ten, we do not feel, from our perspective, that there is reason to treat one any different from the other. And that has been proven over time.

It is certainly-I would have to take for the record the last part of your question because I do not know what SSAS that might be written. I can address SSAs which typically are designed to allow us to have some of our classified conversations with the industry that is not shared with any non-U.S. citizens. And so that is the nature of SSAs, is to allow us to communicate with each other about some of the unique DOD requirements or concerns that are shareable between us and other U.S. citizens.

[The information referred to can be found in the Appendix beginning on page 217.]

Mr. ALLEN. Just one other. I am wondering if we have-when we think about our activation needs, you discussed briefly at the beginning, do we have the mariner pool? Do we have the men and women that we need to, if we have an activation of between-you know, around 50 ships, are the people there?

General HANDY. Well, that is a subject of some concern for us and that I think, as a nation, we ought to be concerned about our mariner pool. That is sort of a flat, broad statement. But I think it is absolutely accurate.

As we look at the numbers, we are concerned that today we probably have and I have to say probably because we cannot say for certain-we should have the mariners that we need to operate, the ships that we would activate, as well as the commercial market that would continue during a time of conflict. But that number is predicted. And indications are, over time, that it is continuing to decline.

And so as we look out into the future, a lot of the discussions about MSP reauthorization ultimately have an impact on mariner availability. The lack of viable U.S. shipping determines the success or viability of the mariner pool. And so we are concerned, as we look into the future, about the numbers of mariners that might be out there and useful to us.

Mr. ALLEN. Do you detect any variation in the size of that pool, based just on trends in the economy? Does the pool grow larger if the economy softens a bit? I mean the global economy now, not just the U.S. Or is that hard to tell?

General HANDY. I have no experience that gives me any insights into the health of the economy and the mariner pool. Most of what we see is, as the U.S. flag shipping numbers of ships have declined over time, so have the obvious, the mariner pool that goes along with it.

And so that seems to be the key. And certainly, you could extend that statement and say, "Well, that certainly may be determined by economy." But I do not have any unique insights into ups or downs and what it might do to the mariner pool.

Mr. ALLEN. Okay, good. Thank you.

Thank you, Mr. Chairman.

Mr. HUNTER. Thank you.

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 makeMr. 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.