our facts here. I think you said that it would be 51 percent U.S. That is a section 2 citizen, isn't it?

General HANDY. I will make sure and give you exactly.

Mr. HUNTER. Okay, I think that is how it is. Section 2 citizen, 51 percent American stock ownership; documentation citizen can be 100 percent foreign stock ownership. And if I am wrong, I blame it on Rusty. [Laughter.]

General HANDY. There is a subtlety that we are talking about stockholders and composition of the board.

Mr. HUNTER. Well, that is not a subtlety. That is two different factors. Tell you what, why don't we walk down through the—if the gentleman would yield? Let's walk down through this thing so we are all kind of on the same sheet of paper, because this is kind of a complex thing.

Stock ownership, section 2 citizen, requires 51 percent of the stock has to be owned by U.S. citizens. That is a section 2.

With respect to the documentation citizenship, it is no set requirement. Stock can be 100 percent foreign owned. With respect to makeup of the board of directors, in both cases, a majority must be U.S. citizens. The Chief Executive Officer (CEO) must be U.S. citizens, the chairman of the board, U.S. citizens, et cetera.

So the difference is the stock ownership. That is at least what I see is primarily the difference.

General HANDY. That is correct.

Mr. HUNTER. Any addendums to that?
General HANDY. No, sir.

Mr. HUNTER. Okay. Now I think Mr. Saxton asked this very important question, which kind of goes to the heart, the essence of this, the citizenship issue. And that is that you have said you talked to your lawyers. And by golly, you have got legal rights. You have got contractual rights.

And we companies which intentionally and deliberately break contracts all the time because they are willing to pay the breach of contract costs. Actually, that is a part of doing business that is kin to that particular action that they are contemplating because it is economically feasible to break contracts. And people do that all the time.

Now there is remedy for that. It usually is spelled out in terms of dollars.

But they calculate that on a daily basis. Thousands of companies around the world, including U.S. companies, breach contracts knowing they are going to have to pay.

Our problem is, when you are talking about U.S. ships that are going to have to be used to win a war and to save lives, it is little solace that the lawyers ultimately are going to bring you a nice check for the U.S. Treasury against this shipping company because they breached the contract.

So the key here, I think, is reliability and control. And the aspect of having a ship 75 percent, 80 percent, 100 percent owned by the citizens of another country, which may have a major conflict with your foreign policy that those ships are involved in.

And, you know, I hearkened back in one of our earlier hearings to the time when I was in Vietnam, I remember we were stillBritain, at the time, one of our greatest allies, was supplying North

Vietnam and moving ships through Haiphong, carrying war materiel that was going to be used to kill Americans on the battlefield. So you often have, even with countries that turn out in other scenarios to be extremely close to you, you have a conflict of foreign policy. So I think that is-if we rephrase, I think, Mr. Saxton's very important question, we know you can rely on you have got a great piece of paper. And by golly, at some point, you are going to collect because your lawyers tell you that you have a good breach of contract action.

The real question is: does that breach of contract action that you have, does that contract that you have with a non-U.S. citizen, does that translate into reliability for the U.S. warfighter? That is the question. And that means that that ship will always be there, that there is no chance for it to be retrieved and there is absolutely the same degree of security as if that stock was American owned. That is the question.

General HANDY. And the key, I would say, is history shows that we have had the same assurances and reliability for section 2 and documentation citizens.

Mr. HUNTER. Well, every contract gives you assurances. I mean, that is what a contract is. It is not only assurances, but it is legal assurances that I am going to do—that I am going to perform a certain function as the contracting party.

That does not mean that I might not break that contract for my convenience, knowing that I am going to have to pay some damage. But there is a different standard for the U.S. Government, which needs ships in time of war, than for a commercial entity, which can rely on the fact that they can receive dollar damages if the contract is breached.

But what I am asking you, and I think the essence of what the committee would ask you is: do you have the same degree, do you think that that contract with a company that may be 100 percent foreign owned-owned-gives you the same degree of reliability as a company that is owned by Americans? That is the question.

General HANDY. Well, aside I could say I certainly am more comfortable with a totally U.S.-owned company. I mean, there is no question in my mind that, from the scenario you describe, I would be far more comfortable with a U.S. company. It would be impossible for me to argue that case simply on a written agreement or anything else that we have. I mean, I would have to absolutely agree with you.

What I am testifying to is that, under our current agreements
Mr. HUNTER. Well, you are testifying to that, too.

General HANDY. Yes, sir. I realize that.

The key is, I cannot write a totally, as you point out, locked tight agreement that cannot be breached. I mean, somebody can breach any sort of agreement that we might have. And there are certainly more assurances, more guarantees, more comfort in dealing with a totally U.S-owned shipping industry.

The problem we have is that the sufficiency of the totally owned U.S. industry is not out there today. And that is the problem that we deal with.

And so we find ourselves in a position, as we did in 1996 with the original MSP, that section 2 and documentation citizen agree

ments allow us to operate successfully since then under this agreement and have assurances to have access to those ships. So it may not be the most comfortable position to be in, as you accurately point out, but it is certainly one that has proven itself viable for us in the DOD to date.

Mr. MALONEY. Mr. Chairman.

Mr. HUNTER. I will tell you what. I have taken Mr. Saxton's time. So I have got to yield back to Mr. Saxton. But he asked kind of the key question.

And Mr. Saxton, I apologize for jumping in. But you kind of hit the essence of the hearing. Then we will go-then, if Mr. Saxton wants to yield to Mr. Maloney

Mr. SAXTON. If Mr. Maloney has a point that he wants to make— Mr. MALONEY. I would-on my time or Mr. Saxton's time?

Mr. HUNTER. No, go ahead. If it is okay with Mr. Saxton, go ahead.

Mr. MALONEY. I would just like to follow up your question. What the chairman is getting at is the issue of remedies under the contract. And we are having a discussion here assuming that they are financial remedies.

Are there in-rem remedies? In other words, are there does the contract allow you to seize the ship if, in fact, you need it? Or is the remedy only that you get paid back? What does the contract, in fact, provide in terms of your ability to self-assure that that ship is available when it is needed?

General HANDY. Well, again, part of the difficulty is the scenario. I mean, you could easily say that a ship could be seized. We have access. We have guarantees that we can physically take the ship. The issue is it can be anywhere that is not accessible to you. And so we rely on the legal guarantees and the agreements with each of the ship management companies that these ships will be made available to us when we need them.

Mr. MALONEY. But the contract does provide you those non-monetary remedies? You can, in fact, take the ship if you can get your hands on it?

General HANDY. Yes, sir.

Mr. MALONEY. Okay. Thank you.

Mr. SAXTON. Let me just reclaim my time for one final question. Mr. HUNTER. I think your time is up, Mr. Saxton. [Laughter.] Rusty said. [Laughter.]

Mr. SAXTON. Between the last hearing and today, I have had visits from-visits from and with a variety of people. And one of the conversations that I had with Maersk Sealand, I walked away from thinking, "Well, they have got a real point."

Can you discuss with us can you justify a position that says that Maersk Sealand and other foreign-owned shipping companies, why do they believe that section 2 citizen provisions are not necessary?

General HANDY. Gosh, it would be really hard for me—and perhaps even inappropriate, sir-to try to think why any one of the companies that we deal with would have a position. I mean, I would quickly find myself trying to get inside their minds or defend a position that they are taking. And I

Mr. SAXTON. I understand.

General HANDY. If I could defer it, I would rather let them speak for themselves on those sorts of points.

Mr. SAXTON. I am being coached.

Mr. HUNTER. We have got a joint issue here.

Mr. SAXTON. Mr. Hunter and I are both very interested in a related issue, and that is fast ship.

General HANDY. The company specifically? Fast Ship, Inc or fast ships?

Mr. SAXTON. The concept.

General HANDY. Okay.

Mr. SAXTON. It seems like the concept of building a 900-foot or whatever ship that can do 38 to 40 knots has a lot of appeal. Getting where we need to get faster, more efficiently, less ships-more expensive ships, but less ships.

What do you think about the concept of fast ship? And what do you think about expanding MSP to include fast ships or including them in the present program?

General HANDY. Certainly, one of the things that we do is watch technology very carefully and closely. And we are very familiar with the current concept of fast ship, as well as High Speed Vessel/ Theater Support Vessel (HSV/TSV) types of ships, which are fast ferry, we are also looking at. The latter, we are more focused on intercoastal, as opposed to open ocean/over ocean carriers.

We are watching the fast ship development very carefully, certainly the one you are referring to. A ship that is roughly 850 feet long to 900 feet that could do 38 knots is an interesting construct.

The bottom line, from our perspective, is it has to be militarily useful and multiport capable, draft considerations in the ports that we operate in the world that oftentimes are very constrained. We are looking for, frankly, very high speed.

Right now, we have fast sealift ships that carry considerably more than the current designed fast ship. They are only able to do 24 to 26 knots.

And so as we look at militarily useful, the cost differential for current ships versus next generation fast ships, we would like to see a leap in capability that does not result in a smaller capability or a constrained militarily useful. And so we are looking for everything that industry can produce that I emphasize militarily useful-multiport, preferably not a deep draft ship. So we are watching that with a lot of interest because it certainly is a predictor of what we might be able to develop as time goes on.

Mr. SAXTON. Does the fast ship design that exists in the company up in Philadelphia, does that have some of the problems that you just mentioned?

General HANDY. As I understand the current option, it is a ship that is about-it is smaller than what our current capability is. And it is designed primarily for Continental United States (CONUS) to Cherbourg, France, fast capability in fixed port operations.

And that is certainly one that we have to ask a lot more questions about what does that fixed port mean and how militarily useful that might be. Is it capable of going to anywhere in the world, for example, and being able to offload, onload military unique cargo?

The things that we ship by ship typically are very heavy, bulky sorts of things and lots of containers. So it just depends on the ultimate design of the ship that they come up with and how flexible it is.

Mr. SAXTON. Thank you.

Mr. HUNTER. I am going to go to Mr. Taylor next. But I think your last statement kind of begs the question as to-one way, you know, one thing we are trying to do, in the next couple of years here, is actually do things. And one of the ways you can get things built is through the Title XI program.

General HANDY. Right.

Mr. HUNTER. It gives you enormous leverage. From what I gather, what you have said is it is in the interest of the country to have ships built under Title XI that are militarily useful. And if you can get ships that can get there and get things there quickly, at the start of a conflict, for example, that is another advantage that we should look for.

Is that accurate?

General HANDY. Absolutely.

Mr. HUNTER. Well, do you think it makes sense to build those conditions into the Title XI program?

General HANDY. I would certainly suggest that any program involving Title XI ought to include military useful characteristics to encourage those capabilities in the industry.

Mr. HUNTER. Okay.

Mr. Taylor.

Mr. TAYLOR. Thank you, Mr. Chairman.

General, I am one of the ones who has some hesitation about the idea of a foreign entity owning the ships that our nation is relying upon. I think it leads to a lot of unintended consequences. And I think part of that is the declining mariner pool to foreign owners that are more inclined to hire folks from other countries where they will work for less money. It is just the way of the world.

There is a related situation going on that I was wondering if you were aware of. And that is, one of the things that we can count on for our mariner pool has been the coast-wide trade, even though they are working on offshore supply boats and oceangoing tugboats, some of these vessels are very large. An unlimited master's license is an unlimited master's license, whether he is practicing on an offshore supply boat or a supertanker.

Something that is going on-in fact, the comment period, I believe, ends today or tomorrow-is there was recently an outfit. And I believe the name was Neighbors Drilling Company. And they, like some other corporations-Stanley Tool comes to mind-have decided that they sure like all the benefits of being Americans, but they do not like paying American taxes.

So they have gone through what I believe is called an inversion. Using the 1996 Coast Guard Authorization Act, which was intended to allow people to be able to finance their vessels anywhere in the world to get the lowest rate, they are now chartering themselves as a Bahama corporation and saying, “No, that is just the company that is loaning us money." But they want to turn around and participate in the Jones Act, which is for U.S.-flagged, U.S.owned, U.S.-made, U.S.-crewed.