Maritime Security Program government for all conflicts our country may face in the future, much less what we face today? If lower cost is sufficient justification for foreign companies to operate and control MSP ships today, won't lower cost be sufficient justification for foreign crews tomorrow? ASA urges you to reject this proposal, and we look forward to working with you to rebuild all segments of the maritime industry to ensure a fleet of militarily useful, Americanbuilt, owned, operated, and crewed commercial ships to support our military interests. Thank you. Sincerely, حسن Cynthia L. Brown President QUESTIONS SUBMITTED BY MR. TAYLOR Mr. TAYLOR. Could you give me several examples of folks who have chosen to keep their corporate headquarters in America and the additional costs incurred of them staying in America. Or to put it another way, the relative advantage that someonethat the company who is trying to invert would gain, versus the ones who stay here. Mr. ALARIO. You asked that I provide you with information about the practice of corporate inversion that has been put into play recently with implications that affect the competitive operation of U.S. flag vessels by U.S. Sec. 2 citizens as compared with Documentation citizens, or foreign controlled U.S. corporations. There is one U.S. (Sec. 2) company, for example, a drilling operation like Nabors, that also owns U.S. flag, Jones Act qualified vessels active on the OCS, that has done its utmost to maintain a U.S. owned, U.S. flag fleet of drilling rigs, as well as the special purpose offshore vessels that service these rigs (and others) and compete with the NABORS owned Jones Act vessels. Very few, if any, companies (even U.S. companies) have gone to the lengths that Rowan has in order to maintain a U.S. flag fleet. At this time, Rowan is considering whether to build additional U.S. flag vessels in U.S. shipyards, which would be manned by U.S. mariners. Now, however, they are concerned that Nabors, and possibly other of their competitors who will follow NABORS' lead in manipulating, the lease finance provisions of the Coast Guard Appropriations Act Bill of 1996, will make it costly and difficult, if not impossible for ROWAN to overcome the advantage that NABORS and those others will obtain through the tactical corporate inversion technique and the approval of their application(s) to maintain the Jones Act privileges of their Sea Mar fleet of offshore supply vessels. We respectfully submit that it is imperative, and urgent, that this process and the subject approvals by the USCG be reviewed and not allowed to stand. We are doing everything within our power to prevent future applications from being approved on the basis of this precedent, until final review and action is taken on pending regula tions. Mr. TAYLOR. Would you document those additional costs associated with a Sec. 2 U.S. citizen company's operations? Mr. JOHNSEN. Á Section 2 U.S. citizen company such as ours, which was established in 1947, has a long standing relationship with its sailors unions. Our collective bargaining agreements have been extant for over 50 years. A newly established U.S. documentation company can and has commenced operations with new collective bargaining agreements negotiated freely with competing unions. This facility has enabled such companies to establish cost effective collective bargaining agreements disadvantaging established U.S. Section 2 citizen companies. Furthermore, the foreign parent has a distinct advantage in responding through its U.S. subsidiary to a request for proposals from Defense Department agencies for specific vessel deployment since the foreign parent has the flexibility of offering its own foreign flag vessel for reflagging U.S. while a Section 2 citizen must search the open market for acquisition if the Section 2 U.S. citizen company does not already own a suitable vessel in a foreign subsidiary company. As you probably know, the ownership of foreign subsidiary companies by Section 2 U.S. citizen companies has declined markedly following the implementation of the Tax Reform Act of 1986 which repealed the "Subpart F" rules applicable to shipping income. This decline has not only seriously damaged the U.S. foreign controlled fleet, but it has also impacted the viability of Section 2 U.S. citizen companies. Furthermore, a U.S. Section 2 citizen company is at great disadvantage as compared to its foreign competitor if it owns a foreign subsidiary, because under U.S. tax law, a U.S. controlled foreign subsidiary must depreciate its vessels on a straight line 18-year basis and, without the Subpart F exclusion as mentioned above, must pay taxes annually on current earnings. The foreign owner of a U.S. company has no tax liability to the U.S. government on its foreign flag earnings, and pays virtually no taxes worldwide. A U.S. subsidiary of a foreign owner can reduce its U.S. tax liability through intercompany transactions with its foreign parent. For instance, the foreign parent can sell the vessel to the U.S. subsidiary at a higher price; can lease containers |