U.S. Owners Could Place $5 Billion In New Ship Orders

In mid-June, Secretary of Transportation Andrew H. Card Jr.

outlined a major initiative to revitalize U.S. shipping. In explaining the proposed policy, Secretary Card said that the changes will "set a new course for America's merchant marine, one which will enhance its competitiveness and improve its viability into the 21st century." Of particular relevance is the proposal to allow use of Capital Construction Funds (CCF) to build ships outside the U.S. The CCF program was established in 1970 to enable U.S. shipowners to accumulate tax deferred funds for building or reconstructing ships. A condition of the program was that the fund could only be used to build ships in U.S. shipyards. Under the new proposed policy, the 92 companies who participate in the CCF program will be freed to use the $1.2 billion now accumulated to build ships in a country or nation of their choice. These funds provide equity which could produce a flow of shipbuilding orders totaling as much as $5 billion.

Other proposed changes include allowing foreign-built ships to carry preference cargo immediately upon registry in the U.S., loosening citizenship requirements on U.S.-flag vessels and initiating actions designed to improve the competitiveness of U.S. shipyards.

The new Bush Administration maritime policy also includes a system of payments to U.S.-flag ship operators to keep ships under the American flag and make them available in times of war or national emergency.

The policy changes were influenced by the need for reliable sealift capability pointed out by Operations Desert Shield/Storm, the decline of the U.S.-flag merchant fleet and recent announcements by two of the largest U.S.-flag operators, APL and Sea-Land, that they would withdraw their vessels from U.S.- flag status beginning in 1995 unless reforms were implemented to assist U.S.-flag operators' competitiveness.

Secretary Card noted the program of contingency retainer payments to ship operators was needed because the other initiatives and reforms could not overcome the advantages of operating ships under foreign flags. Lower foreign wages in combination with foreign subsidies contribute to the problem, said Secretary Card.

To counter the prospect of a significantly diminished U.S. liner presence in the foreign trade, up to 74 liner ships could receive payment over a seven-year period beginning in 1994. The payment would be $2.5 million per ship for each of the first two years, phased down to $1.6 million per ship in the final year.

The program would differ significantly from the current operating differential subsidy (ODS) program, which will be allowed to expire.

Unlike ODS, the new program, for example, will allow operators to acquire vessels worldwide, operate them anywhere in the foreign trade and in conjunction with foreign-flag feeder vessels.

Operators will be free to compete efficiently and flexibly for international cargoes.

Besides the system of contingency retainer payments, the program contains other legislative, regulatory, and administrative initiatives designed to help U.S.-flag ship operators and American shipbuilders compete more effectively in the world marketplace. Some of the points include: —Support the use of the federal ship financing fund (Title XI) to help finance shipbuilding in American yards; —Initiate a research and development program and an export promotion program for U.S. shipyards; —Prevent foreign shipyards that receive excessive subsidies from benefiting from the new U.S. maritime policy; —Support for the Jones Act and enforcement of current cargo preference laws; —Encourage investment in U. S.- flag ships by relaxing citizenship ownership requirements and regulations affecting the changing of registries; —Elimination of foreign government subsidies to foreign shipyards through bilateral negotiations and an expedited section 301 action and a GATT action under the subsidies code; —Reduction and eventual elimination of the 50 percent ad valorem tax operators must pay on ship repairs in foreign yards.

Congressional approval is still required for the new maritime policy—and the debate in Congress will be heated.

Maritime Reporter Magazine, page 11,  Jul 1992

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