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Washington, DC, Tuesday, July 16, 2002.

The panel met, pursuant to call, at 3:54 p.m., in room 2212, Rayburn House Office Building, Hon. Duncan Hunter (chairman of the panel) presiding.


Mr. HUNTER. Okay, folks, we apologize for the delay, here. That is the way the House works. When they are ready to vote, we vote. And hopefully we will have about an hour or so before we have to go back.

The special panel will come to order.

And I would first like to welcome the witnesses that are scheduled before us today. And, again, thanks. And thanks for your patience.

Although we have some time before the current Maritime Security Program (MSP) expires, the panel wanted to get started right now with the hope that we can get something enacted well before the current expiration date of 2005.

I understand that getting agreement among all the disparate interests will be difficult and I also understand that paying for a new program will be equally challenging. What I hope the panel will do is work through each of the difficult issues, with a goal of getting agreement on a consensus package that we can all unite behind. It is clear to me at this point that we will not be able to satisfy each and every desire.

This is the first of what I hope will be several additional hearings relating to the Maritime Security Program. The next hearing will address issues related to commercial shipbuilding and the MSP program. I hope that hearing will also address additional incentive programs, such as needed changes to our tax laws. We may also need to hear from other components, such as the bulk opera


Before we proceed to markup, I believe the panel will need to hear from those within the government who set the requirements for commercial reserve sealift capability. Accordingly, I will invite the head of the Transportation Command, General Handy, to testify.

We all know that if we do not get his support for the key elements that reauthorization of MSP will be very difficult. And quite frankly, I think these two gentlemen recognize that we are not just getting access to ships in the Maritime Security Program, but also the infrastructure that goes with them. We need to hear the importance of that part of the package.

Finally, after we build the record, I want to get the administration before this panel to hear their view, get their support, and, most importantly, receive a commitment to include funding for a new program in their budget.

And I want to thank Mr. Allen and Mr. Taylor. And Mr. Allen is the ranking member. He has given us great support and guidance. And I understand he is not with us right now. But Mr. Taylor is here and I would like to let him make any comments that he might wish to make.

Mr. Taylor.

[The prepared statement of Mr. Hunter can be found in the Appendix on page 49.]


Mr. TAYLOR. Thank you, Mr. Chairman. I was not expecting Mr. Allen not to be here. So, if you do not mind, whatever statement he had, we will just send it to the record.

Mr. HUNTER. Excellent.

And if any other members have any statement they would like to make, please feel free. Does anybody else have anything they would like to say before we get started with testimony?

In that case, why don't we just, for purposes of convenience right now, just start with Mr. Alario and let's just go right across the panel, left to right.

And Mr. Alario, the floor is yours, sir.



Mr. ALARIO. Thank you, Mr. Chairman.

Good afternoon, members of the panel.

My name is Robert J. Alario. I am privileged to serve as president of the Offshore Marine Service Association (OMSA), which is based in New Orleans, Louisiana. My association represents approximately 250 companies that are engaged directly or in general support of offshore oil and gas exploration, drilling, or production, worldwide.

A list of our members has been attached, for the record. And our members and crews, it should be known, operate in excess of 1,200 vessels worldwide. These are special purpose, unique vessels. But, nevertheless, though we are often regarded as sort of second cousins to the merchant marine, we are part of the U.S. flag fleet and the largest participating marine interests that operate both domestically and in foreign theatres.

We wish to thank you, Mr. Chairman for this opportunity, first and foremost, to express our fundamental support for an effective reauthorization of the U.S. Maritime Security Program (MSP).

At the same time, however, we are compelled to express our opposition to proposals to repeal, relax, or modify Section 2 U.S. citizenship provisions of law that govern 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, that is Section 2 requirements, for vessels that are operating under the U.S. flag poses, in our opinion, a more fundamental, potentially corrosive threat to the citizenship requirements for operation of U.S. flag vessels, not only in this area, but in others.

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, more particularly in our case, 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 Section 2 to documentation citizenship to qualify for operation of U.S. flag vessels within this Maritime Security Program will not translate into an erosion of citizenship standards relative to Jones Act operations. We desperately want to believe this, but our experience, and particularly our experience since 1996, when several potential loopholes have been opened up in U.S. law, our experiences simply do not support this thesis, unfortunately.

The underlying pillars of our maritime laws have been and are, clearly, to foster American ownership, operation, construction, and crewing. These principles are embodied in our maritime laws in order to ensure that the United States has the industrial capability to build a fleet of vessels that are controlled by American companies and crewed by American citizens to meet our national security requirements, in particular.

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 would eventually force the American companies to go "foreign" in order to compete, or, more likely, relinquish the field entirely to foreign-controlled companies.

Now, we believe that a change to any one of the three underlying pillars or principles of historical U.S. maritime policy, in our opinion, will have a direct impact on the others.

And 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, unfortunately, be too late to correct the problems that are created by the liberalization of the citizenship requirements.

The changes being proposed to this panel, we believe, would create a new, and, we further believe, a dangerous exception to the fundamentally sound Section 2 citizenship requirement by permitting, for extended periods foreign-owned and controlled companies to operate maritime security vessels, if it is a party to a special se

curity 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.

We contend a foreign company with a special security agreement, or SSA, does not, in our opinion, necessarily ensure the U.S. Government reliable access to a vessel under all circumstances.

OMSA, though it does not participate in the Military Security Program is extremely sensitive to and supportive of the objectives that U.S. crews and their jobs within this program and beyond be protected. But we do not see 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 Section 2 citizenship requirements currently in U.S. law, we respectfully maintain that this proposed compromise, offered to obtain a short-term solution, if you will, will, inevitably, undermine the Jones Act and, ultimately, although unintentionally, this proposal will have, we think, the opposite, adverse effect or impact 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.

So we say that reauthorization under the purview of this panel and the committee must be, hopefully, 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 concerns us greatly.

While we are anxious to expedite congressional reauthorization, Mr. Chairman, of this program, we are opposed to sacrificing the concept of Section 2 citizenship and the broader problems 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 Section 2 citizenship, we say, militarily useful United States flag commercial vessels; establish an MSP payment schedule 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 charter; and, in general, enact provisions that would provide reasonable flexibility in the administration of the


In all of these respects, we can and do support what our counterparts and other stakeholders who may have either a direct or indirect interest in the program, and an interest in the ramifications that might follow from the modifications to the program.

We clearly accept the fact that there are parties, beside ourselves, who will appear before this panel that feel very protective of the Jones Act and would guard it jealously. For example, I per

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