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business with a number of clients, some of whom have divergent interests. That is a difficult position to be in.
You have compartmentalized those interests, I think, fairly effectively. At least that is the essence of your testimony. And I do not think there has been any, except for this one mistake that has been pointed out, I have not seen a lot of evidence that those compartments have been pierced.
On the other hand, there is a pretty strong reason, and philosophical reason and policy reason, for having this American ownership requirement. I think you would agree with that. And if you look at the history of America's conflict and engagements and the interests that serve as a backdrop to those engagements, like the example I gave you with Vietnam with our close allies delivering war supplies to our enemies to kill Americans on the battlefieldthere was a reason for having a loyalty requirement, if you will — citizenship requirement with the ships that attend American interests in these theatres.
So my next question to you would simply be this—and that is this: you are dealing with a lot of money here. You have mentioned that you go before your board with a request to build ships that cost
Mr. CLANCEY. Oh, I will.
Mr. HUNTER [continuing). Sixty million dollars, $80 million, $100 million. The amount of money that you are paying, the expense of so-called middlemen-right?—the American company-I am trying to get a fix on that. And I see it at somewhere around $8 million to $10 million a year. Now, is that in the ballpark for America?
Mr. CLANCEY. It is probably a bit higher, but I do not have the exact number. But a couple of points: One, the Department of Defense knows we serve those countries. And if they asked us to stop, we would.
Two, it is the money, one, but also the ability to run an efficient system. And you have just heard USSMI, Mr. Keegan, you know, have some fairly harsh statements about us. We are their customer, their only customer. All of the funds into their company are ours and all the funds out. And it is the ability to build brand new vessels, Mr. Chairman, and be able to operate them themselves.
Mr. HUNTER. But that is the point I am getting at. If you are dealing with $60 million, $80 million, to operate the vessels
Mr. CLANCEY. To build a vessel.
Mr. HUNTER [continuing). To build a vessel, you are talking about an annual expenditure, or burden, if you will, on Maersk in terms of maintaining the contractual relationship with an American citizen, so-called “middleman company,” of around $10 million a year.
Now, it has been held out that that $10 million makes this a very, very difficult thing to do. And one reflects that that is not a lot of money. If you look at the totality of the MSP program, which is $98 million, and if we increase it, it would be well above $200 million.
And so I would ask myself the question-maybe, I would ask you-would you take yes for an answer? That is, if it could be proven to you that the entire cost of maintaining an American citizen
in direct charge of this program—let's say it was $8 million to $10 million was passed through—would you accept that?
And my intuition is it goes beyond that. The money is not that, because that is not an inordinate amount of money when you are looking at the cost of the ships and the enormity of the operation.
Mr. CLANCEY. Well, Mr. Chairman, today
Mr. HUNTER. It does not look like this is a back-breaker, I guess, is what I am telling you.
Mr. CLANCEY. Today, for an example, in the Atlantic, our American flag fleet loses money for the corporation. It is a sign of the times, but it is also the cost of the operation.
And so $10 million is a lot to us because we do need to pay for the ships. And I need to demonstrate to the people, the shareholders, that their investment, over the course of 15 or 16 years, will return something above the cost of capital or we will simply just go out of existence.
Mr. HUNTER. Well, now, let me ask you this, further, then you have, if you are paying $10 million a year, is it your position that all of that is, basically, monies that you would not have to spend?
You would not agree to the proposition that no matter who did it, whether you, even if you had it back in-house, the American citizens are providing some service, doing some training, doing some administration that you are going to have to pay, whether you pay it or they pay it. So are you maintaining to your shareholders that you could actually retrieve the entire $10 million a year?
Mr. CLANCEY. No.
Mr. HUNTER. How much of that do you think you could retrieve in terms of dollars, bottom line?
Mr. CLANCEY. Maybe 75 to 80 percent-
Mr. HUNTER [continuing]. Seven point five million dollars or so if it is $10 million?
Mr. CLANCEY. Ballpark.
Mr. CLANCEY. I think that, you know, that is, as a ballpark, that is pretty close. I do not have the exact number.
Mr. HUNTER. Well, it is kind of unusual that if this burden is such a difficult thing that you are testifying here today and you do not know exactly what it is. I mean, it
Mr. CLANCEY. Well, we know what the information we have been provided. In fact, there is a court case we have won and we are waiting for the documents so we know exactly how much waste is involved. It could be significantly above $10 million.
Mr. HUNTER. Why did you negotiate that?
Mr. HUNTER. Well, but I guess my question is if you think 75 percent of it is not justified by the labors involved
Mr. CLANCEY. Because of the synergies we could bring to the table.
Mr. HUNTER. Well, the question is why did you agree to pay somebody—what?-four times as much as you think the service is worth? You could—I was mentioning-I am sure you have a lot of ex-congressmen out there would be, you know, want to
Mr. CLANCEY. They certainly would
Mr. HUNTER [continuing]. And they would take half the profit. (Laughter.]
Mr. CLANCEY. Every day we negotiate contracts with our large customers, Wal-Mart, Toyota and General Electric.
Mr. HUNTER. Yes. Mr. CLANCEY. When it is not right, we sit down and renegotiate. Mr. HUNTER. Yes. Mr. CLANCEY. And they are still our customers. Mr. HUNTER. Well, have you sat down to renegotiate here? Mr. CLANCEY. We have been totally unsuccessful, Mr. Chairman. Mr. HUNTER. Okay. But at some point, somebody in your shop, without a gun to their head, sat down and negotiated these contracts.
Mr. CLANCEY. The contract was negotiated, correct. I do not deny that.
Mr. HUNTER. Well, you see, that is another problem that I would have, as chairman of the committee, if you think the real cost of this is around $2.5 million, or the real substantiated costs, and that anything above that should be credited as profit, if you will.
So you are talking about maybe a $4 million or $4.5 million program, but it is a $10 million program because your negotiators paid too much. The question becomes should we, in this panel, change the U.S. law with respect to the citizenship requirements, which have a philosophical and policy substantive base, because you folks made a terrible deal and we need to unfasten you from it?
Mr. CLANCEY. My response would be put yourself in my position in front of my board. We are the largest operator of U.S. flagships. We have 43 percent of the lift of MSP.
Mr. HUNTER. I hear you. Mr. CLANCEY. We have a top-secret clearance. The Department of Transportation, the Department of Defense and TRANSCOM have told us they like what we are doing; they support the change. And, by the way, I want to recapitalize that business, but they do not trust us.
Mr. HUNTER. Well, I do not think that is the essence of American requirements, American ownership requirements. I mean, I do not think when we ask for American crews we are saying to all other citizens of the world, “We do not trust you.”
I think we are simply saying that we know that we are going to put—that nations are placed, as the examples I gave you with Great Britain supplying our enemies during a conflict because they did not have a quarrel with them—that foreign policy issues sometimes put nations and their policies in conflict with each other. And that is not something people should be blamed for. But it is a fact of life
And so, to maintain a consistency with American purpose and American foreign policy, we have requested American ownership.
So I do not think we are calling you a name. And you know something else is the fact that you are
Mr. CLANCEY. No, you are not.
Mr. HUNTER (continuing). And I got my note that Mr. Taylor is next. I bet he even wants to say something.
So, Gene, I apologize for monologuing here.
But one reason we have had these requirements in is because we have always been afraid of being at the point where we are held hostage-where we have to do something-where an interest that is not owned by Americans, basically, has us in a tight spot.
As you go down the litany of reliances that we have now on your foreign corporation I mean, what is not so subtly whispered in our ear is, “Maersk is the only game in town.”
And suddenly you realize that this position—that we always told ourselves we would never be in, where we had no options, where we had no alternatives—is almost here. So maybe we are not doing ourselves a service by further promoting that where we get in deeper and deeper because we cannot afford to live without you. And at some point we do not have the options that I think a free foreign policy would require.
Mr. CLANCEY. If I may, just-
Mr. CLANCEY [continuing). Mr. Chairman, MLL, which is the governing company of these assets, is chaired by a retired threestar admiral.
Mr. HUNTER. Okay.
Mr. CLANCEY. On the board is another three-star officer, a retired chairman of IBM and an ex-ambassador of the United States and myself and employees of the company. They would do nothing, at any time, that would be not in the interest of this country.
Mr. HUNTER. Well, let me just answer you. And then I have got to move on to Mr. Taylor.
When Americans were being killed on the battlefield in Vietnam and British shipping companies were moving supplies to our adversaries—the North Vietnamese communists, who were killing those Americans on the battlefield—there were, undoubtedly, in those corporate memberships retired admirals and generals who had fought side-by-side with GIs in World War II, who, nonetheless, found themselves bound by circumstance in what I am sure, for them, was a very uncomfortable situation.
Nonetheless, Mr. Clancey, they executed.
And, you know, I used to joke that Neil Abercrombie and I were twins, separated at birth, but maybe we were triplets. [Laughter.]
We would be honored to have you in that number.
But, Mr. Alario, a couple of things you said got my attention.
I heard you say that you felt like the tax laws favored foreign ownership. Could you be a bit more specific in that?
Mr. ALARIO. Yes, sir.
And this might reflect a little bit on Mr. Clancey's statement about the reliability of people who would, typically, be considered allies or expected to promote the U.S. national interests. We have an example, right now, that one of the largest drilling companies have decided, like Stanley, to do inversion which would cause this
American company to reregister in Bermuda and become a foreign corporation, if you will, a documented foreign citizen.
That corporation owns a fleet of U.S. flag Jones Act vessels that are presently engaged in the offshore out of continental shelf, mineral and oil support services. Typically, by going to Bermuda and becoming a foreign corporation, that company would have been
obliged to sell that service or that line or that fleet to U.S. Section mp: 2 citizens.
But by use of the loopholes that have been developing since 1996, either through lax writing in the legislative and regulatory areas, that company, instead, now will have a favored tax position, which is very clear under the inversion rules, because Congress is investigating that type of thing.
But, in the meantime, to add insult to injury, as I have in my formal notes that I have submitted, we will be, ironically, in a position of helping this company to erode the Jones Act by allowing them, through manipulation of some of the regulations—for instance, forming what I call an artificial leasing company under the leasing provision act of the Coast Guard Authorization Bill of 1996, they are going to do all of the technical, mechanical things that qualify them on paper as a documented citizen.
And we can say that, well, this does not relate to that, but that, in 1996, was not an option either. But it has become, now, a door through which foreign-controlled corporations are finding ways to compete with other Section 2 citizens. And they do not pay the taxes. And they do not have to meet the same rules.
So I do not know whether I have answered your question, Mr. Taylor, but the fact is that this company will be a Bermudan corporation, free of a lot of—unless Congress does something, obviously, through the inversion and will have a tax advantage over the U.S. companies that are competing with them.
Mr. TAYLOR. Mr. Alario, if you would, I would be very interested in you documenting that.
Mr. ALARIO. Yes, sir, I would be happy to.
Mr. TAYLOR. In particular, if 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 someone—that the company who is trying to invert would gain, versus the ones who stay here.
Mr. ALARIO. I will be happy to try to do that. I am sure that my one-man staff will be delighted when I get back
Mr. TAYLOR [continuing). Choose to stay in the states who would be more than happy to provide some
Mr. ALARIO. Oh, yes.
[The information referred to can be found in the Appendix beginning on page 109.]