ships are. They are made right here in the U.S. and the ships will go when they are asked.

Mr. CLANCEY. Congressman?

Mr. SAXTON. What kind of decisions-we will get right back to you, Mr. Clancey.

What kind of decisions are you concerned that might occur if the decisions are not made here in the U.S.?

Mr. KEEGAN. Well, you know, let's say there is a conflict in China and we are involved. And the U.S. Government says, "Okay, gentlemen, you American companies withdraw from China." Maersk is the largest builder of ships in China, next to the Chinese. They have tremendous investments. As they said before, they are a global company. If they were asked to move from China, I do not know what the answer would be, as a Danish corporation.

And that is, I think, why the MSP program was limited to U.S. citizens and U.S. control. There is no doubt contingency; you know, if the flare goes up, we go.

Mr. SAXTON. And you would make the decision to make them move out of China?

Mr. KEEGAN. No, sir. I would make the decision to deploy my ships where the Department of Defense wanted them deployed. To our captain, we would say, "Hey, Afghanistan direct.”

Mr. SAXTON. Mr. Clancey, you wanted to say something a minute ago.

Mr. CLANCEY. Yes. I just happen to have have been given TRANSCOM's position on this; somewhat concerned as to whether such an expanded waiver would impair U.S. TRANSCOM's access to the vessels in the time of crisis. In fact, our review of the appropriate statutes suggest that the United States would retain significant powers to obtain access to the vessels during a contingency, even if the Maritime Security Act was amended to permit more MLL vessels, or vessels operated by all documented citizens, to be eligible at the top tier of vessels competing for MSP payments. Mr. SAXTON. Now, I am sorry-what are you reading from? Mr. CLANCEY. TRANSCOM's position.

Mr. SAXTON. And what gives TRANSCOM-why TRANSCOM feel that way?

does

Mr. CLANCEY. Because they have worked with us for 15 to 20 years. They visited our corporate headquarters. They visited Norfolk. They visit us, we visit them. Over five succeeding Commanders in Chief (CINC) at TRANSCOM have been supportive of what we are trying to do. They know that we bring a lot more to the table than just the ships, and it is the infrastructure that allows them to respond.

Desert Storm was a perfect example, and what might happen in the future will demonstrate that once again.

And by the way, we are not the largest builder of ships in China. Last year we built 20 ships, Germany, Denmark, Taiwan, and several in China-five to be exact.

Mr. SAXTON. Mr. Bowman.

Mr. BOWMAN. I would just like to add to the concept of the network and the infrastructure. I have a letter here from the general, the Military Traffic Management Command, to APL. It is dated June 26, 2002. And I will submit this letter for the record. But,

among other things, it says, "The success of our operations," meaning the military operations, "in the Afghanistan area would not be possible without the level of performance you showed" APL and Automar, "in moving this shipment and others into the theatre of operations."

Now, you asked earlier, Mr. Chairman, how did we get into the theatre of operations. Our operation is a little bit different in that we went the other way. We went to Karachi, then our truckers took the cargo up through the internal of Pakistan, across the mountains and into the delivery zone. It was the infrastructure of the ports that we controlled in Karachi-the trucking system that we used all the time in the Pakistan area in peace time that enabled this movement.

And, if Mr. Keegan says, "Well, you can count on my sailing my ship to Karachi," that is only half the job. And, in fact, the easiest part of the job.

[The information referred to can be found in the Appendix on page 103.]

Mr. SAXTON. Thank you, Mr. Chairman.

Mr. HUNTER. Yes. Thank you, Mr. Saxton.

Actually, Mr. Johnsen has been sitting here next to me making this same point, that the infrastructure and the terminals and all of that, companies, the throughput, if you will, of the goods is part and parcel to that.

And just one question before I go to Mr. Allen. Who controls your terminals? You

Mr. BOWMAN. Terminals throughout the world are controlled in different mixes. Some we own, some we have long-term contracts on. And I have heard others say, "Well, we can always rent a terminal." Not in the middle of an Afghanistan strike, you cannot.

The infrastructure is there the people are there they are on the ground, ready to serve. They know the locality. That is the difference.

Mr. HUNTER. Okay.

Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman.

There is a second panel with members of various maritime unions coming up to testify. But, before you go, I would like to ask both groups what your sense is what the impact would be on the unions that are represented in the second panel if we go one way or another with this.

For example, what is the impact if you have the kind of legislative compromise proposal that is laid out here? I mean, how would you analyze the impact on your workforce? Just for the moment, leave aside the reliability issues. But if I could ask that of anyone that wants to comment.

Mr. JOHNSEN. I will take a crack at that, Mr. Allen. I think that the compromise that we are proposing or the greatest consensus here was an effort to preserve and build on jobs. We understand the-we, particularly, are the Section 2 company-had to be convinced, ourselves, that this would be beneficial for the entire industry.

And we have come to the conclusion that the compromise of limiting the amount of documentary citizens to the existing ones that

are there and then going back to Section 2 is the best method because we need investment in new ships.

All of us are in a situation where our ships-we at Waterman and Central Gulf are in the process, now, of looking for new ships. And with that, in order for us to move forward with that, as John Clancey said, each of these pieces are $60 million, $65 million.

If we are going to go forward, we need this program. We need to be realistic that what we have now and what the DOD has accepted, and we think this, for the point of the unions and for the general well being of the industry, is the best way to go.

Mr. ALLEN. Okay. Thank you.

Others?

Mr. Alario.

And then we will come back to Mr. Clancey.

Mr. ALARIO. I would just like to attempt, again, to segregate the fact that we are talking on the one hand, appropriately here, about a particular program which involves a handful of U.S. built, U.S. owned ships, despite the fact that they may be U.S. flagged.

We are also interested, in this program, in protecting jobs that are under the mantle of the maritime unions that are involved in this hearing.

I call the attention of the panel, again, to the fact that our industry represents over 1,200 vessels, not one, five, 10 or 12, that conceivably could be impacted by legislation which is not careful to segregate what happens in this program and what will happen or fall over into the other areas of maritime operations.

And none of those jobs aboard those 1,200 ships come under the mantel of maritime unions. It is a non-union, privately ownedmany privately, small-owned corporations, which are in a militarily strategic and a national security zone of outer continental shelf (OCS) operations in-where over 20 percent of this nation's oil and gas is produced.

It is not something that we take lightly, although we have no direct participation in the program, we remind the committee and the panel that this is something that we have to proceed with very cautiously. Because it is not accident that our U.S. Merchant Marine is now redressed to approximately 180 ships, and waning, and that the Jones Act is under attack from all angles.

And I know that this panel or this committee is not unaware of that. But it is time, since 1996 and since September the 11th, despite the fact that there may be a good record of participation and cooperation between companies that are presently in this program, this is a different world-a different time and we have to look at it with a different-in a different light.

Mr. ALLEN. Thank you.

Mr. Clancey.

Mr. CLANCEY. Not only just, you know, your question in terms of labor-probably approximately 90 percent of the owners of the assets in the MSP program support the compromise. And the compromise, as we see it, would enhance opportunity for labor. And we have committed that to them.

Mr. ALLEN. I am sorry, I did not catch that last part. What did you say?

Mr. CLANCEY. That the compromise, as we have presented, by 90 percent of the ownership of the MSP fleet, would enhance the opportunities for labor.

Mr. ALLEN. Okay.

Mr. Keegan, I am looking for a note I made on something that you said. And I am trying to-I cannot seem to find it. I know I made the note. It is here somewhere.

But I guess what I wanted to ask you was what is your reaction to the proposal laid out here that would establish an equal priority for Section 2 companies and documentation companies, provided the documentation company had a special security agreement with the Department of Defense?

Can you speak to that?

Mr. KEEGAN. Yes, I can, sir.

I think I said in my testimony and I said before that the existing MSP program was well thought out, enacted and I think works very, very well. I do not see a need for change. I think, you know, the reasons the MSP program was enacted and why it is running and how it is structured works. It maintains the Section 2 citizenship. It maintains the integrity of the defense call up. And I think the system, the law-you designed the law; you implemented it. I think it works well. And I say, "Why change it?"

Mr. ALLEN. Well, let me ask you, then

Mr. KEEGAN. Sure.

Mr. ALLEN [continuing]. Why would that system be-why would the vessel owners in a system like that be less reliable than Section 2 citizens? I mean, I heard what you were saying about, you know, U.S. citizens making a decision and there is no-I am really probing for

Mr. KEEGAN. Okay.

Mr. ALLEN [continuing]. What else you can add to that particular

answer.

Mr. KEEGAN. It is my opinion that a foreign corporation is just that, a foreign corporation. The interests of that corporation are governed by the state it is located in or the country it is located in and its global reach and how that affects its economics. Not true of the Section 2 citizen. We are based here. Our decisions are made based on U.S. law. We operate on the U.S. law.

And, you know, I cannot predict the future, but I think the chairman said it best. Fighting in Vietnam and our allies, the British, you know, providing service to Haiphong. I mean, we have seen it in the Gulf War. We have seen it in the recent Afghanistan conflict. I mean was Germany truly on our side? Did we get the overflight rights from Saudi Arabia like we needed?

And, let's face it, some of these companies, one for example, Denmark, is in the European Economic Community (EEC). That has to be guided by the EEC policy now. And does that match with U.S. priorities and U.S. statutes?

I am just saying that it is clear to operate this fleet, you need U.S. citizens to operate it. And I think it works well.

Mr. ALLEN. Mr. Bowman, do you want to respond to that?

Mr. BOWMAN. Yes. I would just like to respond to something Mr. Keegan said when he said that nothing changed since the MSP enactment. Seems to me that is absolutely incorrect. Everything

changed. When MSP was enacted, all of these companies were American citizen-owned companies. Sealand was one of the biggest, strongest American companies.

APL, again, completely American owned-all of these companies-and what else? We all worked for the same companies. These Section 2 companies were part of the operating entities that were these strong American companies.

In the interim, both APL and Sealand have been sold and, in addition to a number of others, leaving only my friend, Mr. Johnsen, here as the true American citizen.

So everything has changed of late. And we have to address a modern world and make some compromises that will protect both the security of the United States and induce continued availability of the kind of networks that these two companies run.

Mr. ALLEN. And let me make sure, if I could-I will come to you in just a moment, Mr. Johnsen-for Mr. Bowman and Mr. Clancey, as I understand the heart of your argument, you are saying you have these middlemen that you are paying X number of million dollars per year. And you ought to, I think in your words, Mr. Clancey, you would like to operate the ships yourselves so you would have more money to invest in new ships. And that is, as I understand it, the heart of your argument.

I want to prioritize this and make sure I understand where you are coming from.

Go ahead.

Mr. CLANCEY. It is money; it is synergies; it is control. And it is the focus on our strategic planning as we go forward. If we are going to re-capitalize the fleet and build new technology, we would like to be able to control it.

Mr. ALLEN. Mr. Bowman.

Mr. BOWMAN. I would hate for this to be only about money. It is not only about money. It is about the question of, as Mr. Clancey said, controlling your own ships. After all, the way the structure now works, APL and Sealand and the other companies in their position have to invest in the ships, give them to the Section 2 citizens and then get them back.

What sense does that make when at the same time these same companies are entrusted by the Department of Defense in their pre-positioning forces, where both our ships are, where we carry military equipment ready to go, completely at the disposal of the Defense Department and they trust us. It just does not make any

sense.

Mr. ALLEN. Mr. Johnsen.

Mr. JOHNSEN. Mr. Allen, I just wanted to say that we should look at the existing legislation because we, as Section 2 citizens, saw that way back in 1996 when there are already documentation citizens that are eligible. They just put a priority system. Priority one is Assistant Section 2 and if there are no Section 2s, then you go to documentation.

So, from a practical point of view, what we are talking about, from my point of view, as a Section 2 citizen, I wanted to try to, quite frankly, narrow it. And I wanted to say, "Okay. We have got these 28 or 30 ships. Let's grandfather those, but let's go back to Section 2."