urged today, by parties supporting documentation citizenship is equivalent to Sec. 2 citizenship, and Congress is persuaded by them that it is acceptable for U.S.-flag ships to be operated, as a matter of course, in our U.S. to foreign trades by foreign companies holding a Special Security Agreement with the Department of Defense, why would we not expect that Congress would eventually be urged by these or other parties to accept legislation which would allow that the same standard would also be sufficient for companies operating vessels in our domestic and offshore trades. We contend that, in fact, this strategy by foreign owned companies is currently in play. Foreign companies have recently succeeded, because of loosely drafted legislation, in penetrating U.S. ownership protections previously afforded by the Jones Act. We are concerned that the proposals here would add another portal through which foreign interests will circumvent, directly or indirectly, U.S. ownership requirements affecting the Jones Act.

I would like to call your attention to the Declaration of Policy of the United States, embodied in the Merchant Marine Act of 1936 (46 App. USC 1101).   Section 101 of the Act states:

"It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine

a)       sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of such domestic and foreign water-borne commerce at all times,

b)       capable of serving as a naval and military auxiliary in time of war or national emergency,

c)       owned and operated under the United States flag by citizens of the United Sates insofar as may be practicable,

d)       composed of the best equipped, safest, and most suitable types of vessels, constructed in the United States and manned with a trained and efficient citizen personnel, and

e)       supplemented by efficient facilities for shipbuilding and ship repair.

It is hereby declared to be the policy of the United States to foster the development and encourage the maintenance for such a merchant marine." 

It is here that we believe the crux of the problem, and the solution, resides. And we believe that this panel and, ultimately, the full committee can play a crucial role in reversing the trend of acute decline in U.S. maritime assets.

In today's environment, the ongoing acts of omission by previous administrations with respect to addressing the need to rebuild a healthy U.S. merchant marine cannot be repeated. We must "see" this old problem in a new, different light.

The times call for bold action in this regard. Serious initiatives must be taken. For example, why could not the Dept of Defense build the necessary vessels in the U.S., according to their need and specifications, and lease back the vessels to U.S. Sec. 2 operators, who would crew them with U.S. mariners. This would be more consistent with U.S. policy and common sense, under the circumstances. 

The underlying pillars, or principles, of our maritime laws are, clearly, to foster American ownership/operation, construction, and crewing. These principles are embodied in our maritime laws to ensure that the United States has the industrial capability to build a fleet of vessels controlled by American companies and crewed by American citizens to meet our national security requirements. A section 2 U.S. citizen, if not protected in the implementation of the MSP program would be placed in an unfair, uncompetitive position. As compared with a documentation citizen, the section 2 company is subject to U.S. corporate taxes, significantly more stringent regulation, and liability exposure. To expand the program to include non-citizen participants forces the American companies to go "foreign" in order to compete, or relinquish the filed entirely to foreign companies. We believe that a change to any one of these three underlying pillars, or principles of historical U.S. maritime policy, in our opinion, will have a direct impact on the others. We perceive that changes to maritime laws governing the ownership of vessels operating in the U.S. to foreign trade will, prospectively, also probably impact the fleet serving our domestic trade, arguments notwithstanding. If we are right, it will be too late to correct the problems that are created by the liberalization of the citizenship requirements. 

Congress enacted the Maritime Security Act in 1996. Ostensibly, it retained the U.S. Citizen operator requirement to ensure that an American company, independent of a foreign owner, would retain ultimate and effective control and management of ships in the Maritime Security Program. This requirement was designed to ensure that if a Maritime Security Program vessel is called into service for the Department of Defense (DOD) in a conflict or national emergency that the vessel would be available to DOD regardless of the political position of a foreign government where the vessel owner may reside. In light of circumstances today, and the maritime security issues that are prevalent, we believe that the program must be restructured to foster maritime U.S. citizen control. 

The changes being proposed to this Panel would, we believe, create a new, and, we further believe, a dangerous exception to the fundamentally sound Section 2 citizenship requirement by permitting a foreign-owned and controlled company to operate Maritime Security Program vessels, if it is a party to a Special Security Agreement with the Department of Defense. The implication, which is arguable, is that a Special Security Agreement is an adequate substitute for independent Section 2 citizenship.   A foreign company with a Special Security Agreement, or SSA, however, does not, in our opinion, necessarily ensure the U.S. Government reliable access to a vessel.   An SSA is an ad hoc, case-by-case, arrangement entered into by DOD with a defense contractor that is foreign owned or controlled and is designed to safeguard classified information.   Safeguarding classified information has little if anything to do with ensuring reliable access to equipment owned by the contractor under all international political conditions. Although the liberal implementation of the MSP involving using foreign companies has worked in the past, circumstances and the political environment as it exists today are much more complex and dictates a more careful approach. The rationale to use foreign controlled, documented citizen companies instead of Sec. 2 U.S. citizen corporations must be stronger than in the past.

Foreign companies and those who support seeking this relaxation to U.S. citizenship requirements argue that it will reduce their operating costs.   We contend that a relatively small reduction in the operating cost of a company is not worth the price of relinquishing our sovereignty and optimal reliability with respect to access to critical marine assets in time of war or national emergency. And, if cost is truly the driving factor for relief from U.S. citizenship laws, what other laws will foreign companies want changed next? What additional companies will we be asked to consider?   Will the next law to be changed be relative to U.S. crewing which represents 50% or more of the cost of operating such vessels? 

OMSA, though it does not participate in the Maritime Security Program is extremely sensitive to and supportive of the objective that U.S. crews and their jobs in this program be protected. But we do not believe that the promotion and retention of section 2 U.S. citizenship requirements would adversely impact that objective. To the contrary, we believe that this approach, in the long-term, is more consistent with U.S. interests. 

If the attempts to achieve reauthorization of the program - which we do support wholeheartedly - comes at the expense of compromising the Sec. 2 citizenship requirements currently in U.S. law, we respectfully maintain that this proposed compromise, offered to obtain a short term, quick fix will serve, inevitably, to undermine the Jones Act and, ultimately, although unintentionally, this proposal will have, we believe, an opposite, adverse impact, in the long run, on jobs for U.S. mariners, the economic viability of U.S. vessel owners and marine operators and upon reliable U.S. control of marine assets engaged in routine commercial Jones Act trades, as well as more sensitive operations critical to our national security. Reauthorization must be obtained by other means, if at all possible.

In the final analysis, the Proposal to give documentation citizen companies the right to operate vessels directly in the program concern us greatly. While we are anxious to expedite congressional reauthorization of this program, we are opposed to sacrificing the concept of Section 2 citizenship, and the broader problem it prospectively creates for U.S. vessel owners, operators and mariners. 

We believe, and respectfully request that this committee does favorably receive and advocate those positions and actions, instead, as proposed by industry and the maritime unions that would, as all of us would want to see and that we can agree upon, enhance the economic and national security benefits of the United States, expand the program to authorize additional privately owned (under the provisions of Sec. 2 citizenship) militarily useful United States flag commercial vessels, establish an MSP payment that better reflects the cost of doing business under the U.S. flag operations by extending the term and increasing the level of payments under charters and enact provisions that would provide reasonable flexibility in the administration of the program. In all of these respects, we can and do support our counterparts and other stakeholders who may have either direct or indirect interest in the program, and an interest in the ramifications that might follow from the modification of the exiting program.

We accept the fact that there are parties, beside ourselves, who will appear before this panel that feel very protective of the Jones Act and will guard it jealously. For example, I personally know Mr. Erik Johnsen, and have the highest respect for this gentleman. I am well aware of his personal commitment to maintain the integrity of the Jones Act, and we do not question the motives behind his conclusions, although we may disagree in some respects with the means to the end that he espouses. Other parties may be in favor of allowing foreign controlled "documentation" citizen's equivalency with Sec. 2 U.S. citizens under certain circumstances, within the subject program. We would not, because of the position, they have taken, be so presumptuous as to accuse them of being anti Jones Act, unpatriotic or insensitive to our national security interests. By the same token, neither should we, who oppose certain positions of theirs, be subjected to allegations that we have selfish interests in this matter and demonstrate disdain for U.S. mariners jobs merely because we disagree with their premise and/or the possibility that this position, if implemented, would have, overall, negative implications for our nation and maritime industries. We want their views to be heard, and our own, as well. We are open to reasonable dialogue on both the hard and the less difficult issues involved in this complex matter.

Consequently, Mr. Chairman, we would respectfully, ask the panel to consider including specific language to make it clear that, no matter what the outcome of these hearings may be, there should be no action or inference which could have a precedential impact or influence with respect to Jones Act operations.

We submit that our concerns are real, not theoretical. We are already seeing other, similar attempts by foreign companies, through other "windows of opportunity," or loopholes in U.S. law, to weaken our laws that govern U.S. citizenship and the attendant eligibility to operate ships in our domestic commerce, or Jones Act trade.   Under changes enacted within the Coast Guard Appropriation bill of 1996 to then existing lease financing laws, for example, we have already seen foreign companies succeed in gaining access to domestic, Jones Act trades and we are now witnessing the same thing with respect to vessels engaged in support of offshore oil exploration and drilling on the U.S. OCS. These foreign companies typically might establish virtual "shell" companies in the United States to serve a leasing company or as their U.S. citizen operating company to qualify artificially, in our view, to operate in the Jones Act trades by virtue of technical rather than substantive fulfillment of legislative criteria. To add insult to injury, the U.S. will lose significant tax revenue and, ironically, unwittingly participate in promoting, for all practical purposes, the eventual disintegration of the Jones Act.  

If the citizenship requirement is relaxed for the MSP fleet, we are convinced that foreign interests will ultimately succeed in further undermining the Sec. 2 U.S. citizenship requirement for operating Jones Act ships in other sectors currently protected by the Jones Act, as well.   

We therefore urge Congress to move quickly but cautiously to reauthorize MSP but to reject, in this process, any effort or proposal that would weaken U.S. Maritime Law and the Jones Act, specifically, by diminishing U.S. section 2 citizenship requirements for vessels engaged in the Maritime Security Program.   We are concerned that advocates of the documentation citizen accommodation may attempt to attach and effect a repeal of the section 22 citizenship requirements for the MSP to active legislation other than the defense appropriation bill. This would not allow a fair hearing and debate of the issues. Hopefully, the rumor and our concerns in that regard are without basis.

Our nation, at this time and in the current circumstances, needs a U.S. merchant marine that is truly, effectively controlled by section 2 American citizens, dedicated to serve our domestic and international commerce. A U.S. merchant marine under the control of documented citizen corporations is absolutely not equivalent, or acceptable, if it can be avoided. This is particularly important with respect to operations that involve extraordinary strategic and national security facets, and with respect to a body of vessels that must be relied upon as a naval and military auxiliary in time of war or national emergency.

In conclusion, we wish to acknowledge the complexity of this matter. We feel compelled to reiterate that, while we strongly disagree with the proposition to repeal the requirement for Section 2 citizenship to operate vessels within the Maritime Security Program, we are committed to keeping dialogue open, and look forward to working with you and all concerned to find common ground from which to constructively advance the broad interests of the U.S. maritime industry. Above all, we are committed to the proposition that this nation must be persuaded that its security and welfare is at risk and that our country will be exceptionally vulnerable, until Congress acts to rebuild a healthy and versatile U.S. Merchant Marine, based on U.S. built bottoms, owned and operated by U.S. Sec. 2 citizens and crewed by well trained, loyal U.S. Citizens. 

Thank you again, Mr. Chairman. We are grateful to you and the panel for your thoughtful attention to our views, and for your kind attention to our comments.