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C:\Documents and Settings\alasselle\Local Settings\Temporary Internet Files\OLKS\Statement of Robert Alario July 02.doc

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Good morning Mr. Chairman, ladies and gentlemen. My name is Robert J. Alario. I am privileged to serve as President of the Offshore Marine Service Association, based in New Orleans, La. My association represents 250 companies engaged directly or in general support of offshore oil and gas exploration, drilling or production, worldwide. A list of our members is attached, for the record. Our members and crews operate in excess of twelve hundred vessels worldwide.

We wish to thank you, Mr. Chairman, distinguished members of the Panel, for this opportunity, first and foremost, to express our fundamental support for an effective reauthorization of the U.S. Maritime Security Program. At the same time, however, we are compelled to express our opposition to the repeal or relaxation of the Section 2 U.S. Citizenship provisions of law governing 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 (Section 2 requirements) for vessels 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. 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 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 Sec. 2 to documentation citizens to qualify for operation of U.S. flag vessels within the Maritime Security Program will not translate into an erosion of citizenship standards relative to Jones Act operations. We want to believe, but our experience does not support this thesis, unfortunately.

If Congress is urged today, by parties supporting the premise that documentation citizenship is equivalent to Sec. 2 citizenship, and Congress is persuaded by them that it is acceptable for U.S.-flag ships to be operated, as a matter of course, in our U.S. to foreign trades by foreign companies holding a Special Security Agreement with the Department of Defense,

why would we not expect that Congress would eventually be urged by these or other parties D accept legislation which would allow that the same standard would also be sufficient for companies operating vessels in our domestic and offshore trades. We contend that, in fact, this aggressive strategy by reign owned companies is currently in play. Foreign companies bave recently succeeded, because of loosely drafted legislation, in penetrating U.S. ownership protections previously afforded by the Jones Act. We are concerned that the proposals that se expected here would add another portal through which foreign interests will be able to circumvent, directly or indirectly, U.S. ownership requirements affecting the Jones Act.

I would like to call your attention to the Declaration of Policy of the United States, embodied in
the Merchant Marine Act of 1936 (46 App. USC 1101). Section 101 of the Act states:
“It is necessary for the national defense and development of its foreign and domestic commerce
that the United States shall have a merchant marine
a) sufficient to carry its domestic water-borne commerce and a substantial portion of the

water-borne export and import foreign commerce of the United States and to provide
shipping service essential for maintaining the flow of such domestic and foreign

water-borne commerce at all times,
b) capable of serving as a naval and military auxiliary in time of war or national

emergency,
owned and operated under the United States flag by citizens of the United Sates

insofar as may be practicable,
d) composed of the best equipped, safest, and most suitable types of vessels, constructed

in the United States and manned with a trained and efficient citizen personnel, and e) supplemented by efficient facilities for shipbuilding and ship repair.

It is hereby declared to be the policy of the United States to foster the development and encourage the maintenance for such a merchant marine."

It is here that we believe the crux of the problem, and the solution, resides. And we believe that this panel and, ultimately, the full committee can play a crucial role in reversing the trend of acute decline in U.S. maritime assets.

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In today's environment, the ongoing acts of omission by previous administrations with respect to addressing the need to rebuild a healthy U.S. merchant marine cannot be repeated. We must “see” this old problem in a new, different light.

The times call for bold action in this regard. Serious, initiatives must be taken. For example, why could not the Dept of Defense build the necessary vessels in the U.S., according to their need and specifications, and lease back the vessels to U.S. Sec. 2 operators, who would crew them with U.S. mariners. This would be more consistent with U.S. policy and common sense, under the circumstances.

The underlying pillars, or principles, of our maritime laws are, clearly, to foster American ownership/operation, construction, and crewing. These principles are embodied in our maritime laws to ensure that the United States has the industrial capability to build a fleet of vessels controlled by American companies and crewed by American citizens to meet our national security requirements. 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 force the American companies to go “foreign” in order to compete, or relinquish the field entirely to foreign companies. We believe that a change to any one of these three underlying pillars, or principles of historical U.S. maritime policy, in our opinion, will have a direct impact on the others. 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 be too late to correct the problems that are created by the liberalization of the citizenship requirements.

Congress enacted the Maritime Security Act in 1996. Ostensibly, it retained the U.S. Citizen operator requirement to ensure that an American company, independent of a foreign owner, would retain ultimate and effective control and management of ships in the Maritime Security Program. This requirement was designed to ensure that if a Maritime Security Program

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