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STATEMENT
OF
JOSEPH T. "JAY" KEEGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF U.S.
SHIP MANAGEMENT INC.
BEFORE
THE
HOUSE ARMED SERVICES COMMITTEE
SPECIAL OVERSIGHT PANEL ON MERCHANT MARINE
JULY 16, 2002
Mr.
Chairman and Members of the Panel:
My name is Joseph T. "Jay" Keegan.
I am President and Chief Executive
Officer of U.S. Ship Management, Inc. (USSM),
and pleased to be here today to provide brief
testimony concerning the importance of
maintaining the Section 2 citizenship policy of
the Maritime Security Program.
Congress may decide in the future to
expand the number of ships that participate in
the MSP. Congress
may decide in the future to change the amount to
be paid for each of these ships for their
guaranteed readiness in the event of a national
defense emergency.
However, Congress should not now or in
the future modify a well entrenched policy which
limits eligibility in the MSP to
American-flagged vessels, with American crews,
and which, most importantly, are controlled by
Americans citizens.
Whatever limited exceptions that are
provided in the law regarding priorities should,
if they are to continue, certainly not be
expanded.
In 1999, A.P. Moller/Maersk of Denmark
purchased the international business of Sea-Land
Service, Inc. which had 19 U.S. flag vessels, 15
of which were enrolled in the MSP.
Since Maersk could not qualify as a
Section 2 citizen - Maersk entered into time
charter contracts with my company for these
vessels. My
company has 42 dedicated and talented shoreside
employees and 380 seagoing positions.
We are headquartered in Charlotte, North
Carolina and have offices in Edison, New Jersey
and Long Beach, California.
We are ISM certified by the American
Bureau of Shipping for all nineteen vessels
which we operate and for our shoreside
operations. As an operator our company is in actual and legal control of
the vessels.
Simply put, we operate the vessels.
This is consistent with traditional
maritime law and practice.
In fact, I understand that approximately
half of A.P. Moller/Maersk's fleet is
time-chartered and therefore operated by other
foreign companies.
A.P.
Moller/Maersk is a $35 billion conglomerate
headquartered in Copenhagen, Denmark, which is
equivalent to 20% of Denmark's GDP.
We understand that legislation is being
advocated by companies like Maersk which demeans
companies like mine as "unjustified middle
men" which increase Maersk's costs and add
little value to the MSP.
Simply because they have existing
relationships with the Department of Defense,
Maersk believes it is entitled to an exception
or a change in the law which would eliminate or
substantially modify the Section 2 citizenship
policy. Their
existing defense contracts required Maersk to
sign Special Security Agreements (SSA's) which
essentially provide that classified material
will not be made available to those who do not
have appropriate security clearances.
However, this is not the same as
citizenship.
The agreement, in a vacuum, not to engage
in unlawful, unauthorized sharing of sensitive
material is not a guarantee which would preclude
conflicts between a foreign company's
commercial interests with our national security
interests.
I will be happy to answer questions in
more detail after my testimony.
However, in summary there are several
reasons which should cause Congress to conclude
that the Section 2 citizenship policy is too
critical to our national security to change.
A.P. Moller/Maersk has financial interests
and conducts business in many countries, some of
which could have strong policy conflicts with
the United States.
Commercial relationships between Maersk
and such countries could present a clear
conflict in the event of a national defense
contingency.
Will a foreign controlled company such as
Maersk be primarily concerned about its
commercial relationships with such countries or
will it primarily be concerned with our national
security? Let's
consider a hypothetical: if our government
determines to deploy MSP enrolled ships to the
Taiwan Straits in the event of a national
security contingency, I can unequivocally
represent to this Panel that my company will
unhesitatingly and willingly do as asked.
However, please consider the factors
which a company like Maersk, which does a huge
amount of business with the Peoples Republic of
China, would be forced to consider in the event
of such a contingency.
For example, I understand that Maersk has
built more ships in China in recent years than
any non-Chinese company.
How would such a contingency affect
relationships between Denmark and the Peoples
Republic of China?
More specifically, how would such a
sealift impact the commercial relationship
between Maersk and the Peoples Republic of
China?
There is no good policy reason for our
government to voluntarily inject even the
slightest possibility of such a risk into the
Maritime Security Program.
When ships in the MSP are controlled and
operated by United States citizens, our national
security interests are paramount.
The United States government cannot
afford to be vulnerable to quandaries between a
foreign owned company's commercial interests
and our national interests.
The citizenship policy guarantees to the
DoD that the vessel will be available under any
national defense contingency - including
conflicts in which the United States may become
involved that may or may not be internationally
popular. The
Section 2 policy is essentially a national
security check and balance which should not be
altered. Our
companies are not shams.
Our control of these ships is vital to
our national security.
We provide real jobs to real people and
provide exactly the type of protection intended
by Section 2 to ensure our national security.
Section
2 companies bear the "burdens" of
citizenship and should at least continue to
exclusively receive the "benefits" of
priority in MSP participation. Foreign controlled companies are not subject to the full
range of U.S. corporate taxes and are subject to
substantially less U.S. regulation.
Equating
foreign controlled "documentation citizens"
with Section 2 citizens could be the first step
in undermining the Jones Act.
The
Merchant Marine Act of 1936 states that "it is
necessary for the national defense and
development of its foreign and domestic commerce
that the United States have a merchant marine
. owned and operated under the United States
flag by citizens of the United States".
The Section 2 citizenship policy of the
MSP is based on that foundation.
It is a policy that has served our
country well, and I would respectfully submit
that it should not be modified.
Thank you for this opportunity to testify
and I look forward to answering any questions
which you or any other Panel Member may
have.
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