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vessel is called into service for the Department of Defense (DOD) in a conflict or national emergency that the vessel would be available to DOD regardless of the political position of a foreign government where the vessel owner may reside. In light of circumstances today, however, and the maritime security issues that are prevalent, we believe that the program must be restructured to foster maritime U.S. citizen control.

The changes being proposed to this Panel would, we believe, create a new, and, we further believe, a dangerous exception to the fundamentally sound Section 2 citizenship requirement by permitting a foreign-owned and controlled company to operate Maritime Security Program vessels, if it is a party to a Special Security 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. A foreign company with a Special Security Agreement, or SSA, however, does not, in our opinion, necessarily ensure the U.S. Government reliable access to a vessel. An SSA is an ad hoc, case-by-case, arrangement entered into by DOD with a defense contractor that is foreign owned or controlled and is designed to safeguard classified information. Safeguarding classified information has little if anything to do with ensuring reliable access to equipment owned by the contractor under all international political conditions. Although the liberal implementation of the MSP involving using foreign companies has worked in the past, circumstances and the political environment as it exists today are much more complex and dictates a much more careful approach. The rationale to use foreign controlled, documented citizen companies instead of Sec. 2 U.S. citizen corporations must be much stronger than in the past.

Foreign companies and those who support seeking this relaxation to U.S. citizenship requirements argue that it will reduce their operating costs. We contend that a relatively small reduction in the operating cost of a company is not worth the price of relinquishing our sovereignty and optimal reliability with respect to access to critical marine assets in time of war or national emergency. And, if cost is truly the driving factor for relief from U.S. citizenship laws, what other laws will foreign companies or their legislative strategists want changed next? What additional compromises will we be asked to consider? Will the next law to be changed be relative to U.S. crewing which represents 50% or more of the cost of operating such vessels?

OMSA, though it does not participate in the Military Security Program is extremely sensitive to and supportive of the objective that U.S. crews and their jobs in this program be protected. But we do not believe 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 Sec. 2 citizenship requirements currently in U.S. law, we respectfully maintain that this proposed compromise, offered to obtain a short term, quick fix will serve, inevitably, to undermine the Jones Act and, ultimately, although unintentionally, this proposal will have, we believe, an opposite, adverse impact, in the long run, on jobs for U.S. mariners, the economic viability of U.S. vessel owners and marine operators and upon reliable U.S. control of marine assets engaged in routine commercial Jones Act trades, as well as more sensitive operations critical to our national security. Reauthorization must be 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 concern us greatly. While we are anxious to expedite congressional reauthorization of this program, we are opposed to sacrificing the concept of Section 2 citizenship, and the broader problem 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 Sec. 2 citizenship) militarily useful United States flag commercial vessels, establish an MSP payment 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 charters and enact provisions that would provide reasonable flexibility in the administration of the program. In all of these respects, we can and do support our counterparts and other

stakeholders who may have either direct or indirect interest in the program, and an interest in the ramifications that might follow from the modification of the exiting program.

We accept the fact that there are parties, beside ourselves, who will appear before this panel that feel very protective of the Jones Act and will guard it jealously. For example, I personally know Mr. Eric Johnson, and have the highest respect for this gentleman. I am well aware of his personal commitment to maintain the integrity of the Jones Act, and we do not question the motives behind his conclusions, although we may disagree in some respects with the means to the end that he espouses. Other parties may be in favor of allowing foreign controlled "documentation" citizen's equivalency with Sec. 2 U.S. citizens under certain circumstances, within the subject program. We would not, because of the position they have taken, be so presumptuous as to accuse them of being anti Jones Act, unpatriotic or insensitive to our national security interests. By the same token, neither should we, who oppose certain positions of theirs, be subjected to allegations that we have only selfish interests in this matter and demonstrate disdain for U.S. mariners jobs merely because we disagree with their premise and/or the possibility that this position, if implemented, would have, overall, negative implications for our nation and maritime industries. We want their views to be heard, and our own, as well. We are open to reasonable dialogue on both the hard and the less difficult issues involved in this complex matter.

Consequently, Mr. Chairman, we would, respectfully, ask the panel to consider including specific language to make it clear that, no matter what the outcome of these hearings may be, there should be no action taken or inference available which could have a precedential impact or influence with respect to Jones Act operations.

We submit that our concerns are real, not theoretical. We are already seeing other, similar attempts by foreign companies, through other "windows of opportunity," or loopholes in U.S. law, to weaken our laws that govern U.S. citizenship and the attendant eligibility to operate ships in our domestic commerce, or Jones Act trade. Under changes enacted within the Coast Guard Appropriation bill of 1996 to then existing lease financing laws, for example, we have already seen foreign companies succeed in gaining access to domestic, Jones Act trades and we are now

witnessing the same thing with respect to vessels engaged in support of offshore oil exploration and drilling on the U.S. OCS. These foreign companies typically might establish virtual "shell" companies in the United States to serve a leasing company or as their U.S. citizen operating company in order to qualify, artificially, in our view, to operate in the Jones Act trades by virtue of technical rather than substantive fulfillment of legislative criteria. To add insult to injury, the U.S. will lose significant tax revenue and, ironically, unwittingly participate in promoting, for all practical purposes, the eventual disintegration of the Jones Act.

If the citizenship requirement is relaxed for the MSP fleet, we are convinced that foreign interests will ultimately succeed in further undermining the Sec. 2 U.S. citizenship requirement for operating Jones Act ships in other sectors currently protected by the Jones Act, as well.

We therefore urge Congress to move quickly but cautiously to reauthorize MSP but to reject, in this process, any effort or proposal that would weaken U.S. Maritime Law, and the Jones Act, specifically, by diminishing U.S. section 2 citizenship requirements for vessels engaged in the Military Security Program. We are concerned that advocates of the documentation citizen accommodation may attempt to attach and effect a repeal of the section 22 citizenship requirement for the MSP to active legislation other than the defense appropriation bill. This would not allow a fair hearing and debate of the issues. Hopefully, the rumor and our concerns in that regard are without basis.

Our nation, at this time and in the current circumstances, needs a U.S. merchant marine that is truly, effectively controlled by section 2 American citizens, dedicated to serve our domestic and international commerce. A U.S. merchant marine under the control of documented citizen corporations is absolutely not equivalent, or acceptable, if it can be avoided. This is particularly important with respect to operations that involve extraordinary strategic and national security facets, and with respect to a body of vessels that must be relied upon as a naval and military auxiliary in time of war or national emergency.

In conclusion, we wish to acknowledge the complexity of this matter. We feel compelled to reiterate that, while we strongly disagree with the proposition to repeal 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 to constructively advance the broad interests of the U.S. maritime industry. 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. Sec. 2 citizens and crewed by well trained, loyal U.S. Citizens.

Thank you again, 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.

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