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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.]

STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE

FROM MISSISSIPPI 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.

STATEMENT OF MR. ROBERT J. ALARIO, PRESIDENT,

OFFSHORE MARINE OPERATORS' ASSOCIATION
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.Š. 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 program.

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

sonally know Mr. Eric Johnsen, and have the highest respect for this gentleman. I am well aware of his personal commitment to maintain the integrity of the Jones Act, as I do the maritime unions.

Some of these people will not agree with us on the Section 2 citizenship issue. They may be in favor of allowing foreign-controlled documentation citizens with equivalency with Section 2 U.S. citizens under certain circumstances, within this subject program.

So, Mr. Chairman, we would, respectfully, ask the panel to include specific language, as this hearing proceeds, to make it clear that no matter what the outcome of these hearings may be, there should be no action taken or inference made available through the hearings which could have a precedential impact or influence with respect to weakening Jones Act operations.

And I believe that everybody in this room today, while we may have some disagreements, would agree and support that if the committee sees fit and finds it possible to do that.

We submit that our concerns are real and not theoretical. We are already seeing that since 1996 foreign companies have used several newly available loopholes in the law to proceed to infiltrate maritime services that have been traditionally protected by the Jones Act.

And we, therefore, urge Congress to move quickly, but cautiously, to reauthorize the MSP, but to reject, in this process, any effort or proposal that would weaken U.S. Maritime Law and the Jones Act, specifically.

Our nation, at this time and in the current circumstances, we feel needs a U.S. merchant marine that is truly, effectively controlled by Section 2 American citizens, dedicated to serving our domestic and international commerce. I do not feel—and many of us will agree—that this can be accomplished equally by foreign-controlled corporations who may be run by decent people. But under the circumstances today, that is not enough.

In conclusion, we wish to acknowledge the complexity of this matter, Mr. Chairman. And we feel compelled to reiterate that, while we strongly disagree with the proposition to repeal or modify the requirement for Section 2 citizenship to operate vessels within the Military Security Program, we are committed to keeping dialogue open, and look forward to working with you, and all concerned, to find common ground from which we can constructively advance the broad interests of the U.S. maritime industry.

And above all, we are committed to the proposition that this nation must be persuaded that its security and welfare is at risk and that our country will be exceptionally vulnerable until Congress acts to rebuild a healthy and versatile U.S. Merchant Marine, based on U.S. built bottoms, owned and operated by U.S. Section 2 citizens and crewed by well trained, loyal U.S. citizens.

I thank you, Mr. Chairman. We are grateful to you and the panel for your thoughtful attention to our views, and for your kind attention to our comments.

[The prepared statement of Mr. Alario can be found in the Appendix on page 52.]

Mr. HUNTER. Well, thank you very much, Mr. Alario.
Mr. ALARIO. Yes, sir.

Mr. HUNTER. I appreciate your very thoughtful statement. And I understand that you do not represent a Section 2 citizen, but that, nonetheless, you feel that the

Mr. ALARIO. All of my members are Section 2 citizens, sir. I represent them, in essence.

Mr. HUNTER. Oh, okay. You do represent-
Mr. ALARIO. Yes, sir.
Mr. HUNTER [continuing). Section 2 citizens.
Mr. ALARIO. Yes.

Mr. HUNTER. But you feel that this proposed change could start us on a slippery slope with respect to citizenship requirements embedded in the Jones Act.

Mr. ALARIO. We feel intensely that that could be the case. And we have evidence that that is already beginning to happen.

Mr. HUNTER. Okay. Thank you very much for your statement. We appreciate you being with us today.

Mr. Truchan.
STATEMENT OF JORDAN M. TRUCHAN, CHAIRMAN AND CEO,

AMERICAN SHIP MANAGEMENT Mr. TRUCHAN. Mr. Chairman, members of the panel, my name is Jordan Truchan. I am the president and Chief Executive Officer (CEO) of Patriot Holdings, American Ship Management, ASM, and Patriot Contract Services (PCS) all based in Walnut Creek, California. It is an honor for me to appear before you today to speak about the Maritime Security Program and the role the United States Section 2 citizens fulfill in that program.

We believe the MSP program is working well. MSP is absolutely essential to the continuing existence of the American Merchant Marine and, therefore, the national defense and security of our nation.

I respectfully submit it as a statement to the record. And at this time, I would like to make some highlighted key comments.

Mr. HUNTER. And without objection, all written statements that have been prepared by the witnesses will be accepted into the record. But do not feel that you have to repeat your statement word-for-word. It will be accepted in and you are free to summarize in any way you wish. Mr. TRUCHAN. Okay. It is fairly-bit of a summary. Mr. HUNTER. Okay.

Mr. TRUCHAN. American Ship Management is a United States Section 2 citizen as defined by the Merchant Marine Act of 1916. It is wholly owned by myself and my two founding principals, all of whom are U.S. citizens.

ASM holds nine MSP slots with the Maritime Administration (MARAD) and is a member and an active participant in the Voluntary Intermodal Sealift Agreement.

Our affiliate, Patriot Contract Services, is a major contractor for the military sealift command, holding the contract for the operation and maintenance of 11 Large Medium Speed Roll On/Roll Offs (RO/ ROs), or Large, Medium Speed Roll On Roll Off (LMSRs).

Additionally, PCS employed in the United States Navy (USN) Military Sealift Command, MSC, surge program. Additionally, PCS manages six ships for the Maritime Administration's Ready Re

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