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serve Fleet. All together, our company currently manages 26 U.S. flag commercial and government vessels.

ASM employs over 1,500 U.S. citizen seafarers covering over 500 seagoing billets. In addition, we have 150 shore-based positions also filled by the maritime unions. We employ over 50 shore-based management personnel working in offices in the states of California, Louisiana and Virginia.

In 1997, ASM was formed by the three principals to be a completely independent U.S. citizen entity. This entity would operate U.S. flag vessels enrolled in MSP, in accordance with U.S. law.

ASM submitted applications with MARAD for MSP agreements to cover the nine containerships American President Lines (APL) had committed to the U.S. Government for participation in MSP. Throughout a seven-month period, ASM underwent intense scrutiny by MARAD to confirm its independent status before finally being awarded these MSP agreements. ASM assumed operational control of the APL U.S. flag fleet in November of 1997, concurrent with the sale of all APL stock to Singapore-based Neptune Orient Lines.

ASM provides unique ship management services and wholly responsible for the safe navigation of the vessel; provides officers and crew; places all insurances for the vessels, crew, and cargo; outfits and provisions the vessels; maintains the vessels in a seaworthy condition at all times; ensures regulatory and statutory compliance; enforces crew discipline and compliance with collective bargaining agreements; and provides emergency response and contingency planning for the vessels operations.

As the responsible party in stage 3 of the Voluntary Intermodal Sealift Agreement (VISA), ASM enjoys close working relationships with the United States Transportation Command, MARAD, and MSC. ASM has participated in numerous Joint Planning Advisory Group exercises and all visa CEO meetings.

ASM maintains collective bargaining agreements with six maritime unions. As a concerned U.S. citizen company, ASM has worked diligently to develop opportunities for American seafarers and recruit new seafarers to augment the aging and diminishing American seafarer workforce.

ASM's business model is the prototype for the current MSP Section 2 citizen operator to operate U.S. flagships on behalf of nonU.S. citizen carriers in the U.S. flag trades. This business arrangement provides the carrier with the ability to carry U.S. Government impelled cargoes while providing strategic sealift capacity to the U.S. Government and jobs for U.S. seafarers and shore-based workers.

ASM is committed to its ongoing participation in the current MSP, and ASM is equally committed to working with all the parties to accomplish reauthorization and expansion of MSP.

In closing, I want to thank you for the opportunity to provide testimony before this panel on the subject of MSP. ASM is a wholly U.S. citizen-owned Section 2 company formed for the purpose of providing U.S. flag sealift capacity to the U.S. Government. In this effort ASM creates jobs for American seafarers and office workers while providing tax revenues for the U.S. Government.

ASM provides our country an industrial base for ship operation and management in the United States. And last, but most important, ASM, as a United States Section 2 company, is committed to the security and prosperity of the United States of America and its loyal citizens. Thank you very much, sir.

[The prepared statement of Mr. Truchan can be found in the Appendix on page 61.]

Mr. HUNTER. Thank you, Mr. Truchan. Thank you very much for your statement. Mr. Keegan. STATEMENT OF JAY T. KEEGAN, PRESIDENT, U.S. SHIP

MANAGEMENT Mr. KEEGAN. Mr. Chairman and members of the panel, my name is Jay Keegan. I am president and CEO of U.S. Ship Management Incorporated (USSMI). And I am pleased to be here today.

Mr. Chairman, On April 26, 2001, you stated that U.S. ownership and U.S. control requirements are critical to the continued viability of the MSP program and must be preserved. It is gratifying that in a letter to you, dated June 18, 2001, all of the other members of this panel agreed with your position.

In light of the events since that time, I would submit that MSP American citizenship policy has become even more critical.

Mr. Chairman, I want to be clear that U.S. Ship Management supports the Maritime Security Program. We also support a properly designed reauthorization of MSP, but we must get it right.

Although we have been excluded from the process, we understand that Maersk, APL and others have drafted proposed legislation to reauthorize the MSP program three years before its current authorization expires, which contains provisions that truly strain credulity.

Their legislation would bind the U.S. Government to 20-year operating agreements while allowing the operators to opt out of the contracts and even transfer their vessels to foreign flag, simply upon giving notice to the secretary of transportation.

For example, just before their vessels are required and the contingency in the Taiwan Straits or Iraq, under their bill, they could give their notice and transfer their vessels, perhaps, to a Peoples Republic of China (PRC) flag or an Iraqi flag.

Their legislation equates a foreign-controlled documentation citizen with a U.S. citizen-owned and controlled company. This would put American companies like mine out of business. And most importantly, would have profound national security implications.

I understand that the seagoing unions feel pressured to support Maersk in these efforts because Maersk has threatened to transfer its American flag vessels to foreign flags if their legislation is not enacted. This is an idle threat. It is not logical for Maersk, a $35 billion company, to abandon U.S. flag vessels and U.S. Government cargo in hope of saving, perhaps, a few million dollars.

But if they did, other companies would certainly step in to operate U.S. flag vessels.

Mr. Chairman, the focus of today's hearing is U.S. ownership and control of vessels operating in the Maritime Security Program. I do

not believe Maersk representatives have fully disclosed to Congress, or to this panel, information which will be critical to your consideration of this important issue.

Specifically, the secretary of state has designated Iran, Iraq, Libya, and Sudan as state sponsors of international terrorism, yet Maersk continues to do business in these countries. I ask that proof of this fact, including material owned from Maersk's own Web site, be included in the record, which I have with me.

According to Maersk, they began serving in Iran in 1950 and, quote, since then provide uninterrupted service to Iranian customers even during the revolution and Iran Iraq war period, end quote. Therefore, Maersk provided continuous service to Iran while Americans were being held hostage there and throughout the entire period of U.S. economic sanctions against that country.

Let me be clear, I am not suggesting that Maersk has violated U.S. law, because, after all, Maersk is not a U.S. citizen. But Maersk is appearing before this panel and claiming they should be considered as the equivalent of a Section 2 citizen.

Mr. Chairman, it is not enough to be “like” a citizen. Contrary to Maersk's rhetoric, Section 2 companies like mine are not shams. We play a vital role and help to ensure U.S. national security. We also provide real jobs to real people and provide exactly the kind of check and balance intended by Section 2 for U.S. national security.

Let me give you a clear example of why American control of MSP enrolled ships is critical. On November 26, 2001, while news reports were indicating that Al Qaeda and Taliban fighters were being allowed to cross the border into Iran from Afghanistan, Maersk directed one of our ships, the Sealand Express, an American flag D9J class vessel, to proceed to the port of Bandar-e 'Abbas in Iran. The ship was not due by at the time. And Maersk began loading containers on board, destined for Iran, which could not accommodated on Maersk's own foreign-flagged vessel, which goes to Iran every week.

As an American citizen company, wholly owned by American citizens, our loyalty and obligations were clear. We would not allow the ship to go to Iran. The Maersk containers destined for Iran were removed from the Sealand Express and the vessel resumed its normal schedule.

As Eric Johnsen said, a commercially viable, U.S. flag fleet is also the way to ensure that foreign carriers do not exert control over the price of U.S. imports and exports. But is that the case if that U.S. flag fleet is owned and controlled from Beijing or Singapore or Denmark?

Mr. Chairman, some appearing before you today have tried to color their proposal regarding citizenship as one that tightens the requirements. That is pure sophistry. It has been, and remains, the stated policy of the United States to have a merchant marine, and I quote, owned and operated under the United States flag by citizens of the United States insofar as may be practical. Citizen of the United States is defined to mean a Section 2 citizen. To ensure that policy result, if the MSP program is changed at all, we should ensure that only Section 2 citizens can be MSP contractors.

In a time of national emergency, the United States needs to know that it can count on genuine U.S. citizens rather than the legal fiction of documentation citizens. Unfortunately, we can envision conflicts where foreign-controlled documentation citizens might decide to be neutral when our nation requires commitment.

If we permit a documentation citizen the same rights and privileges as a Section 2 citizen, we will hasten the demise of the citizen-owned U.S. Merchant Marine in the foreign trades. And, as importantly, it will eventually open up both the domestic and noncontiguous trades to foreign ownership and control.

Do we want this to happen? I think not. The Maritime Security Program and the Section 2 citizenship policy of the MSP have served our country well. And I would respectfully submit that the policy should not be modified.

Thank you for this opportunity to testify. And I look forward to answering any questions which you or your other panel members may have.

[The prepared statement of Mr. Keegan can be found in the Appendix on page 65.]

Mr. HUNTER. Thank you, Mr. Keegan.
Mr. Johnsen.


INTERNATIONAL SHIPHOLDING CORPORATION Mr. JOHNSEN. Thank you, Mr. Chairman, and members of the panel.

I am particularly pleased by the invitation to appear before you today to address the vital need of the reauthorization of the Maritime Security Program to ensure the continued viability and survival of the U.S. flag fleet. I am Erik Johnsen and I am president

am president of International Shipholding Corporation (ISC). ISC participates in the Maritime Security Program with its principal U.S. flag subsidiaries: Central Gulf Lines, Inc. and Waterman Steamship Corporation, both of which provide a wide range of oceangoing freight transportation through pure car-truck carrier services, Roll On Roll Off, breakbulk, and domestic coastwise services.

I am speaking here today on behalf of Central Gulf, Waterman, and other U.S. flag participants in the Maritime Security Program, including American Roll On/Roll Off carriers, American President Lines and its sister company, American Automar, Maersk, Sealand, Overseas Shipholding Group and American Ship Management.

Though many of these U.S. flag carriers will submit separate written statements for the record, I wish to strongly emphasize to you that we all, collectively, support the continuing need of the Maritime Security Program and urge you to expeditiously enact legislation to reauthorize that program, which is so vital to the sealift capability of our nation and its armed forces.

Mr. Chairman, during the past year, Central Gulf and Waterman have been working closely with the U.S. transportation command, the maritime administration and other maritime security program participants and the maritime labor unions in an effort to develop à legislative proposal to reauthorize the Maritime Security Program that would preserve and enhance the Maritime Security

Fleet. And I am very pleased to report that we have reached a strong consensus on the statutory provisions that are required to ensure the viability of such a program.

To that end, we strongly support an extension of the Maritime Security Program for a period of 20 years. This extension would give investors and leading institutions more confidence to provide the funds necessary for the replacement of vessels and the expansion of the U.S. flag fleet.

Additionally, we urge the expansion of the Maritime Security Fleet to at least 60 militarily useful vessels, an increase of 13 vessels beyond the current authorization. This would bolster the U.S. sealift capacity, while providing a greater base of employment for American merchant mariners.

We further propose that each vessel in the Maritime Security Program would be eligible to receive $3.5 million in the first year of the extended program, with annual inflationary adjustments thereafter, to keep these vessels under U.S. flag and to make them available to the military in times of national emergency.

Mr. Chairman, at this juncture, I would like to point out that Central Gulf and Waterman are United States owners and are Section 2 citizens, under the Shipping Act of 1916. We have participated in numerous discussions with the Department of Defense, the Maritime Administration, as well as U.S. maritime labor unions and the Maritime Security participants concerning proposals wherein documentation citizens, under Title 46 of the United States Code, and their owners would have to fully abide by the Department of Defense special security agreements in order to take part on a priority level in the Maritime Security Program.

As Section 2 citizens, Central Gulf and Waterman believe that the proposed consensus for reauthorization of the Maritime Security Program is an acceptable compromise in that it gives the necessary safeguards to justify the equal status of Section 2 and documentation owners in a very limited way for the 47 grandfathered Maritime Security Program vessels, while at the same time maintaining the Section 2 citizen priority for the 13 vessels that would be added to the program.

Furthermore, the Maritime Security Program and our proposed reauthorization provisions only concern the engagement of foreign trade with the United States and under no circumstances would they or are they intended to affect the Jones Act.

Mr. Chairman, this legislative compromise provides for the necessary U.S. citizenship involvement for participation in the Maritime Security Program and, further, ensures that at least 60 active, militarily useful, privately-owned vessels will be under the U.S. flag and readily available to the Department of Defense in time of emergency.

Mr. Chairman, I very much look forward to working with you and your panel on this matter of vital importance to our national and economic security. And thank you very much.

[The prepared statement of Mr. Johnsen can be found in the Appendix on page 68.]

Mr. HUNTER. Mr. Johnsen, thank you for your statement.
Mr. Bowman.

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