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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 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

[Laughter.]

And tell him, I am delegating. No, I will be happy to do that.
Mr. TAYLOR. Those companies that-

Mr. ALARIO. We have done this.

Mr. TAYLOR [continuing]. Choose to stay in the states who would be more than happy to provide some

Mr. ALARIO. Oh, yes.

Mr. TAYLOR [continuing]. Of the information for you.

Mr. ALARIO. No question. And we have done some work on this. [The information referred to can be found in the Appendix beginning on page 109.]

Mr. HUNTER. And Mr. Taylor, Rusty informs me that is a Coast Guard regulation. And he is going to get a little work up for you

Mr. TAYLOR. Okay.

Mr. HUNTER [continuing]. And for me on that background.

Mr. TAYLOR. I am curious to open this up to the panel. Of those ships that we are paying this subsidy to, how many of them remain Section 2 ships? Any of them?

Mr. JOHNSEN. Me-I am the lone fellow up here with a Section 2. We have seven.

Mr. TAYLOR. So the other 38 or so

Mr. JOHNSEN. No, sir-they are all Section 2 operated ships.
Mr. TAYLOR. Well, that is true because you are

Mr. JOHNSEN. The ownership of the ships and the operation of Waterman and Central Gulf are one. We are Section 2. This gentleman here has a Section 2 because he has them bareboatedMr. KEEGAN. I am

Mr. JOHNSEN. Yes. They are boated in that are owned by Sealand. And then the other one

Mr. TAYLOR. But in reality, Mr. Keegan

Mr. KEEGAN. Yes, sir?

Mr. TAYLOR. In reality, you are owned by Sealand, which is documented, correct?

Mr. KEEGAN. The ships are owned by financial institutions, mostly, Mr. Taylor.

Mr. TAYLOR. I am trying to get back to my original question. If there are any pure

Mr. HUNTER. Mr. Taylor, Mr. Clancey is shaking his head. So you may want to find out what has happened here. Mr. Clancey does not agree with that.

Mr. CLANCEY. Can I just speak for a moment to the APL situation? In that situation, all of the ships are owned by APL entity and

Mr. TAYLOR. Who owns APL entities?

Mr. CLANCEY. APL is part of the NOL group, which is a publicly listed company on the Singapore Exchange. So it is a big company. The APL operations are, by and large, in California.

Mr. TAYLOR. Getting back to my question, I guess we have a little shell game going on here. Is there anything left that is a pure Section 2 American-owned ship where the corporation that owns them, and if there is a corporation that owns, that corporation is also American?

Mr. JOHNSEN. Well, our company is headquartered in New Orleans, U.S., citizen-owned 100 percent. And Central Gulf and Waterman are the two companies. And we operate outside of the MSP. We also have other ships; we have a total of 17 U.S. flagships that are U.S. owned, U.S. operated.

Mr. TAYLOR. So, of the approximately 45 that we say belong to the program, only seven

Mr. JOHNSEN. Well, there are 47 ships in the current program. We have seven of those 47, so there are 40 ships. And Overseas Shipholding Group (OSG) is a U.S. citizen company. It has one, so that is eight. The First American Bulk Carrier Corporation (FABC) has two, so that is 10.

So if my memory is correct, that puts you at around 30 that would be and I do not know whether that accurate, but 30 would be through the intermediary of the APL and the Sealand bareboating their ships to these two Section 2 companies.

Mr. TAYLOR. What disadvantages, if any, does that put you in? Mr. JOHNSEN. What disadvantage does that

Mr. TAYLOR. I mean financial-wise, regulation-wise, is there anything that your board of directors-what are their arguments, if any, that they come to you with and say, "You know, we need to do like those other guys. We need to just become documented citizens"?

Mr. JOHNSEN. In the first instance, my family is the major shareholders. So my board is my brother and my two sons.

Mr. TAYLOR. Okay. So at Thanksgiving

Mr. JOHNSEN. So if they give me hell, it is because of them. But I would tell you that what we need, as a U.S. Section 2 company— we need the Maritime Security Program to continue. And when we saw the existence of what has been approved by our government and we found that we had an existence and, by the way, in the current law, the documentary citizen is already in the current law-when we saw what was already committed, we compromised and said, "Let's hold it to that and go back to Section 2." And that is in this proposal.

In other words, I am suggesting, as a Section 2 citizen, in order to compromise where we are, let us go forward with the ships that APL and Sealand have in their let's grandfather those, but just do not expand it.

Mr. TAYLOR. Mr. Johnsen, with all due respect, I do not feel like you answered my question.

What are the pressures, within your four family member board of directors, to become a documented citizen?

Mr. JOHNSEN. We have no pressure.

Mr. TAYLOR. You do not feel like you have any?

Mr. JOHNSEN. No, sir.

Mr. TAYLOR. There are no advantages for your family to do that? Mr. JOHNSEN. No.

Mr. TAYLOR. I very much follow Mr. Alario's argument, and and I have watched this, and there was stuff that happened before I even got here. But I do feel like there has been a seduction, by degrees

Mr. JOHNSEN. Well, let me

Mr. TAYLOR [continuing]. A little exemption here, another one over there, one over there. And you wake up and suddenly, it is no longer

Mr. JOHNSEN. But let me

Mr. TAYLOR [continuing]. To your advantage to be an American citizen and own these ships. And I do not want to see that happen anymore.

Mr. JOHNSEN. I agree with you.

But let me make this observation, one of the things, as a Section 2 citizen, that we find is, unfortunately, the forgetfulness of our government in respect to our companies. Because we are faced with various costs, taxes, seamen are that go with our ships, our own

corporate taxes. And we do not have accelerated depreciation anymore because that was changed.

Yet, our foreign competition has all of that. And, as a result of that, if I were pressured by just some third party shareholder, I might have pressure. But I am an American citizen and I want to have our ships Section 2.

Mr. TAYLOR. Okay. Mr. Johnsen, thank goodness this is a hearing and not a markup for a bill. Would you document those additional costs?

Mr. JOHNSEN. Sure.

Mr. TAYLOR. Because, just like I asked Mr. Alario, I am trying to educate my-I know my end game. My end game is I want to see a strong Jones Act. I know my end game is I would much prefer to see it as pure Section 2.

We also see what the other end game is and that is to, at some point, make the whole program available to documented citizens. Somebody is pushing this. So I need your help and Mr. Alario's help in making the committee aware of what are the unintended consequences, not only in your industry, but in the entire Jones Act industry for American shipbuilding, for our inland waterways; we need to know what are the unintended consequences if we let that happen.

Mr. JOHNSEN. I would be glad to.

Mr. TAYLOR. That is what I am going for, and that is why I would like your information to help me make that case.

Mr. JOHNSEN. Glad to do it.

Mr. TAYLOR. Okay.

[The information referred to can be found in the Appendix beginning on page 109.]

Mr. Chairman, I yield back.

Mr. HUNTER. Well, thank you, Mr. Taylor. And you have taken your time and Mr. Abercrombie's time, if he comes in. [Laughter.] Mr. Saxton.

Mr. SAXTON. Mr. Clancey, yesterday, in my office in a very short meeting, you indicated that General Handy favors your position relative to Section 2. And you indicated that again today. And I do not doubt that he does.

But let me ask-and I have not had a chance to talk to him. I told you I would

Mr. CLANCEY. Okay.

Mr. SAXTON. And I have not had a chance to do that, yet. But tell the committee members, I mean, why it is that General Handy favors your position.

Mr. CLANCEY. He looks out on the world, a troubled world, today, and he needs lift support. And he knows, because he has been staffed by his people, that in order to get it from point A to point B, you need terminals, you need information technology, you need thousands of people spread all over the globe.

I mean, if it happens to be in Southeast Asia or in the Middle East at the same time, you need to have a company that can respond by just breaking its system up, working with someone like APL and working it so we can be there in 12 to 24 hours. We have the ability to deliver it through difficult geographies.

We certainly would enter the theatre of war, if there was a place we could put a ship in. And we have worked very closely with him with planning what we would do in contingencies and responding to their needs wherever they are on the globe. And, you know, he has just spent a lot of time looking at it, and so have his prede

cessors.

Mr. SAXTON. So it gives you a level of flexibility that you feel you do not currently have?

Mr. CLANCEY. No, we have the flexibility and we are willing to offer it to the government. but what we have said is that on one hand, we can operate MSP vessels under the existing law. We can operate top secret ships. We would like to be able to operate the balance of our fleet as one company. And we think that it is the most efficient. And I think that history has demonstrated-albeit, we make one mistake and I will take the blame for it-that we have been responsive and we have been loyal.

Mr. SAXTON. Okay. I am trying to-so you have ships that you cannot currently use in this

Mr. CLANCEY. We can use them, but we are getting to the point in time we have to reinvest.

We also feel that it is inefficient for someone that is operating ships for the government on one hand and the other makes a telephone call and says turn left or turn right. We think it would be much more efficient if we could just operate the ships ourselves.

I mean, it is our capital, it is our equipment, it is our terminals and we feel it is more efficient and more responsive if we could operate it.

It is similar to anyone building something and saying, “By the way, I am not allowed to operate that, so I will let my neighbor buy the truck and when I want to use it, I will tell them which way to go." A lot simpler to buy the truck yourself and drive it down the street.

Mr. SAXTON. Mr. Keegan, what is your take on

Mr. KEEGAN. Well, you know, the MSP program is there for control during national emergencies with U.S. citizens. And as I stated in my statement, it is there.

But the company Mr. Clancey represents, Maersk Line, he talks about control and control over his ships, but in their fleet, they have 307 vessels. And 200 are under charter and 107 are owned. So they have 200 vessels which they do not directly control, just like the 19 that we operate.

So for their foreign flag fleet, you know, they own and charter in, and the American flag fleet, they charter in. So it is not something, you know, totally out of their day-to-day way that they do business.

But I think we are missing the point here, in some degree, in some of the testimony that MSP is a law that was passed for a reason. And it is worked very well. And it has to do with control during national—during contingencies. And those decisions on where the ships go and when made by the Department of Defense to the Section 2 operator, those decisions are made in the U.S.

I do not know where the decisions are made in APL in Singapore or Maersk in Copenhagen. But I know where the decisions for our

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