[Senate Hearing 106-1065]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 106-1065
 
 S. 1510, THE UNITED STATES CRUISE SHIP TOURISM DEVELOPMENT ACT OF 1999
=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION
                               __________

                            OCTOBER 6, 1999
                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                       Mark Buse, Staff Director
                  Martha P. Allbright, General Counsel
     Ivan A. Schlager, Democratic Chief Counsel and Staff Director
               Kevin D. Kayes, Democratic General Counsel







                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held October 6, 1999.....................................     1
Statement of Senator Abraham.....................................    25
Statement of Senator Brownback...................................    23
    Prepared statement...........................................    24
    Joint Letter of support for S. 1510..........................    24
Statement of Senator Cleland.....................................    26
Statement of Senator Gorton......................................    27
Statement of Senator Hutchison...................................     4
Prepared statement of Senator Inouye.............................     5
    Articles.....................................................     6
Statement of Senator McCain......................................     1
    Prepared statement...........................................     3

                               Witnesses

Colenda, Cynthia A., President, International Council of Cruise 
  Lines..........................................................    29
    Prepared statement...........................................    31
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............    21
O'Toole, Lawrence H., President, Marine Engineers' Beneficial 
  Association....................................................    53
    Prepared Statement...........................................    55
Sanchez, Veronica, Executive Director, Cruising America Coalition    45
    Prepared statement...........................................    47
Walker, Allen, President, Shipbuilders Council of America........    56
    Prepared statement...........................................    59
Wallack, Al, President, Voyager Holdings, Inc....................    38
    Prepared statement...........................................    39
Welch, Edmund B., Legislative Director, Passenger Vessel 
  Association....................................................    40
    Prepared statement...........................................    42

                                Appendix

Brennan, Mary S., Chairperson, Legislative Committee, forwarding 
  statement by National Association of Cruise-Oriented Agencies..    84
Brown, Cynthia L., President, statement on behalf of the American 
  Shipbuilding Association.......................................    83
Calian, Philip, President and Chief Executive Officer, American 
  Classic Voyages Co. letter dated October 5, 1999 to Senator 
  McCain.........................................................    83
Connors, John P., on behalf of the American Hotel & Motel 
  Association, letter dated October 1, 1999, to Hon. John McCain.    86
Feinstein, Hon. Dianne, U.S. Senator from California, prepared 
  statement......................................................    75
Frevola, Jr., Albert L., General Counsel, SeaAmerica Cruise 
  Lines, Inc. prepared statement.................................    88
Galloway, Joseph L., President and CEO, American Society of 
  Travel Agents, letter dated October 5, 1999, to Hon. John 
  McCain.........................................................    87
Hawks, John K., President, Association of Retail Travel Agents, 
  letter dated October 5, 1999 to Hon. John McCain...............    87
Letter dated October 5, 1999, to Senator Inouye, signed by 
  Directors in the Shipbuilding Industry.........................    81
Maritime Cabotage Task Force, summary of prepared statement......    89
Monroe, Michael E., General President, International Brotherhood 
  of Painters and Allied Trades, letter dated October 5, 1999 to 
  Senator Inouye.................................................    82
Nagle, Kurt J., President, American Association of Port 
  Authorities letter dated September 23, 1999 to Hon. John McCain    86
Response to written questions submitted by Hon. John McCain to:
    Lawrence H. O'Toole..........................................    79
    Allen Walker.................................................    78
    Al Wallack...................................................    76









 S. 1510, THE UNITED STATES CRUISE SHIP TOURISM DEVELOPMENT ACT OF 1999

                              ----------                              


                       WEDNESDAY, OCTOBER 6, 1999

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:35 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.
    Staff members assigned to this hearing: Robert Freeman, 
Republican professional staff; and Carl Bentzel, Democratic 
senior counsel.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. Cruise tourism is a booming 
industry worldwide, with roughly 4 million American passengers 
annually. However, due to barriers in an obscure 1886 law, 
commonly referred to as the Passenger Vessel Services Act, most 
of our Nation's port cities are missing out on this economic 
boom. These barriers limit the choices Americans have when 
deciding on a cruise vacation by restricting the operation of 
internationally owned and operated vessels from making 
successive calls on our coastlines.
    Additionally, new American companies that want to enter the 
large cruise ship domestic market are faced with barriers that 
prevent them from purchasing vessels already in operation. 
Instead, they are forced to try and overcome what to date has 
been the insurmountable task of acquiring financing to build a 
vessel in a U.S. shipyard at costs well above the world market. 
The task of acquiring financing is made more difficult by 
recent reports that point to an oversupply of vessels in the 
industry.
    It has become clear that the Passenger Vessels Servicing 
Act is prohibiting American cruise passengers from cruising 
between U.S. ports and preventing a wide range of American 
maritime business and workers from benefiting from increased 
domestic trade. The protections obstacles to trade contained in 
the Passenger Vessel Services Act are neither bringing about 
U.S. flag ownership liners, nor creating American cruise 
industry jobs. I remain a firm believer in removing obstacles 
to free trade, and it is clearly time to revisit the Passenger 
Vessels Services Act.
    At a minimum, the Act must be reformed in order to benefit 
the cruising consumer, the travel agents, the U.S. ports, and 
the businesses, stevedores, longshoremen and other workers who 
service and supply cruise ships sailing in the domestic market.
    I am aware of recent advancements in the U.S. domestic 
cruise market that will introduce new vessels to the market. 
However, I remain convinced that the domestic market will 
remain virtually stagnant without the introduction of 
international vessels, reflagged vessels, and newly constructed 
vessels.
    This combination of ships is needed to service new markets 
and provide new competition. The cruise tourism industry today 
does not adequately serve U.S. port cities, nor does the PBSA 
actually protect U.S. cruise operators from competition. 
Internationally flagged operators already call on U.S. ports, 
although not successive ports, and U.S. operators already 
compete with internal operators both in North America and 
worldwide.
    What I find most troubling about the current law is that it 
does not allow most of our port cities to compete for 
vacationers in this growing market. Further, I understand that 
U.S. shipbuilders and some U.S. seafarers, as they did with 
similar measures in the last Congress, object to S. 1510 based 
on the belief that the U.S.-flag cruise ship industry is 
growing on its own and that the best way to spur this growth on 
is to have the American taxpayers in this Congress provide them 
tax and regulatory breaks.
    Additionally, opponents of this measure claim that U.S.-
flagged vessels cannot compete and grow due to what they deem 
the unfair operating environment on international vessels. As 
evidence, they point to recent press accounts that highlight 
environmental health and safety problems on board 
internationally flagged vessels.
    I strongly agree that some international cruise operators 
that currently operate in and out of U.S. ports have failed to 
follow the spirit of the law, if not the laws themselves, and 
that they must do more to ensure the on-board safety and 
comfort of their passengers.
    I believe that continued failure by the international 
cruise industry to abide by all U.S. and international laws and 
regulations for operation in and out of our ports, and to meet 
high standards with regard to passenger safety and well-being, 
will result in action to restrict access, not expand it.
    I challenge them to improve their operations, and I warn 
them that if they do not, the Congress will act, but that 
situation aside, we still must act to give the cruising 
consumer more choices. For this reason, I have joined with 
Senators Hutchison, Feinstein, and Murkowski to introduce S. 
1510. I hope that today's hearing will provide insights on the 
possible economic benefits to be gained by passage of this 
measure.
    I also want to note I am disappointed that Mr. Philip 
Calian, President of American Classic Voyages, operator of the 
only large cruise vessel in the U.S. domestic market, declined 
to appear here today to share his views on the bill, but I look 
forward to hearing from our witnesses on how we can improve the 
legislation and move forward in the process.
    I want to thank Senator Hutchison for her involvement. I 
especially want to thank Senator Murkowski, who I know is 
dedicated to making sure that more citizens of our country and, 
indeed, from all over the world have the opportunity to visit 
his wonderful State in the most convenient and economic 
fashion.
    [The prepared statement of Senator McCain follows:]
   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    Cruise tourism is a booming industry worldwide with roughly four 
million Americans passengers annually. However, due to barriers in an 
obscure 1886 law commonly referred to as the Passenger Vessel Services 
Act, most of our nation's port cities are missing out on this economic 
boom.
    These barriers limit the choices Americans have when deciding on a 
cruise vacation by restricting the operation of internationally owned 
and operated vessels from making successive calls on our coast lines.
    Additionally, new American companies that want to enter the large 
cruise ship domestic market are faced with barriers that prevent them 
from purchasing vessels already in operation. Instead, they are forced 
to try and overcome what to date has been the insurmountable task of 
acquiring financing to build a vessel in a U.S. shipyard at costs well 
above the world market. The task of acquiring financing is made more 
difficult by recent reports that point to an over-supply of vessels in 
the industry.
    It has become clear that the that the Passenger Vessel Services Act 
is prohibiting American cruise passengers from cruising between U.S. 
ports and preventing a wide range of American maritime business and 
workers from benefiting from increased domestic trade. The 
protectionist obstacles to trade contained in the Passenger Vessel 
Services Act are neither bringing about U.S.-flagged ocean liners nor 
creating American cruise industry jobs.
    I remain a firm believer in removing obstacles to free trade and it 
is clearly time to revisit the Passenger Vessel Services Act. At a 
minimum, the Act must be reformed in order to benefit the cruising 
consumer, travel agents, U.S. ports, and businesses, stevedores, 
longshoremen, and other workers who would service and supply cruise 
ships sailing in the domestic market.
    I am aware of recent advancements in the U.S. domestic cruise 
market that will introduce new vessels to the market. However, I remain 
convinced that the domestic market will remain virtually stagnant 
without the introduction of internationally vessels, reflagged vessels, 
and newly constructed vessels. This combination of ships is needed to 
service new markets and provide new competition.
    The cruise tourism industry today does not adequately serve U.S. 
port cities; nor does the PVSA actually protect U.S. cruise operators 
from competition. Internationally flagged operators already call on 
U.S. ports, although not successive ports, and U.S. operators already 
compete with international operators both in North America and 
worldwide. What I find most troubling about the current law is that it 
does not allow most of our port cities to compete for vacationers in 
this growing market.
    Further, I understand that U.S. shipbuilders and some U.S. 
seafarers, as they did with similar measures in the last Congress, 
object to S. 1510 based on the belief that the U.S.-flag cruise ship 
industry is growing on its own and that the best way to continue this 
growth is to have the American taxpayers and this Congress provide them 
with tax and regulatory breaks.
    Additionally, opponents of this measure claim that U.S.-flagged 
vessels cannot compete and grow due to what they deem the unfair 
operating environment on international vessels. As evidence, they point 
to recent press accounts that highlight environmental, health and 
safety problems on board internationally flagged vessels.
    I agree that the some international cruise operators that currently 
operate in and out of U.S. ports, have failed to follow the spirit of 
the law, if not the laws themselves, and that they must do more to 
ensure the on-board safety and comfort of their passengers.
    I believe that continued failure by the international cruise 
industry to abide by all U.S. and international laws and regulations 
for operation in and out of our ports and to meet high standards with 
regard to passenger safety and well-being will result in action to 
restrict access, not expand it. I challenge them to improve their 
operations and I warn them that if they don't, the Congress will act. 
But that situation aside, we still must act to give the cruising 
consumer more choices.
    For this reason I have joined Senators Hutchison, Feinstein and 
Murkowski to introduce S. 1510. I hope that today's hearing will 
provide insights on the possible economic benefits to be gained by 
passage of this measure.
    I also want to note that I am disappointed that Mr. Philip Calian, 
President of American Classic Voyages, operator of the only large 
cruise vessel in the U.S. domestic market declined to testify today to 
share his views on the bill, but I look forward to hearing from our 
witnesses on how we can improve the bill and move forward on the 
legislative process.

    I would like to call our first panel up, and while they 
come up, perhaps we could hear from Senator Hutchison and from 
Senator Murkowski.
    The first panel is Ms. Cynthia Colenda, president, 
International Council of Cruise Lines, Mr. Al Wallack, 
president, Voyager Holdings, Incorporated, and Mr. Edmund B. 
Welch, legislative director of the Passenger Vessel 
Association.
    Senator Hutchison, thank you for your support of this 
legislation. I also know that this has some impact on the port 
cities of Texas as well. Senator Hutchison.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Thank you, Mr. Chairman. I appreciate 
your calling this hearing. I am pleased to be a cosponsor of S. 
1510. It is an important bill to help an important and growing 
industry, and it is estimated that the cruise industry has 
doubled in the last 6 years.
    New studies show that the cruise industry was responsible 
for $11 billion in economic activity in the United States. 
Direct cruise industry spending in my State of Texas was $123 
million in 1998. A 1997 economic impact study by the California 
Trade and Commerce Agency estimated that limited deregulation 
of the cruise industry would create more than 1100 new jobs, 
and 93 million on-shore and maritime revenue dollars for the 
State of California.
    So clearly the cruise industry is an important part of 
State economies, and I think many Americans would like a larger 
opportunity to sample the cruise industry and to actually go on 
cruises, but many Americans have wondered why they would have 
to sail from Vancouver to go to Alaska, as opposed to sailing 
from Seattle. The same can be said for cruises leaving in my 
home area of the Gulf of Mexico.
    On the other hand, we know that foreign-flagged vessels 
have built-in advantages over their U.S. competitors, ranging 
from lower ranges to lax environmental laws. This is a 
situation that we see repeated in other industries as well. It 
is not fair, and we have to address it.
    We also know that there are foreign subsidies for building 
foreign cruise ships, so we have a difficult issue on our 
hands.
    I first held a hearing on this issue nearly 2 years ago. 
Many different views were expressed. I appreciated both the 
concerns of cruise operators and of maritime employers and 
employees that want more U.S. shipbuilding. I think the bill we 
are discussing today is an appropriate middle ground.
    For the next 3 years, this bill would allow for the 
immediate reflagging of large cruise vessels under the U.S. 
flag for domestic cruise operations. Our goal is to get more 
ships under the U.S. flag, and the bill also encourages repairs 
and construction of vessels in U.S. shipyards. I understand 
that there are still some opposed to this bill, but I would 
hope that we could continue to work so that we can pass a bill 
this session.
    Not passing a bill would be an economic loss for the 
shipping industry and other States which benefit from tourism, 
so we should not walk away from a bill that could create U.S. 
jobs and opportunities for U.S. consumers, so I thank the 
chairman, and let me say that I am going to continue the 
hearing.
    The chairman has gone, and I would like to ask the panel 
also to come forward so that we can have one panel. It is only 
six witnesses, and I think we could do better by doing the 
panels together.
    So if you could scoot together, and if the other three 
witnesses, Veronica Sanchez, Executive Director of Cruising 
America Coalition, Larry O'Toole, the President of the National 
Marine Engineers' Beneficial Association, and Mr. Allen Walker, 
the President of the Shipbuilders' Council of America, I think 
we can have a good, strong panel altogether. Thank you.
    [The prepared statement of Senator Inouye and articles that 
he requested be included in the record follow:]

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Mr. Chairman, I would like to thank you for holding this hearing. I 
share your interest in expanding cruise ship opportunities in U.S. 
ports. The development of a U.S. cruise industry can create significant 
economic benefits to the nation. Currently more than 3,600 U.S.-flag 
passenger vessels ply the waters of the United States carrying hundreds 
of millions of passengers annually and creating thousands of American 
jobs. Most of these are smaller vessels. However, significant progress 
is being made in developing a thriving U.S.-flag, U.S.-crewed, and 
U.S.-built cruise ship industry.
    Recently, I was privileged to attend the signing of a shipbuilding 
contract for construction of the first U.S.-built oceangoing cruise 
ships in more than 40 years. These will be the largest cruise ships 
ever built in the United States and their construction and operation 
will create more than 5,000 American shipyard, seafaring and shoreside 
jobs.
    I strongly believe that Congress can provide incentives for the 
development of a U.S.-flag, U.S.-built cruise ship industry. While I 
commend the Chairman for his efforts to build a cruise industry in the 
United States, I do have concerns about the legislation before the 
Committee today. I am particularly troubled by those provisions that 
would allow foreign-flag cruise ships, built with foreign subsidies and 
operated by Third World crews being paid sub-minimum wages, to provide 
domestic cruises. Already these foreign cruise ships--which carry 
mostly American passengers from U.S. ports--operate in the 
international trades essentially free from all American laws, including 
taxation, labor and U.S. safety laws, giving these foreign ships 
significant economic advantages over U.S.-flag cruise ships and other 
vacation alternatives. Current law already provides significant 
flexibility to these foreign cruise lines to visit U.S. ports as part 
of an international voyage. In fact, in Hawaii, over 50 percent of 
passengers are currently carried by foreign cruise lines.
    A number of incidents have occurred recently which have brought to 
the fore concerns about the activities of foreign cruise lines 
operating in the United States. One line was fined $18 million for 
violations of our environmental laws this year--just one year after its 
$9 million fine for similar actions. There have been serious 
allegations of sexual assaults on these cruise ships. I am sure that my 
colleagues on the Committee have seen the series of front-page New York 
Times articles highlighting the significance of these issues.
    Mr. Chairman, I would like to have these, as well as several 
additional articles and statements, submitted for the record. These 
articles raise important public policy questions. Is the U.S. doing 
enough to regulate foreign cruise ships carrying American passengers 
from U.S. ports? Most of these foreign cruise lines argue that they are 
immune from U.S. laws and regulatory oversight because they are 
governed by the flag states in which those vessels are registered. The 
flag states for these ``flag of convenience'' ships often provide lax 
oversight of their vessels. It has become such an issue that even the 
hometown paper to most of these foreign cruise lines--The Miami 
Herald--is calling on Congress to regulate the cruise industry. I would 
like to read a quote from the editorial entitled ``Shame of the Seas'' 
that appeared this past Sunday:

        ...Congress should act now to extend U.S. jurisdiction [to 
        foreign cruise lines] by ending the sham of ``flags of 
        conveniences.'' Nothing less can protect American passengers 
        and waters from future abuses.

    Mr. Chairman, I raise these issues because I am concerned that the 
approach being advocated today would only increase the opportunities 
for these foreign cruise lines to further exploit the U.S. environment 
and American passengers by allowing them the unprecedented ability to 
offer domestic cruises without requiring them to abide by all U.S. 
laws. For example, it would allow foreign crewmen to serve on cruise 
ships operating within the United States without requiring them to 
abide by U.S. labor laws such as the Fair Labor Standards Act or the 
National Labor Relations Act. We do not exempt any other industry from 
these important laws when they operate in our country. Why should the 
cruise industry be any different? The significant advantages gained by 
allowing these cruise ships to operate inside our waters but outside 
our laws would create an insurmountable hurdle to the creation of a 
viable U.S.-flag cruise industry.
    Let me close by saying that I believe the Chairman's goal is 
admirable. I have served in this chamber for more than 36 years and I 
have been, and continue to be, a strong supporter of our U.S. maritime 
industry. After many years and numerous attempts to stimulate a U.S.-
flag cruise industry, we are finally starting to see one develop. It is 
a slow process and the Pilot Project I sponsored is just one step 
toward this revitalization. But I strongly believe that we can work 
together to continue developing a viable, strong U.S.-flag, U.S.-
crewed, U.S.-built cruise industry. Unfortunately, I do not believe 
that this legislation as currently drafted will accomplish this goal, 
and in fact, it could harm existing U.S.-flag cruise operations.
    Mr. Chairman, our U.S.-flag maritime industry plays an important 
role in the economy and national security of this great nation. I look 
forward to working with you on legislation to expand U.S.-flag, U.S.-
crewed, and U.S.-built cruising opportunities in the United States.
                                 ______
                                 
The Miami Herald

October 3, 1999
                           SHAME OF THE SEAS
                 congress must regulate cruise industry
    The most shocking thing about the U.S. government's pollution case 
against Royal Caribbean cruise lines earlier this year was the result--
the government actually won. Previously, the cruise line's defense--
that the government lacked jurisdiction to regulate its foreign-flagged 
ships--has proven ironclad.
    But not this time. And with this case fresh in mind. Congress 
should act now to extend U.S. jurisdiction by ending the sham of 
``flags of convenience.'' Nothing less can protect American passengers 
and waters from future abuses.
    It was only because of prescient investigators, cunning prosecutors 
and a courageous judge that Royal Caribbean pleaded guilty and has 
agreed to pay an $18 million fine. The account of how the government 
achieved this unlikely victory was detailed last Sunday by Herald 
business writer Gregg Fields.
    The story, including a damning infrared Coast Guard photograph of 
waste trailing the Nordic Empress, painted an unflattering picture of 
Royal Caribbean in the early l990s. Evidence showed that its employees 
altered waste-disposal equipment to mask the illegal discharge of oil 
and other pollutants. It suggested a willful pattern of violations over 
years involving several ships. And it showed a company that was either 
negligently unaware of egregious polluting by its ships or arrogantly 
callous to the consequences.
                         changes have been made
    Royal Caribbean president Jack Williams has said that what occurred 
represented ``shortcomings'' in the oversight of critical operations. 
He pledges that operations have been radically changed, that 
antipollution equipment used today is state-of-the-art and enforcement 
of strict procedures is rigorous and ongoing. By its public comments, 
the company has been chastened, embarrassed and completely changed.
    We hope that the changes outlined are real and lasting. South 
Florida is the cruise capital of the world, home to an industry that 
generates billions of dollars in revenues, much of it pumped into the 
local economy.
    Yet the case against Royal Caribbean provides useful ammunition for 
critics, including this page, who believe that the government should 
take a bigger role in regulating the industry so that it conforms to 
established federal environmental, labor and criminal laws. Recently, 
for example, Carnival Cruise Lines acknowledged only after being sued 
that 108 sexual assaults occurred on its ships during a five-year 
period. Congress has tried to impose standards, but it has been 
thwarted by the industry's political clout and international law, which 
governs the industry. It must try again.
    Cruise ships once catered primarily to celebrities and the rich. 
But since the l980s, the industry has been transformed to the point 
where a cruise today is within easy reach of almost everyone. Yet to 
skirt U.S. law and regulatory oversight, most cruise ships register in 
countries such as Panama, Liberia or the Bahamas--which provide ``flags 
of convenience'' and impose minimal regulations.
    In the pollution case against Royal Caribbean, defense lawyers 
argued that only those third-party countries, which have been 
notoriously ineffective, could enforce the laws.
    This time, however, federal prosecutors in Miami and other cities 
devised a novel argument. They charged the company with lying in its 
reports to the government--not polluting the seas--because the reports 
were filed while the ships were in U.S. ports.
                       precedent for intervention
    Through that narrow and ingenious tactic, prosecutors ultimately 
prevailed. But too much is at stake and the industry is too intertwined 
in the nation's commercial and social fabric not to be governed by the 
same laws that affect other enterprises.
    In the words of U.S. prosecutors during the trial: ``What is 
unprecedented is the claim by a private corporation headquartered in 
the United States, doing business in the United States, plying the 
waters of the United States, and using U.S. ports, that it is immune 
for a U.S criminal prosecution for violations of U.S. law that took 
place in the United States.
    Some legal experts argue that under certain conditions 
international law does permit an override by domestic law. An override 
can occur, for example, when there is significant impact to the local 
jurisdiction. France, for instance, claims jurisdiction whenever any of 
its citizens is involved in a murder, even if the crime occurred in 
another country. Likewise, Israel claimed and won the right to try an 
American youth on a murder committed in Maryland because the boy's 
father had been born in Palestine.
    U.S. courts haven't embraced this principle as applied to cruise 
lines. But it can be a starting point for Congress to begin a review of 
U.S. oversight of the industry.
                                 ______
                                 
The Wall Street Journal

Thursday, July 3, 1997
               For Cruise Workers, Life Is No `Love Boat'
By Joshua Harris Prager

Staff Reporter of The Wall Street Journal

    The fog horn bellows as the cruise ship Holiday pulls out of the 
Los Angeles harbor bound for Catalina, Mexico. Standing below the aft 
deck in a white shirt and black apron, Pavel Lukanov wonders how his 
dreams became shipwrecked. He earned an economics degree back home in 
Croatia but now spends day after day busing tables.
    Mr. Lukanov works between 16 and 18 hours a day, for which Carnival 
Cruise Lines pays him just $1.50 daily. He is at sea 10 months a year, 
and has two days off a month. The bulk of his livelihood is the almost 
$1,000 a month in tips he collects. ``That's big money in my country,'' 
Mr. Lukanov explains.
    Most passengers, dancing and dining on luxury cruise lines, have no 
idea that the busboys and bellhops who attend them are living on 
subsistence wages. A majority of the workers are from Third World 
countries, and many are college educated, yet they vie for jobs aboard 
American-owned cruise ships, flooding cruise line agencies around the 
globe from Honduras to Romania. As Ihsan Satilmis, a native of Turkey 
and a waiter on Celebrity Cruise Lines' Galaxy explains, ``I cannot 
make better money in my country.''
    Many of the 55,000 employees aboard the world's 110 cruise ships 
don't fare as well as Mr. Lukanov. ``Some workers are vacuuming or 
peeling potatoes. They only get tips if they have a table,'' says the 
Rev. Paul Chapman, former director of the Center for Seafarers' Rights. 
Ludim Talma, a 27-year-old Haitian, spends eight to 10 hours a day 
buffing brass aboard Carnival's gargantuan Destiny, the world's first 
100,000 ton-plus cruise ship. He is paid $182 every two weeks and 
receives no tips, which works out to roughly $1.56 an hour, slightly 
more than one-third the $4.45 U.S. minimum wage.
    Cruise lines are able to avoid U.S. minimum wage laws the same way 
they do taxes, registration and inspection fees and safety and 
environmental regulations - by registering their ships abroad. Their 
vessels sail under foreign flags known pejoratively as ``flags of 
convenience'' and save millions of dollars annually.
    The practice became common in the 1980s, when waves of American-
owned cruise lines including Carnival and Celebrity began to jump ship 
to registries anchored primarily in such developing nations as Panama, 
the Bahamas and Liberia. ``It is an industry that has used a series of 
legal maneuvers,'' explains Joseph Belluck, a former staff attorney at 
Public Citizen, a public-interest advocacy group. ``The U.S. cannot 
enforce occupational safety and health laws on any employer located 
abroad.''
    Carnival spokesman Tim Gallagher says, ``We do not disclose 
employee compensation.'' But Cynthia Colanda, president of the 
International Council of Cruise Lines ``says that cruise employees are 
granted ``excellent job opportunities.'' As for their salaries, she 
says that ``within the maritime industry, we pay competitive prices.''
    Cruise wages also compete favorably with foreign land-based 
salaries. The average per-capita-income in the Philippines is less than 
$1,000 a year, while an elementary school teacher in Romania earns just 
$70 a month. Thus foreign workers clamor for jobs aboard cruise ships 
that not only offer superior wages, but room and board and various 
benefits as well.
    The ICCL-worker relationship is strained, however. Last year the 
ICCL tried to persuade Congress to revoke the legal right of a foreign 
worker to sue a cruise line in U.S. court, but lawmakers voted against 
the measure.
    Some workers say life on board is smooth sailing. Wesley Evans left 
Jamaica 13 years ago to be a busboy on a cruise ship, and today is the 
head bartender aboard Royal Caribbean Cruise Lines' Song of America. He 
now earns roughly $30,000 a year, primarily in tips. ``I love my job,'' 
says Mr. Evans, whose wide grin reveals a few sparkling golden front 
teeth. ``They take care of everything for me.''
    Other cruise employees, however, say they feel like flotsam. Mr. 
Lukanov describes what critics say are the industry's questionable 
recruiting tactics. He says that like many newly hired cruise ship 
employees, he had to pay a Croatian cruise ship agent $600 to confirm 
his hiring. Carnival then temporarily paid the $1,400 for his ticket to 
the U.S. Suddenly in debt, Mr. Lukanov became, effectively, an 
indentured cruise line employee, obligated to work for months to pay 
off his loan. (Having finished his stint on the Holiday, Mr. Lukanov is 
currently on leave and will return to work aboard Carnival's 
Inspiration.)
    Mr. Gallagher says he was unfamiliar with Mr. Lukanov's case and 
adds, ``We don't generally pay for someone's ticket.'' Still, Mr. 
Gallagher says, ``I'm not saying that we've never found abuses. In such 
cases, we've made a change.''
    A day in the life of a cruise worker is hardly the routine depicted 
on television's ``Love Boat.'' Busboy bunkmates--four to a room--
typically awaken at 5:30 a.m. and work three meals from 6 a.m. to 11 
p.m. Breaks are used as time to sleep, or if in port, to make the 
occasional phone call home. ``This is very tough,'' says Sasha Mandish, 
a Yugoslavian former busboy aboard Celebrity's SS Meridian. ``We don't 
see our families [for] five, six months.''
    Workers' rooms are inspected biweekly. There is a separate bar and 
pool for the crew, as interaction with passengers is forbidden. 
Infractions in cruise policy--such as tardiness, dirty quarters, 
bacchanalia and mingling--are recorded. After two infractions, a 
worker's coveted position can be given to someone else.
    Meanwhile, passengers imbibe at swim-up bars, dance beneath 
retractable domes, and feast on smorgasbords bedecked in a panoply of 
flowers and fronds. The crew is barely noticeable and is told to keep 
it that way. Explains John Edinborough, a former busboy aboard the 
Destiny, ``You can say hello, but that's it.''
    Kevin Rodriguez, a travel agent at Liberty Travel in Manhattan, 
theorizes that vacationers ``simply never think about'' the condition 
of the workers. ``They're in a totally different world,'' he says.
                                 ______
                                 
The New York Times

Sunday, January 3, 1999
           Gaps in Sea Laws Shield Pollution by Cruise Lines
By Douglas Frantz
    Shortly after 10 A.M. on Oct. 25, 1994, radar and infrared sensors 
aboard a Coast Guard jet over the Atlantic off Puerto Rico detected a 
possible oil discharge. As the aircraft swept low, its crew saw a long 
oil slick trailing a ship entering the San Juan harbor.
    The vessel was then the largest cruise ship in the world, Royal 
Caribbean's Sovereign of the Seas, a floating resort the length of 
three football fields. When Coast Guard inspectors boarded the ship in 
port, its officers denied discharging any oil.
    Suspicious, the Coast Guard and Justice Department opened what 
would grow into a four-year inquiry leading to the discovery of a 
fleet-wide conspiracy within Royal Caribbean Cruises Ltd. to save 
millions of dollars by dumping oily waste into the ocean. Last June the 
cruise line pleaded guilty to conspiracy and obstruction of justice, 
admitted that its ships had rigged pipes to bypass anti-pollution 
equipment, agreed to pay a record $9 million in fines and promised the 
dumping would never happen again.
    Astonishingly, the next month it did. The Nordic Empress, another 
Royal Caribbean ship, was discovered discharging oily waste and 
creating false records to cover it up. Moreover, the new dumping 
incident occurred even though the company knew it remained under 
Federal investigation for other discharge incidents.
    An examination of the criminal investigation, plus new details 
about the latest incident, shows how difficult it is for authorities to 
police the booming cruise industry as it launches ever larger ships, 
and how determined the industry is to make itself exempt from American 
regulation.
    The review offers strong evidence that the dumping of oil and other 
wastes by cruise ships, which can create lasting pollution problems in 
oceans and coastal areas, is more common than previously known. And it 
reveals an influential industry that has assembled an international 
lobbying force to plead its case. Royal Caribbean's included two former 
United States Attorneys General, Elliot L. Richardson and Benjamin R. 
Civiletti.
    In defending itself, Royal Caribbean, a Liberian corporation with 
its headquarters in Miami, made what the Justice Department described 
as an unprecedented claim: that a private company doing business in the 
United States was immune from criminal prosecution because its ships 
fly foreign flags.
    All major cruise ship owners--including Disney, which launched its 
first ship, the 2,200-passenger Magic, last summer--sail their ships 
under foreign flags. By registering with so-called flag countries in 
exchange for substantial fees, the owners avoid American corporate 
taxes and can pay lower wages to foreign crews. Financial documents 
show that Royal Caribbean saves approximately $30 million a year in 
United States taxes by registering its ships in Norway and Liberia.
    Critics say the savings come at the price of muddied jurisdiction 
and lax enforcement by the flag countries, one of the most prominent of 
which, Liberia, has been devastated by ethnic warfare and divided 
government most of the last decade. One Federal study found that 
foreign countries took action in only 2 of 111 dumping cases referred 
to them by the United States. Generally, flag countries have 
jurisdiction over ships in international waters and the United States 
asserts jurisdiction in its territorial waters.
    These questions are raised just as concern is deepening that the 
industry's explosive growth is posing new threats to the environment, 
from the popular Caribbean to the pristine coastline of Alaska.
    Royal Caribbean officials said the company had instituted tough new 
environmental compliance procedures. But the company did not succeed in 
having the case against it closed with its guilty plea. Instead, the 
company's discharge practices remain under investigation by Federal 
grand juries in Anchorage, Los Angeles, Miami and New York, according 
to a senior company official and its own recent filings with the 
Securities and Exchange Commission.
    The outlines of the country's biggest ocean pollution investigation 
have been public since the company's admission of guilt. But the full 
extent of the dumping scheme, and the existence of the lobbying effort, 
was pieced together from court records in San Juan and Miami and from 
interviews with Federal officials and current and former Royal 
Caribbean employees.
    The newest cruise ships carry 2,000 or more passengers and up to 
1,000 crew members. Disposing of the waste they generate costs hundreds 
of thousands of dollars a year for each ship, which is one reason, 
authorities say, that crews sometimes disregard pollution laws.
    In recent years other cruise lines have been fined at least six 
times for dumping oil and refuse. Last summer the Holland America Line, 
a division of the Carnival Corporation, pleaded guilty to discharging 
oily waste in Alaska's Inside Passage and paid $2 million in penalties.
                           the investigation
                 told of discharge, prosecutors move in
    Word that the Sovereign of the Seas had discharged oily waste in 
October 1994 reached the Justice Department in Washington the day after 
the incident. In three inspections that October day, the Coast Guard 
had seen oil in pipes and elsewhere indicating that oily waste had been 
sent directly overboard. Most convincingly, lab tests matched oil from 
the ship to a sample taken from the slick by a Coast Guard boat.
    Royal Caribbean argued that the discharge was an isolated 
oversight. But Richard A. Udell, a career prosecutor in the Justice 
Department's environmental section, found indications to the contrary 
in Coast Guard data bases. The records showed that more than a year 
before, on Feb. 1, 1993, a Coast Guard jet had spotted an oil slick 
behind the Nordic Empress, off the Bahamas en route to Miami. A 
videotape taken from the jet showed a slick that appeared to be a 
perfect match to the videotaped discharge from the Sovereign of the 
Seas. The Nordic Empress's officers had also denied discharging 
anything.
    On Oct. 25, 1994, inspectors had videotaped the engine room of the 
Sovereign of the Seas in San Juan; four days later, when the ship 
arrived in Miami, a second videotape was taken. Comparing them, Mr. 
Udell noticed that a set of pipes present on Oct. 25 was gone on Oct. 
29. Government experts determined that the pipes had bypassed a 
critical anti-pollution device known as an oil-water separator.
    On any ship, oil drips from machinery and collects along with sea 
water in the bilges. The separator filters out oil so the water can be 
discharged and the oil stored for disposal in port. Each time the 
separator is operated, the event must be noted in the ship's oil record 
book. The Coast Guard relies on the books to monitor compliance with 
pollution laws.
    The oil record book of the Sovereign of the Seas contained no 
record of a discharge. Later, a ship's engineer testified before a 
Federal grand jury that there had been none. The officers of the Nordic 
Empress had made the same claim in 1993, supported by their oil record 
book.
    It took several months, but Coast Guard investigators eventually 
discovered similar bypass systems on the Nordic Empress and other Royal 
Caribbean ships. They began to doubt the authenticity of the oil logs.
    Confronted by the evidence, witnesses changed their stories. They 
testified that Royal Caribbean ships regularly bypassed pollution 
devices and dumped oily waste overboard, usually at night to avoid 
detection. An engineer from one ship, the Song of America, testified 
that the oil-water separator was operated so infrequently that it did 
not work when he did try to use it. They also admitted that the oil 
record books were falsified so routinely that they were known among 
many engineers as Eventyrbok, which means fairy tale book in Norwegian.
    As for the disappearing pipes on the Sovereign of the Seas, 
engineers said they had been ordered to cut them up on the voyage from 
San Juan to Miami and drop them in a trash bin, according to court 
records.
    Oil-water separators are notoriously troublesome to operate. But 
company engineers testified that the bypass systems, which had been in 
operation on some ships since 1990, were partly the result of the 
company's bonus incentives. Membranes for the separator cost as much as 
$80,000 a year per ship and disposing of waste oil in port can cost 
$300,000 a year. By saving this money, a ship's officers could receive 
bigger year-end bonuses for staying under budget.
    The savings was the Government's strongest evidence that senior 
management may have known of the conspiracy, said Government officials 
involved in the case.
    But investigators were stymied in following the trail because 
crucial witnesses, all foreign employees of Royal Caribbean, had left 
the company and either returned home or taken jobs with other cruise 
lines outside the United States, the officials said. No senior company 
officials were charged.
                              the defense
                cruise line throws big guns into battle
    As evidence mounted, Royal Caribbean's lawyers tried to reach a 
deal. People involved in the negotiations said that in the fall of 1996 
the company offered to plead guilty to some charges and pay a 
substantial fine. But the department rejected the offer and within 
weeks prosecutors told company lawyers to expect a 35-count indictment.
    Mr. Civiletti, who was Attorney General under President Jimmy 
Carter, and two of his law partners, Judson W. Starr and Joseph G. 
Block, both former Justice Department environmental chiefs, had tried 
to negotiate the plea bargain. Other former Government officials 
working for the company had lobbied the State Department and Pentagon 
in an effort to persuade the Justice Department not to file charges.
    The mission of the lobbying and legal arguments was not to refute 
the accusations, which would prove irrefutable, but to dispute the 
authority of the United States to bring charges. The former officials 
argued that asserting American jurisdiction undermined international 
Law of the Sea and could lead other nations to interfere with American 
vessels, particularly military ships.
    Some senior State and Pentagon officials agreed with the 
international law argument, but in a later legal brief, the Justice 
Department accused unnamed former Government officials on Royal 
Caribbean's payroll of providing incomplete and inaccurate information 
in those private sessions, something company lawyers deny.
    A pre-indictment review is not unusual in a major case, and in this 
instance the Justice Department approved an indictment reduced to 10 
counts. On Dec. 11, 1996, the grand jury in San Juan indicted Royal 
Caribbean and two engineers from the Sovereign of the Seas. The 
indictment accused the company of conducting a fleet-wide conspiracy to 
illegally discharge oily waste, but restricted most of the counts to 
the Sovereign of the Seas. The inquiry into the 1993 Nordic Empress 
discharge was shifted to a Federal grand jury in Miami.
    Justice Department officials said Royal Caribbean's lobbying played 
no role in reducing the number of counts. "Like every other case, the 
appropriate charges were based solely on the facts and the law," said 
Myron Marlin, the department's chief spokesman. "In the end, the 
prosecution produced two criminal convictions, a record fine, and the 
case has had a ripple effect throughout the industry, not to mention 
that the investigation is still continuing."
    Legal maneuvering intensified after the indictment. The company's 
team expanded to include four retired admirals, a former acting 
assistant attorney general, a former Coast Guard commandant and a 
former deputy assistant secretary for oceans at the State Department.
    Many of these former officials filed affidavits saying the United 
States could not charge the company under international law. Some 
contacted former colleagues in a continuing effort to settle the case, 
according to court records and interviews.
    Mr. Richardson, who was Attorney General under President Nixon and 
held other top Government posts, sought meetings with high-level 
Administration officials and acknowledged raising the issue with Thomas 
R. Pickering, the Under Secretary of State and an old friend.
    ``I mentioned it briefly to Tom Pickering,'' Mr. Richardson said. 
The conversation was brief because the matter was in litigation.''
    The effort was international. An influential Norwegian family owns 
a large share of Royal Caribbean and its members helped enlist the 
Norwegian Government, people involved said. On March 12, 1997, a 
delegation from the Norwegian Embassy delivered a diplomatic note to 
the State Department seeking jurisdiction because the Sovereign of the 
Seas flies a Norwegian flag. They met with Mr. Pickering and other 
officials, people involved in the talks said.
    Along with the prosecutors' steadfast contention that the United 
States had jurisdiction, they believed another reason not to cede 
authority was the poor record of flag countries on previous pollution 
referrals.
    In 1992, the State Department had reviewed 111 cases in which 
accusations of cruise ships dumping garbage overboard had been referred 
to flag countries. The study found that the countries acknowledged 
receipt of the referral in only 35 cases and that the only penalties 
were small fines in two cases. As a result, the State Department halted 
referrals on dumping in United States territorial waters.
    The Nordic Empress had been in international waters when it was 
discovered discharging oil in 1993, so in July of that year the matter 
was referred to Liberia because the ship flew a Liberian flag. Liberia 
accepted the company's claims that no dumping occurred and asked the 
Coast Guard to expunge the incident from its records, according to 
Liberian records.
    Even after Royal Caribbean admitted lying about the Nordic Empress 
discharge last June, Liberia decided no action was necessary. The 
investigation wascompleted and closed in 1994, said David Crede, chief 
of investigations for Liberian Services Inc., a private company in 
Reston, Va., that is Liberia's agent for vessels flying its flag. In 
the case of the Sovereign of the Seas, the Norwegian Embassy said its 
officials had looked into the case and decided that no action was 
warranted.
                              the outcome
                 after legal setbacks, a plea of guilty
    The Nordic Empress had discharged its waste in international 
waters, but the ship had presented the Coast Guard in Miami with an oil 
record book that omitted the discharge. So, on Feb. 19, 1998, Royal 
Caribbean was indicted in Miami, not for dumping but on a single count 
of making a false statement to the Coast Guard.
    On April 22 and 23, a pivotal hearing took place in Federal 
District Court in Miami in which the cruise line asked Judge Donald M. 
Middlebrooks to dismiss the charges.
    The Federal judge in San Juan handling the Sovereign of the Seas 
case, Juan M. Perez-Gimenez, had already rejected the company's claim 
that the United States lacked jurisdiction and had ordered the case to 
trial in June.
    At the Miami hearing, Mr. Civiletti argued that the United States 
had overreached its authority. He said that Liberia had jurisdiction 
and that that country had determined there was insufficient evidence of 
a crime. He also produced a surprise diplomatic note from the Liberian 
Embassy in Washington to the State Department asking that the case be 
dismissed.
    Mr. Udell countered that Royal Caribbean's false statement to the 
Coast Guard, plus its extensive presence here, subjected the company to 
American law. Although its ships fly various flags of convenience, he 
said, ``Royal Caribbean is as much a part of Miami as the Miami 
Dolphins.''
    The company called Mr. Richardson as an expert witness, because he 
had been the chief American negotiator at the United Nations conference 
that led to the Law of the Sea Treaty. He testified that only Liberia 
could prosecute the discharge, and warned that the case would undermine 
the navigational freedom established by the United Nations convention.
    But Mr. Richardson seemed less certain when the prosecutor, Thomas 
Watts-Fitzgerald, asked whether his view would change if the ship had 
produced a record required by the Coast Guard that contained a 
misrepresentation. It might well, Mr. Richardson replied.
    On May 12, Judge Middlebrooks rejected the motion to dismiss, 
ruling that the United States had authority to press charges because of 
the false statement to the Coast Guard.
    Losing on the jurisdiction issue and faced with indisputable 
evidence, Royal Caribbean pleaded guilty on June 3 in both cases and 
agreed to pay $9 million in fines. The Government called the violations 
so pervasive and longstanding that the criminal conduct amounted to a 
routine business practice.
    Unlike most plea bargains, this one did not end Royal Caribbean's 
criminal liability. The company refused to yield to Government demands 
that it turn over the results of an internal inquiry, citing fears that 
employees would refuse to cooperate in future internal investigations. 
As a result, the company acknowledged, additional grand juries are 
contemplating similar charges.
    The cruise line struggled to put the episode behind it. ``We deeply 
regret our role in polluting the marine environment and we are 
particularly sorry for the attempts to conceal that pollution,'' Jack 
Williams, the company president, said in a statement. ``These acts were 
inexcusable, they were wrong and we accept full responsibility for 
these violations.''
    But that effort hit a stunning shoal. On July 15, the company 
notified the Coast Guard that engineers aboard the Nordic Empress had 
tampered with pollution devices and discharged oily waste into the 
ocean. The company said a junior engineer had reported it.
    When the Coast Guard questioned engineering personnel the next day, 
it was like stepping back in time. The chief engineer, Michael 
Psomadakis, a Greek citizen, denied that there had been a discharge and 
presented an oil record book that supported him, according to court 
records and a Coast Guard agent's affidavit. Mr. Psomadakis was served 
with a grand jury subpoena on the spot.
    Two days later, the company held its own hearing and dismissed Mr. 
Psomadakis and another engineer. On July 19, company personnel escorted 
him to a Miami hotel to pick up his belongings for the trip home to 
Greece. He was given his passport and plane ticket and then evaded 
agents of the Federal Bureau of Investigation who were waiting to talk 
to him, simply by walking out another exit.
    Nancy J. Wheatley, who was hired by Royal Caribbean last June as 
senior vice president for safety and the environment, and William K. 
Reilly, the former administrator of the Environmental Protection 
Agency, who joined the Royal Caribbean board last January, said in 
interviews that the company had implemented a vigorous new 
environmental compliance program under Government supervision.
    Mr. Reilly said he believed the company's management was committed 
to cleaning up its past problems.
    ``Obviously everyone is chagrined about what has happened and 
somewhat stunned by the seriousness of the allegations,'' Mr. Reilly 
said. ``The Justice Department set out to get Royal Caribbean's 
attention, and they got it.''
    Ms. Wheatley said the latest incident showed that the system was 
working, because a junior officer came forward and was supported by 
management.
    ``We know we don't have a business if the oceans aren't a beautiful 
place to go,'' Ms. Wheatley said.
    But prosecutors were shocked. At a court hearing in September, they 
said the conduct, which was under investigation, demonstrated the 
difficulty in changing a pervasive culture of ingrained criminal 
conduct.
                                 ______
                                 
New York Times

November 16, 1998
                On Cruise Ships, Silence Shrouds Crimes
By Douglas Frantz

    A Texas woman on a Caribbean cruise with her husband accused a 
waiter of drugging their dinner drinks and later raping her in their 
cabin.
    An Oregon family on a cruise said their daughter was raped by a 
ship's bartender after she celebrated her 16th birthday in a bar.
    A California woman said that a crewman forced his way into her 
cabin and beat and raped her.
    As with many rape cases, none of these was clearcut. Some involved 
alcohol and counterclaims of consensual sex. One wasn't reported until 
after the cruise. Yet in every case, the accusers say, the cruise 
line's main concern was to protect its reputation by buying or coercing 
their silence and shielding the accused.
    Once the exclusive playground of the very wealthy, the cruise 
business has expanded over the last decade by appealing to the vast 
middle class, especially families and young adults. The polished 
mahogany decks and formal dinners of a bygone era have been replaced by 
glittering floating cities dedicated to carefree partying, gambling and 
drinking.
    But as the industry has boomed to more than five million passengers 
a year, it has presented new concerns for its ports of call, its 
passengers and the environment, in part because of the size of its 
giant liners, in part because the cruise lines operate largely outside 
the laws of any one country. A particular problem is the allegations of 
sexual assaults committed by crew members.
    There is no evidence that crime is rampant aboard cruise ships. The 
Federal Bureau of Investigation does not break out statistics on rapes 
on the high seas. But F.B.I. agents in Miami, the country's busiest 
cruise port, said they are called to investigate a shipboard sexual 
assault about every other week.
    An examination of sexual assault cases on ships operated by the 
largest cruise lines, based on court records and interviews with 
current and former employees, law-enforcement officials, and passengers 
who reported assaults and their lawyers, found a pattern of coverups 
that often began as soon as the crime was reported at sea, in 
international waters where the only police are the ship's security 
officers.
    Accused crew members are sometimes put ashore at the next port, 
with airfare to their home country. Industry lawyers are flown to the 
ship to question the accusers; and aboard ships flowing with liquor, 
counterclaims of consensual sex are common. The cruise lines 
aggressively contest lawsuits and insist on secrecy as a condition of 
settling.
    When the Texas couple sued, the cruise line settled with a 
confidential agreement. Cruise line lawyers subpoenaed the Oregon 
girl's school records to question her character, but eventually settled 
a suit. Officers aboard the California woman's ship did notify the 
F.B.I., at her insistence, but she said the arrival of the agents was 
delayed until her room had been cleaned.
    In another case, a Federal grand jury is investigating whether 
Carnival Cruise Lines, the world's largest, helped a ship's officer 
accused of rape get out of the country. And in 1995, a Florida appeals 
court found that Carnival dismissed a crew member for refusing to lie 
to protect the company in a civil suit brought by another seaman.
    ``You don't notify the F.B.I.,'' said Charles C. Harris, a former 
chief of security for Carnival. "You don't notify anybody.'' You start 
giving the victims bribes, upgrading their cabins, giving them 
champagne and trying to ease them off the ship until the legal 
department can take over.
    ``Even when I knew there was a crime, I was supposed to go in there 
and do everything in the world to get Carnival to look innocent.''
    The cruise lines say that crimes are uncommon and that they do a 
good job of investigating when one does occur. But three years ago 
their lobbyists tried in Congress to win protection from most damages 
in sexual-assault suits and from all suits by foreign crew members.
                           difficulties arise
              issues of jurisdiction, reporting of crimes
    In many ways these ships, as long as three football fields, are not 
so much floating cities as sovereign islands, operating beyond the 
police and regulatory jurisdiction of the nations they cruise among.
    Every major cruise ship sailing out of American ports is registered 
with a foreign country, usually Panama or Liberia. The corporations 
that own them are foreign, too. The foreign registry means the ships 
and their owners avoid American corporate income taxes and many 
American laws, though more than 80 percent of their passengers are 
American.
    Carnival Corporation, the parent of Carnival Cruise Lines, has its 
headquarters in Miami but is a publicly held corporation registered in 
Panama. Controlling interest is held by the family of its founder, Ted 
Arison, a billionaire who renounced his American citizenship in 1993 in 
part to avoid estate taxes. His son, Micky, an American citizen, is 
chairman. Most of Carnival's executives are American.
    The other leading line, Royal Caribbean Cruises Ltd., also has its 
headquarters in Miami, but the corporation is registered in Liberia. 
Controlling interests are owned by a Bahamian partnership associated 
with the wealthy Pritzker family of Chicago and by a shipping company 
owned by a Norwegian family, the Wilhelmsens.
    Lynn Martenstein, vice president for communications at Royal 
Caribbean, said the company would not comment on cruise ship crime or 
respond to any specific questions because of legal considerations.
    A vice president of Carnival, Tim Gallagher, said his company 
reacts promptly and thoroughly any time there is an accusation of 
sexual misconduct involving passengers or crew members. He said only a 
handful of assaults occur each year, though he declined to provide 
numbers.
    We have more than 1.5 million guests a year and it is impossible 
that there would not be a huge public outcry if there were any kind of 
serious crime problem,'' he said.
    The F.B.I. has jurisdiction to investigate crimes in international 
waters on foreign ships if the vessel departed from or is headed to an 
American port and the crime involves an American citizen. But 
investigating a crime scene at sea is difficult, agents routinely wait 
until a ship returns to port, and jurisdictional questions often arise, 
law-enforcement authorities said.
    And not all crimes are reported. Cruise ships are required to 
report only crimes and other incidents that result in serious physical 
injury, which does not necessarily include rape. "Unless otherwise 
required to do so, Carnival leaves it to the individual to decide 
whether to report to authorities," said Curtis J. Mase, a lawyer for 
Carnival.
    Complaints are frequent enough, however, that Lloyd A. Lipkey, the 
agent in charge of the F.B.I.'s Miami squad that deals with crimes on 
the high seas, offered a warning to passengers: ``Go on a cruise just 
like you go anywhere else, with your eyes open.''
                              the culture
                  aboard ship, rules bar fraternizing
    Today's huge cruise ships carry 1,800 to 2,200 passengers and 700 
to 800 crew members drawn from 50 or more countries, many of them poor 
nations. While some crew members are highly trained, particularly the 
officers, many are unskilled young men who work long hours seven days a 
week. Pay can be as little as $500 a month; many send their wages home 
to support families.
    Ships have rules barring fraternizing with passengers. Carnival, 
Mr. Gallagher said, prohibits crew members from fraternizing but 
encourages officers to be 
friendly. ``The guests like it,'' he said.
    And romance, of course, has long been one of the attractions of 
cruises. ``Sex between crew and passengers happens all the time,'' said 
Dennis Hypolite, a musician who worked for Carnival and Royal Caribbean 
for three years until he quit on Nov. 1. ``Every cruise, every day. 
Crew go into guest cabins and guests go to crew cabins. Both seek it 
out, passengers and crew.''
    Mr. Harris, the former Carnival security chief, who now 
investigates shipboard crimes for lawyers of victims and insurance 
companies, said crew members and officers often pursue sex with female 
passengers.
    Carnival's lawyers said Mr. Harris was a disgruntled former 
employee who earns his living testifying against cruise lines.
    Michael D. Eriksen, a lawyer in Lake Worth, Fla., has handled more 
than a dozen cases of sexual assault on ships.
    ``Typically it starts out with an opportunity for a crew member to 
observe and sometimes interact with a passenger,'' he said. ``A lot of 
times it will be a waiter or someone who works in room service or 
behind a bar.''
    The Oregon girl struck up a conversation with a bartender in the 
Ain't Misbehavin' Lounge on the Monarch of the Seas, a Royal Caribbean 
ship. It was her 16th birthday, and after some drinks she went with the 
bartender to his cabin.
    The girl's parents said she was raped and sued the cruise line last 
year.
    Royal Caribbean contended that the sex was consensual. Even so, 
because of the girl's age, the incident would have been a felony had it 
occurred in Florida. But state law was not applicable. The line also 
accused the girl's parents of failing to exercise reasonable care in 
protecting their daughter and subpoenaed the girl's school records in 
an attempt to discover previous problems.
    When the case was settled this summer, the company insisted on a 
confidentiality agreement that prohibited the family or their lawyer 
from discussing the case, according to the lawyer, David W. Bianchi.
    ``People just want to get on with their lives, and when the cruise 
lines wave money under their noses if they promise not to talk, they 
always accept it,'' Mr. Bianchi said.
    In a deposition, the bartender, Cleve Ellis, testified that crew 
members make a sport of having sex with passengers, Mr. Bianchi said. 
The deposition has not been made public because of the confidentiality 
order. Attempts to find Mr. Ellis were unsuccessful.
    People who deal with assault victims say young girls are often 
targets on cruise ships. In 1996, Mr. Bianchi represented the family of 
a 14-year-old who said she had been raped by a crew member aboard the 
Fascination, a Carnival ship. After an article about the case appeared 
in a legal publication, Mr. Bianchi said, he was contacted by the 
father of a 16-year-old girl who said she had been raped by the same 
crew member. Both cases were settled and the crewman was dismissed 
after the second report, he said.
    Last year, the Texas couple were on a Carnival cruise in the 
Caribbean to celebrate their 10th anniversary. The woman said the 
waiter drugged their drinks at dinner and later came to their cabin and 
raped her while her husband was unconscious.
    The couple complained to cruise officials, who responded in part by 
moving them to a better cabin for the remainder of the voyage. When the 
ship docked in San Juan, P.R., they tried to report the incident to the 
police but were told they would have to contact the F.B.I. They never 
did.
    Theodore L. Shinkle, a Carnival lawyer, said the ship's officers 
had assisted the couple in contacting the San Juan police and had 
provided them with the number for the F.B.I.
    The couple filed a civil suit against Carnival. At the trial the 
waiter, Ashton Sylvester, a 12-year employee of Carnival, denied having 
sex with the woman, and witnesses said she and her husband had been 
drinking heavily that day. But the company settled the case just before 
it went to the jury.
    Mr. Shinkle declined to disclose the terms of the settlement, 
citing a confidentiality agreement. He said Carnival's decision to 
settle was ``just a matter of good business sense.''
    Rape experts say delays often occur in reporting rapes, 
particularly in a situation like a cruise, where the passenger could 
fear reprisal and there is no independent investigator or rape 
treatment center. But the time lag makes criminal prosecutions 
difficult.
    ``Cases reported within 72 hours offer the best forensic 
evidence,'' said Dr. Karen J. Simmons, director of the rape treatment 
center at Jackson Memorial Hospital in Miami. ``But we see a lot of 
people after that because they may be afraid of reporting it or 
ashamed.''
    Dr. Simmons said the center did not keep statistics on victims from 
cruise ships, but she said passengers were treated with some frequency. 
Court files in Miami, where most suits must be filed against the big 
cruise lines, indicate rapes often are not reported until too late for 
criminal investigation.
                               maneuvers
                  trying to deflect victims' lawsuits
    Not everyone delays reporting. On June 19, 1997, a 35-year-old 
California woman aboard a Royal Caribbean ship with her parents sought 
help immediately.
    The woman had spent some time in the ship's nightclub before 
returning to her cabin about 4 A.M. Unlike many cases aboard ships, 
where alcohol is plentiful, records show that she consumed only a non-
alcoholic drink in the nightclub.
    ``I put my key into the slot to open the door,'' she later 
testified in court. ``I put one foot in and was pushed from behind.''
    She said she fell onto her hands and knees but ``fought to save my 
life.'' People in the cabin next door heard the commotion, but did not 
summon help. Her injuries were so severe that she was on crutches for 
two weeks, according to court records and her lawyer.
    When her attacker left, she called her father and he alerted the 
ship's security. Within hours, the woman had identified her attacker in 
a line-up as Jorge Virtucio, a member of the cleaning crew.
    Questioned that day by a ship's security officer and a company 
lawyer who had been flown in, Mr. Virtucio denied being anywhere near a 
passenger, saying he had been washing decks at 4 in the morning. When 
asked about scratches on his body, he said they were from minor work 
accidents.
    Mr. Virtucio was indicted and, as his trial approached last May, 
DNA evidence linked him to the assault. He switched his story and his 
lawyers argued that the woman had consented to sex. A jury found him 
innocent.
    ``Our defense was that the case was a false claim and that the 
motive was ultimately to sue Royal Caribbean,'' said Fletcher Peacock, 
the public defender appointed to represent Mr. Virtucio at trial in 
Federal District Court in Miami.
    The woman did sue Royal Caribbean. Her lawyer, Johnna J. Hansen, 
said the cruise line had appeared to cooperate with her client and had 
notified the F.B.I. at the woman's request. But she said that the 
cruise line had tried to make sure no one else on the ship heard about 
the incident and that F.B.I. agents were delayed for several hours 
before boarding the ship. During that time, she said, her client's room 
had been cleaned, making it harder to gather evidence.
    She also said lawyers for the cruise line conferred with Mr. 
Virtucio's lawyers in the courtroom during the criminal trial. Mr. 
Peacock said Royal Caribbean maintained a neutral stance, but its 
lawyers were pleased by the verdict.
    In court papers, Royal Caribbean said it was not responsible for a 
crew member's actions outside his official duties.
    To counter what it regards as frivolous lawsuits, the cruise 
industry had its lawyers draft a measure in 1995 to restrict the 
ability of sexual-assault victims to collect damages in court and to 
prohibit foreign crew members from suing in American courts.
    Representative Don Young, an Alaska Republican, introduced the 
measure as an amendment on the House floor and it passed without a 
hearing. Between 1993 and 1998, Mr. Young received at least $29,000 
from political action committees and individuals affiliated with the 
cruise industry, according to Federal Election Commission records.
    The bill was stopped by Senator Ernest F. Hollings, Democrat of 
South Carolina, after lobbyists for the trial lawyers noticed the 
language and started a campaign against it.
    One of the strongest accusations of a coverup involved a crew 
member who said she had been sexually assaulted. A 26-year-old Carnival 
employee was in her cabin last Aug. 13, nearing the end of a weeklong 
Caribbean cruise on the Imagination, when one of the ship's engineers, 
Yurij Senes, attacked and sodomized her, according to court records.
    Her lawyer, Mr. Bianchi, said the woman reported the rape to ship's 
security and identified her attacker. But Carnival's lawyers said the 
woman initially did not want to report the episode to the authorities.
    Two days later, when the ship docked in Miami, Mr. Senes was 
dismissed from his job and arrangements were made for him to be taken 
to Miami International Airport for a flight to his native Italy because 
his visa automatically expired when he was dismissed. By then, the 
female crew member had filed a complaint with the F.B.I. and agents 
told Carnival security personnel that they wanted to interview Mr. 
Senes. Mr. Mase, Carnival's lawyer, said a mix-up occurred and the 
suspect was taken to his flight without being questioned.
    Mr. Bianchi disclosed at a court hearing last month that his client 
had testified before a Federal grand jury investigating whether 
Carnival helped the officer escape. John Schlesinger, special counsel 
in the United States Attorney's office, would not confirm or deny an 
inquiry. But he expressed amazement at the suspect's escape. "Carnival 
raised some eyebrows when they whisked him to the airport moments ahead 
of the posse," he said.
    In September, Mr. Senes was indicted on Federal charges of 
aggravated sexual assault. He was arrested at his home in Italy and 
faces extradition to the United States.
    Lawyers who sue cruise lines said it is common for crew members 
suspected of crimes to be sent home. Tracking them down for depositions 
and subpoenas can be expensive and difficult.
    ``My general experience is that the cruise lines would rather be 
horse-whipped than bring these perpetrators back to U.S. law 
enforcement," said Mr. Ericksen, the Lake Worth lawyer, who has located 
crew members as far away as Bombay.
    There also is evidence that employees are encouraged to lie or 
remain silent. Charles Lipcon, a Miami lawyer who often represents crew 
members, said they often keep quiet about crimes because those who 
speak out are dismissed and sent home.
    In 1995, a Florida appeals court found that Carnival had dismissed 
a crew member, Luis Baiton, for refusing to lie to protect the company 
in a civil suit brought by another seaman. ``Allowing retaliation 
against an employee for truthful testimony, or refusing to give false 
testimony, strikes at the heart of the adjudicatory process,'' the 
court said.
    The case did not involve sexual assault, but rather a claim filed 
by a crew member who was hurt on a ship. Mr. Baiton said Carnival had 
tried to persuade him to lie in his testimony on behalf of the crewman 
and dismissed him when he refused.
    In September, Royal Caribbean paid a $9 million fine after pleading 
guilty to a fleet-wide conspiracy to dump oil into the ocean. As part 
of the plea, Royal Caribbean acknowledged ordering an engineer to lie 
to a Federal grand jury and destroying evidence to conceal its illegal 
dumping.
                                 ______
                                 
The New York Times

February 19, 1999
              Cruise Lines Reap Profit From Favors in Law
By Douglas Frantz
    MIAMI - The world's largest cruise company, the Carnival 
Corporation, earned $2 billion in profits over the last three years. 
But the company, with headquarters here in two multistory buildings on 
Carnival Place, paid less than 1 percent in income taxes even though 
its earnings exceeded those of many Fortune 500 companies.
    Royal Caribbean Cruises, the second-largest cruise company, whose 
headquarters overlook the Port of Miami, reported profits of $657 
million over the same time. Its financial statements do not even 
include a line for income taxes.
    Doing business under a decades-old loophole in the Federal tax 
code, and protected by an increasingly powerful lobbying force, the 17 
major cruise lines pay practically no income tax even though they are 
based in this country and 90 percent of their passengers are Americans. 
The cruise lines, all of them registered in foreign countries, do not 
observe the nation's labor laws, minimum wage law and many 
environmental and safety regulations.
    Just last fall, by having a senator insert a single word in the 
Federal budget bill, the 17 cruise lines won an exemption from 
immigration fees worth $20 million a year. In an amendment to another 
bill, a Congressman protected the foreign-registered cruise lines' 
monopoly on coveted permits to sail into Glacier Bay National Park in 
Alaska.
    Over the last decade the cruise industry has grown rapidly, 
launching ever bigger ships carrying thousands of passengers. But now 
concern is growing over the megaships' impact on marine environments 
and the impact of the foreign-registered lines' tax advantages on 
struggling American-registered cruise ships.
    In Congress, a potential battle is brewing on several fronts, 
including the foreign cruise ships' major advantage: while they earn 
their profits from the United States, they avoid nearly all income 
taxes by registering as foreign corporations and sailing under foreign 
flags. They also build their giant floating resorts overseas.
    ``These companies don't pay any of the taxes or live with any of 
the associated costs of operating a safe vessel and paying a decent 
wage,'' said Representative Gene Taylor, Democrat of Mississippi, whose 
district includes shipbuilding companies, ``and it is absurd to allow 
them access to the American market free of charge.''
    Last month the Senate majority leader, Trent Lott, a Republican who 
is also from Mississippi, called on the Clinton Administration to work 
with Congress to strengthen the American maritime industry by re-
examining the advantages enjoyed by foreign companies.
    ``This nation's tax policies should promote business growth, not 
stifle it,'' Mr. Lott said.
    And this month, two Democrats in the House, Representatives John A. 
Dingell of Michigan and Henry A. Waxman of California, initiated an 
investigation by the Commerce and Government Reform Committees into 
illegal dumping of oily waste and other pollutants by cruise ships, to 
determine whether the United States should strengthen its regulation of 
the industry.
    ``"The major companies may argue that they have environmental 
programs in place,'' Mr. Dingell said, ``but as long as these practices 
persist, it calls into question either the quality of the plans, or the 
commitment of senior management, or both.''
    Industry representatives respond that cruise lines adhere to strict 
international environmental and safety standards that are enforced by 
the International Maritime Organization, a regulatory agency affiliated 
with the United Nations. And they say immunity from American taxes is a 
long-recognized element of international law on ocean-going trade.
    Cruise lines pay more than $66 million a year in fees to American 
ports, as well as other taxes and fees, according to the industry. And 
a new study done for the industry found that cruise lines bought $6.6 
billion worth of American goods and services in 1997, generating 
176,433 jobs.
    ``We generate billions of dollars every year here in the U.S. 
economy, and the United States is a major beneficiary of our 
industry,'' said Cynthia A. Colenda, president of the International 
Council of Cruise Lines, which represents the major cruise lines.``This 
industry is a revenue generator, and it helps economies throughout this 
country.''
    But while the 17 cruise lines flying foreign flags and some of 
their suppliers have prospered, the American maritime industry has 
fallen on hard times. The only cruise ship flying an American flag is 
the 50-year-old Independence, which travels among the Hawaiian Islands, 
and no deep-ocean cruise ship has been built in the United States for 
at least 40 years.
                  tax disadvantage for american lines
    Efforts are under way to develop an American-flag cruise industry, 
but American shipping companies that must pay United States taxes and 
wages face serious disadvantages.
    The United States corporate income tax rate is 35 percent, though 
most corporations pay a modestly lower rate through various deductions. 
If Carnival was an American corporation paying taxes at the 35 percent 
rate -- or even if it was a foreign corporation in a different business 
here, it would have paid about $700 million in taxes to the United 
States over the last three years on $2 billion in net income.
    Instead, Carnival is registered in Panama, which does not impose a 
business income tax, and the company paid only $15 million in income 
taxes -- on the earnings of one division, which has hotels and tour 
operations in the United States and so is not exempt from taxes.
    The tax break is in a section of the Internal Revenue Code that 
exempts foreign corporations' income from ships and aircraft from 
taxation, if the country in which the corporation is organized offers 
the equivalent exemption to American corporations. The rules were set 
up to promote international shipping and air trade.
    Cruise companies have been able to take unique advantage of the 
provision by registering in small countries like Liberia, Panama and 
the Bahamas, which do not impose a corporate income tax. Major airlines 
like British Airways or Lufthansa do not pay United States taxes 
either, under the provision, but unlike the cruise lines, they are not 
based in the United States and they paysubstantial taxes in their home 
countries.
    And American-registered cruise companies do not benefit from a 
reciprocal exemption because they remain subject to United States 
taxes, even on their international business.
    ``Our members are fully subject to U.S. income taxes, even if we 
take our vessels into foreign waters,'' said Edmund B. Welch, 
legislative director for the Passenger Vessel Association, the trade 
group for passenger ships flying under American flags, which are mostly 
sightseeing and excursion vessels.
    ``We have ships relocate from the Pacific Northwest down to Mexico 
in the winter,'' Mr. Welch said, ``but they still pay U.S. taxes on 
their Mexican operations.''
    Foreign-registered cruise lines also pay workers far less than 
their American counterparts. Their crew members, mainly from developing 
countries, routinely work 10 to 12 hours a day, 7 days a week, for as 
little as $400 a month, according to a survey last year by Seafarers' 
House, a nonprofit agency that ministers to workers at Florida ports.
                        big spending on lobbying
    There has never been a serious effort to alter the tax rules, and 
the industry has developed an effective lobbying presence in Washington 
to protect its interests.
    While all the members of the International Council of Cruise Lines 
are foreign businesses, the campaign finance law allows the 
organization to have a political action committee and raise donations 
for it from the cruise line employees who are American citizens. In the 
1997-98 campaign, the group donated $166,146 to House and Senate 
candidates, according to the Center for Responsive Politics, a 
nonpartisan organization.
    The council spent more on lobbying. In its latest full-year report 
filed with the Senate, it said it spent $557,023 on lobbying in 1997.
    Most of the money, $380,000, went to the firm Alcalde & Fay for 
work on tax and immigration issues. The firm, run by Hector Alcalde, a 
former Congressional staff member, received an additional $200,000 in 
the first half of 1998. Mr. Alcalde is the father of Cynthia Colenda, 
who worked at his firm before taking over as president of the 
International Council of Cruise Lines.
    The effectiveness of the lobbying was evident in the budget bill 
for the current fiscal year. An innocuous-looking item, Section 114, 
amended the immigration act by inserting a single word, ``State,'' and 
a comma. Doing so eliminated as much as $20 million a year in fees from 
cruise lines.
    The Immigration and Naturalization Service had been authorized to 
assess $6 per passenger to cover inspection costs for people arriving 
in American ports on cruise ships, unless their cruise had begun in 
Canada, Mexico or a United States territory. Adding ``state'' expanded 
the exemption to passengers whose travel started in the United States 
-- eliminating the fee for all but the tiny number of transoceanic 
passengers.
    The immigration service calculated that the change cost it $20 
million a year, said a spokesman, Greg Gagne.
    ``We were aware that it was going in,'' Mr. Gagne said, ``but it 
certainly wasn't our choice or our preference. We think all carriers 
should share in the cost equally.''
    In fact, however, the fee had not been assessed in recent years. 
Mr. Gagne and industry representatives said they did not know why.
                       secrecy behind the changes
    The change originated in the Senate, but records do not identify 
its author. Senator Ted Stevens, the Alaska Republican who is chairman 
of the Appropriations Committee, said through a spokeswoman that he 
knew who wrote the section and that he had approved it, but he refused 
to identify the senator. ``Senator Stevens is respecting the 
confidentiality rules of the Senate,'' said the spokeswoman, Jen 
Siciliano.
    Mr. Taylor ran into similar secrecy when he tried to close a 
loophole that allows foreign-registered cruise lines to operate 
gambling cruises out of American ports.
    Under a century-old law designed to protect the American shipping 
industry, ships flying foreign flags cannot travel between American 
ports, or leave from and return to the same American port, unless they 
visit a foreign port as part of the voyage. That is why foreign cruise 
ships sailing from Miami or San Diego stop at a foreign location before 
returning, a practice critics call ``cleansing the voyage'' for tax 
purposes.
    But the Customs Service ruled that foreign vessels meet the 
requirement in some cases if they merely sail three miles out into 
international waters before returning. That ruling allows foreign ships 
to operate gambling ``cruises to nowhere'' that depart from an American 
port, travel briefly into international waters and return to the same 
port without visiting another country.
    Those types of cruises are operated by smaller foreign cruise lines 
operating from American ports, not the major lines.
    Seeking to claim that business for American ships, Representative 
Taylor won House approval three times, from 1993 to 1995, for 
legislation that would require foreign-registered vessels to stop at a 
foreign port even on a ``cruise to nowhere.''
    Each time the bill got to the Senate, at least one anonymous 
senator put a hold on it , blocking any vote. Mr. Taylor said he was 
unable to identify who stopped the measure, but he said he knew who was 
behind it. ``The first time I went to pass that bill in the House, I 
will never forget what happened to me,'' Mr. Taylor said, describing a 
1993 incident. ``As I'm walking across the street to go handle the bill 
on the House floor, the chief lobbyist for the foreign cruise industry 
comes up and offers me and my family a free cruise if I withdraw my 
bill. He says, `It's just so that you get to know us.' It sure sounded 
like a bribe to me.'' Mr. Taylor said the lobbyist was Mr. Alcalde.
    In a written response, Mr. Alcalde called the accusation 
reprehensible. He said that the Congressman misunderstood what he said, 
and that he did not even have the authority to offer anyone a free 
cruise.
    ``It is true that I suggested he inspect the cruise ships,'' Mr. 
Alcalde said. ``It is important that to take a position as a 
legislator, one must understand the industries that they are attempting 
to regulate.''
    ``It is also true that I suggested that they are an excellent 
vacation, especially for families. Never did I offer Mr. Taylor any 
favor or incentive, and I am truly sorry that he misunderstood those 
words.''
    The cruise trade group opposed Mr. Taylor's bill in 1992, telling 
Congress it feared that the restrictions could be applied too broadly 
to its members. The next year, the group said it could support the bill 
with clarifications spelling out that it was intended for the ``cruise 
to nowhere'' trade.
                    permit advantage in glacier park
    The industry's influence also paid dividends last October when 
Representative Don Young, Republican of Alaska, preserved the monopoly 
held by foreign cruise lines on entry permits to Glacier Bay National 
Park, a popular cruise destinations.
    In an effort to increase competition for concession business at 
national parks, Congress last year eliminated a long-standing provision 
that allowed existing operators to retain concessions by matching the 
best offer from any other company. The provision made it virtually 
impossible for an outside company to win a concession.
    Among the parks that would have been opened to competition was 
Glacier Bay, where concerns over the environment and wildlife have 
restricted entry permits for ships. The day the bill passed the House, 
Mr. Young, chairman of the Committee on Resources, inserted an 
amendment extending the preference for operators at Glacier Bay until 
2009.
    Mr. Young has received about $45,000 in contributions from cruise 
industry employees in recent years. One of his former staff members 
also works as the chief lobbyist for Holland American Line, the 
division of Carnival that has the most entry permits for Glacier Bay.
    Efforts to interview Mr. Young over the course of a week were 
unsuccessful. Last fall, he said that retaining the preference was 
necessary to avoid disrupting cruises and to protect Alaskan tourism.
    ``Cruise ship companies depend on a smooth process for bidding on 
permits to enter Glacier Bay in order to accommodate the thousands of 
passengers who visit this park every year,'' he said.
    Kevin Apgar, the National Park Service concession manager for 
Alaska, said in an interview that the exemption was anti-competitive 
and not necessary to insure smooth cruise operations.
    ``I don't see any justification for it," Mr. Apgar said. "The 
industry made a special pleading and got special treatment over all the 
other large concessions nationwide.''
    Three American companies with smaller ships submitted proposals 
last year for some of 42 new cruise-ship permits being awarded by the 
Park Service.
    ``The big operators still have a preference and we expect our 
application to be denied,'' said Gary Sorrels, vice president of 
American West Steamboat in Seattle, which is planning a 250-passenger 
cruise ship.
    Officials at the National Park Service in Washington said they 
expected to award most of the new permits to Holland America, which 
they said submitted the best proposal, within the next few weeks. The 
company promised new studies on the impact of cruise ship noise on 
whales and said it would finance an on-site equipment and personnel to 
respond to an oil spill in the park.
    The award is likely despite Holland America's guilty plea last 
August to discharging oily waste in the waters of Alaska's Inside 
Passage.
    ``We're aware of the dumping,'' said Bill Pierce, the Alaska desk 
officer at the park service, ``but Holland America's proposal was very 
good.''

    Senator Hutchison. Now I would call on the good Senator 
from Alaska, Senator Frank Murkowski, who is also a cosponsor 
of this legislation, and whose State is very much affected, and 
I think would open up a lot of opportunities if we could pass 
this legislation, having been a visitor to Alaska, I know that 
a lot of people would like to have the opportunity to cruise 
the Alaska shore, so thank you, Mr. Chairman.

              STATEMENT OF HON. FRANK MURKOWSKI, 
                    U.S. SENATOR FROM ALASKA

    Senator Murkowski. Let me thank you, Madam Chairman, and 
also thank Senator McCain for the efforts on this legislation. 
I think Alaska and Hawaii are particularly sensitive to the 
impacts of maritime legislation. We have lived under the Jones 
Act for a long, long time, since the early 1900's.
    The Jones Act, of course, is the cabotage law, which 
mandates that the movement of goods between two American ports 
take place in a U.S. flagged vessel, and as a consequence we do 
not move Alaskan coal to Hawaii because it is cost-prohibitive.
    We are not allowed to move Canadian goods--excuse me, U.S. 
goods from the West Coast, the State of Washington, up to 
Alaska in a Canadian ship simply because it is a violation of 
the Jones Act, and so in order for us to transit, why, we have 
a foreign vessel between a U.S. and foreign port, but not to 
other U.S. ports. That is a protectionist type of legislation 
that has been able to foster the maritime industry in the state 
to what it is today, and what it is today is somewhat limited.
    As you know, all the oil that moves from Alaska down the 
West Coast, which is about 20 percent of the total crude oil 
produced in the United States, moves in U.S.-flagged vessels, 
and that is obviously a significant contributor to the American 
merchant marine.
    Now, the Passenger Shipping Act has a similar prohibition. 
It says passengers cannot move between two U.S. ports unless it 
is on a U.S. vessel and as a consequence, Madam Chairman, we 
have, for all practical purposes, eliminated any sailings from 
U.S. ports by any major vessels. The only exception to that is 
one vessel that is serving the Hawaiian Islands.
    As to what we are attempting to do here, I would prefer a 
simpler approach, but I recognize the difficulties associated 
with this legislation. As many of you know, the passenger 
business has become a significant outlet for vacationers 
seeking a leisure experience, and the industry I think has done 
an extraordinary job in meeting the requirements of the leisure 
public who are willing to spend a week or so on a ship.
    I think right now we have about 92 ships that are foreign-
documented vessels with foreign crews traveling out of U.S. to 
a foreign port. I am told that the industry has topped $11 
billion in 1997, and the cruise industry spends more than $6 
billion annually nation-wide, and spends more than $363 million 
annually in my State of Alaska, and spends more than $2 billion 
in Florida, to give you some idea of the magnitude of the 
contribution.
    These figures I think demonstrate beyond a question that it 
is a big business. It is good to have such spending in our 
States, but it is also obvious that if the industry is spending 
more than $60 billion a year in direct purchases of goods and 
services, then the U.S. is already a major cruise-ship market.
    And let us not forget the other figure. They carry more 
than 4 million passengers, most of whom are U.S. passengers. 
The industry is expected to grow by more than 50 percent over 
the coming years. The 1997 study indicated the industry planned 
as many as 41 new vessels. I do not know whether that is an 
overcapacity, but clearly, they know the risk, and they are 
looking at increasing passenger capacity by more than 40 
percent between 1997 and the year 2000.
    It is unfortunate, but it is a fact that all of the cruise 
lines that I have discussed operate foreign vessels 
exclusively. That is just a sad necessity, because it is not 
financially possible for a company to operate the U.S.-flagged 
vessels that are required by the Passenger Services Act in its 
current form.
    The industry is dominanted Carnival Corporation, which 
operates a number of cruise lines, Holland-American Lines among 
them, but Royal Caribbean is also a major factor in the 
industry, about $1 billion and net earnings of about $331 
million last year.
    So what we have is an industry that is focused on U.S. 
passengers in a trade that has become extremely lucrative. That 
being the case, the question is, why are there no U.S.-flagged 
vessels? As I have indicated, there is an old one in Hawaii, 
but the answer is, it costs too much to build vessels in the 
United States and man them with U.S. crews.
    I hope the witnesses will give us enough detail so we can 
understand whether this legislation as proposed is designed to 
benefit one company in particular, which says that it will 
commit itself to build and crew in the U.S. if S. 1510 becomes 
law. I think we should examine the cost of U.S. construction 
and manning to determine what factors are relevant in this.
    It is my understanding that there is a consideration of a 
substantial contribution from MARAD in this proposal, where 
MARAD would provide Government assistance, financing, and so 
forth. It is also my understanding that there is a potential of 
substantial union pension funds being invested in this 
proposal. The latter is the business of the unions, which is 
quite appropriate, but nevertheless not everyone has access to 
that type of funding capability.
    Madam Chairman, I do not know if cost alone is the only 
reason we have no U.S. vessels at present, but I think we have 
to look closely at this legislation, which may put one company 
in the U.S. trade, but the question is, can it be expanded to 
encourage other companies to do the same?
    On another note, given the tremendous growth and 
extraordinary profits of the current foreign flag operators, 
perhaps it is simply that it is more profitable to operate 
under foreign flags which minimize a company's liability for 
U.S. taxes, as well as its obligation to employ U.S. citizens. 
As we know, the current ships do not employ U.S. labor to any 
great extent, and their tax situation is such that they pay 
taxes on revenue generated within the United States but not on 
earnings from voyages from foriegn ports.
    So I am not opposed to having my State, or any State for 
that matter, benefit from the dollars brought in by foreign-
flagged vessels. I would like to see us competitive, and this 
legislation may be a step in the right direction, and that is 
why I am supporting it at this time.
    As it stands today, the Passenger Service Act does not 
protect American industry under any terms and circumstances. It 
merely holds it back, to the detriment, I think, of all 
American ports, and that is not good policy. Changing it is. 
And when I say American ports, I am talking about American jobs 
as well, and so I applaud those who have the forward-looking 
vision to support this bill, but I would also suggest, Madam 
Chairman, that we get a full understanding of the financing 
which is suggested in this proposed legislation.
    I thank the chair.
    Senator Hutchison. Thank you, Senator Murkowski, and thank 
you for your leadership on this issue, and I do hope we can 
come to a resolution that will be in everyone's interest, and 
certainly with a fair taxation and fair access to a level 
playing field in the regulatory arena. I think that is 
certainly a given.
    Now, Senator Abraham has graciously agreed to let Senator 
Brownback proceed.
    Excuse me, Senator Cleland. Did you come before Senator 
Abraham? I am sorry.
    Senator Cleland. Madam Chairman, he was first.
    Senator Hutchison. Let me just ask you, Senator Brownback 
has asked to go first because he has another hearing.
    Senator Cleland. That is fine.
    Senator Hutchison. All right, Senator Brownback.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Madam Chair, thank you very much. I want 
to thank my colleagues, Senator Cleland and Senator Abraham, 
for allowing me to go out of order. I only want to take a 
couple of minutes. I did want to comment briefly that I think 
this is an important bill, and it is an important hearing for 
us to have on this issue, and I am supportive of it.
    I have got a letter that I am going to introduce into the 
record, signed by five of our colleagues and myself, supporting 
this effort on opening this up, but we would also like to take 
the spirit embodied in this bill, in S. 1510. We hope that the 
Congress will soon turn to the deregulation of coastwise 
transportation of freight, which is presently restricted by the 
Merchant Marine Act of 1929, which of course is best known as 
the Jones Act.
    The chairman, Chairman McCain has held a hearing on this 
previously. It really hurts American farmers. Farmers and other 
bulk shippers in the agricultural heartland of America are 
affected by the Jones Act, because it removes competitive 
shipping options that could otherwise be available if we had a 
viable deep-water fleet engaged in coast-wise trade, and I want 
to give you one small example of what happened.
    This impact was confirmed by a decision earlier this year 
by poultry and swine producers in North Carolina to buy 75,000 
tons of soybean meal from Brazil. This in the midst of a 
terrible crisis farmers are suffering right now in the United 
States and our low prices.
    The livestock producers chose to buy foreign grain because 
counterproductive shipping restrictions prevented them from 
buying U.S. grain at a reasonable cost and being able to ship 
it into North Carolina. It was cheaper for them to ship it from 
Brazil than to get it from Ohio, Indiana, and Illinois, and the 
limited shipping options we have there because of Jones Act 
problems.
    Madam Chairman, this has been a problem for the 
agricultural community for some period of time. It just 
continues to get worse as the deep water fleet has grown 
smaller and smaller, so I would hope that as we look at this 
act on tourism, we would also take a look at the Jones Act and 
its impact on agriculture, and our lack of having competitive 
options for a deep water fleet to move agricultural bulk 
commodities within the United States.
    With that, I am going to submit this letter and my full 
statement in the record, and again thank my colleagues for 
allowing me to present this out of step.
    [The prepared statement of Senator Brownback and joint 
letter of support for S. 1510 follow:]

   Prepared Statement of Hon. Sam Brownback, U.S. Senator from Kansas
    Senator Brownback. Madam Chair, thank you very much. I want to 
thank my colleague, Senator Cleland and Senator Abraham, for allowing 
me to go out of order. I only want to take a couple of minutes. I did 
want to comment briefly that I think this is an important bill, it is 
an important hearing for us to have on this issue, and I am supportive 
of it.
    I hope that the Congress will soon turn to the deregulation of 
coastwise transportation of freight, which is presently restricted by 
the Merchant Marine Act of 1929, which of course is best known as the 
Jones Act.
    The chairman, Chairman McCain held a hearing on this previously. 
This Act really hurts American farmers. Farmers and other bulk shippers 
in the agricultural heartland of America are affected by the Jones Act 
because it removes competitive shipping options that could otherwise be 
available if we had a viable deep water fleet engaged in coast-wide 
trade. I want to give you one small example of what happened.
    This impact was confirmed by a decision earlier this year by 
poultry and swine producers in North Carolina to buy 75,000 tons of 
soybean meal from Brazil. This in the midst of a terrible crisis; 
farmers are suffering right now in the United States due to low prices
    The livestock producers chose to buy foreign grain because 
counterproductive shipping restrictions prevented them from buying U.S. 
grain at a reasonable cost and being able to ship it into North 
Carolina. It was cheaper for them to ship it from Brazil than to get it 
from Ohio, Indiana, and Illinois, because of the limited shipping 
options we have there due to Jones Act problems.
    Madam Chairman, this has been a problem for the agricultural 
community for some period of time. It just continues to get worse as 
the deep water fleet has grown smaller and smaller. I would hope that 
as we look at this act on tourism, we would also take a look at the 
Jones Act and its impact on agriculture, and our lack of having 
competitive options for a deep water fleet to move agricultural bulk 
commodities within the United States.
    With that I would like to thank my colleagues for allowing me to 
present this out of step.
                                 ______
                                 
                          United States Senate
                          washington, dc 20510
                  joint letter of support for s. 1510

       the united states cruise ship tourism development of 1999
    The undersigned Senators support S. 1510, and hope to see it become 
law this year. S. 1510. The United States Cruise Ship Tourism 
Development Act of 1999 removes an artificial regulatory barrier to 
commerce in the cruise ship industry. As the current economic recovery 
rolls on, Americans will have more disposable income to spend on 
leisure items like cruises, and cruise ship operators should have the 
freedom to take these customers where they want to go. S. 1510 will 
break down unnatural, protectionist barriers to coastwise commerce in 
the cruise industry. Congress should act expeditiously on S. 1510 so 
that the traveling public can benefit from further deregulation of this 
industry.
    In the spirit embodied in S. 1510, we hope Congress will also soon 
turn to the deregulation of the coastwise transportation of freight, 
which is presently restricted by the Merchant Marine Act of 1929, known 
as the Jones Act. Farmers and other bulk shippers in the agricultural 
heartland of America are affected by the Jones Act because it removes 
competitive shipping options that could otherwise be available if we 
had a viable deepwater fleet engaged in coastwise trade. That fleet 
today is small, antiquated and unserviceable. This is confirmed by the 
decision earlier this year by poultry and swine producers in North 
Carolina to buy 75,000 tons of soybean meal from Brazil. This, in the 
midst of the terrible crisis farmers are suffering right now. The North 
Carolina livestock producers chose to buy foreign grain because 
counterproductive shipping restrictions prevented them from buying U.S. 
grain at a reasonable cost. No doubt, soybean producers in states like 
Ohio, Indiana, and Illinois that would normally suppiy North Carolina 
livestock producers are counting the cost of opportunity lost to the 
Jones Act.
    The undersigned Senators look forward to supporting passage of S. 
1510. Hopefully, the example of deregulation of the U.S. cruise ship 
industry will lead Congress to examine the moribund domestic coastwise 
deepwater shipping industry.

Sam Brownback
Conrad Burns
Richard Lugar
Jesse Helms
Pat Roberts
Peter Fitzgerald

    Senator Hutchison. Thank you very much, Senator Brownback. 
Senator Abraham.

              STATEMENT OF HON. SPENCER ABRAHAM, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Abraham. Thank you, Madam Chairman. I first want to 
begin by indicating that I think the potential for significant 
expansion of the cruise industry in our country exists. I do 
not think it exists just in the areas which we have typically 
come to think of as the areas of cruise destinations or cruise 
activities, but also in a variety of other areas, including the 
Great Lakes, where obviously I have a special interest and 
excitement about that potential.
    In fact, the chairman was recently a visitor in an area of 
our State which I think has great potential as a possible 
launching place or debarkation point for cruise activities.
    Senator Hutchison. If the Senator would yield, I would say 
that I observed that your Lakes are bigger than our Gulf. I 
certainly think it would be a wonderful opportunity.
    Senator Abraham. There is a lot of interest in that, and I 
think probably a number of the witnesses here are not only 
aware of it, they may even comment on that as part of the 
potential for expansion.
    One of the concerns I have at the inception, as we look at 
this legislation, is the extent to which it would really be 
applicable, or have any potential to apply in the Great Lakes, 
specifically because of the size of the vessels that are 
involved, and some of the rules that would be built into this 
legislation. So I have some concerns about the mechanics of the 
legislation as to whether or not it would even make an impact, 
or have a potential to have impact in our area, where I think 
the potential for growth is significant.
    I also would say, with all due respect to the Senator from 
Kansas, that if the moving of this legislation is going to be 
linked either in a direct sense or in an indirect sense by 
virtue of sort of the precedent it might set, or the sort of 
atmosphere it might create to efforts to change the Jones Act 
with respect to the cargo operations and industries in our 
country, I think it would almost certainly preclude the 
legislation or any form of this legislation from going forward.
    Because I have a slightly different perspective on the 
Jones Act than Senator Brownback, although I certainly respect 
his views, I think that this type of legislation will not move 
if it becomes perceived as either a camel's nose under the tent 
or a precursor to a broader type of Jones Act reform.
    So I would hope that we would, as any process moves forward 
here, be very clear about that, because I think anything, if we 
broaden the scope of the ultimate objectives here, it certainly 
makes it impossible to put together the kind of consensus and 
bipartisan support that would be needed for passage, and that, 
too, will be something that I am going to be interested in 
following as we move ahead.
    But I certainly think that as a committee our efforts, any 
efforts we can engage in to try to identify ways to assist in 
the development of this cruise industry in our country is a 
really wise topic on which for us to focus. I think it is a 
place where we have the potential to make an impact, and so I 
thank you for holding the hearing and look forward to hearing 
from our witnesses.
    Senator Hutchison. Thank you very much.
    Senator Cleland.

                STATEMENT OF HON. MAX CLELAND, 
                   U.S. SENATOR FROM GEORGIA

    Senator Cleland. Thank you, Madam Chairman. I just want to 
thank you for your interest and leadership on this important 
issue. I realize that you would rather see an end to the 
Passenger Vessel Services Act, but I thank you for taking a 
look at other approaches to increase consumer access to the 
cruise market. The passenger vessel industry has seen drastic 
changes in the past half-century.
    It is disappointing to note that the U.S. once held a 
considerable share in the cruise industry, especially in the 
trans-Atlantic voyages, and while the advent of affordable air 
travel replaced the ocean liners carrying passengers to Europe, 
the industry was able to shift its focus to entertainment and 
tourism.
    Unfortunately, the shift in focus all but eliminated the 
U.S.-flagged cruise industry. In 1960, there were 31 American 
passenger vessels. Today, there is only one. Certainly the 
operating advantages of international vessels over U.S. vessels 
prohibit American cruise lines from competing on a level 
playing field with vessels registered under the flag of 
convenience. U.S. vessels are held to a much higher standard. 
They must comply with strict U.S. environmental and labor laws, 
are subject to U.S. taxation, and clearly fall under the 
jurisdiction of the American legal system.
    While it may be unfeasible for American cruise ships to 
compete in foreign markets, I believe the domestic trade holds 
immense potential. I am greatly encouraged by recent actions in 
the Hawaiian Islands and that passenger vessel market to 
revitalize the U.S.-flagged cruise industry. This effort 
includes the registering of several cruise vessels under the 
U.S. flag, and the commitment to buildup to five coastal cruise 
vessels to be operated in the domestic market.
    The Hawaii legislation was a result of industry leaders 
working together to find a win-win solution to these problems. 
I commend their efforts, and encourage their continued 
involvement in the revitalization of the U.S.-flagged cruise 
industry.
    In my home State of Georgia, there is great optimism for 
the establishment of a domestic cruise market. The City of 
Savannah is currently using an old cargo terminal for a 
temporary cruise terminal, and they are in the process of 
finding funds to build a dedicated cruise terminal as soon as 
possible. With the construction of a maritime conference center 
and hotel on Hutchison Island, the time is right to pursue this 
possibility.
    Recently, Savannah had the opportunity to host a cruise 
ship, the 1,200-passenger vessel ZENITH, operated by Celebrity 
Cruises. At the height of hurricane season, low pressure kept 
the ZENITH from calling on Bermuda as scheduled, and its 
contingency port of Nassau in the Bahamas. After seeking refuge 
from the storm in Port Canaveral, the ZENITH had planned to 
sail north to Savannah before returning to New York.
    As I understand it, current law prohibited the ZENITH from 
calling on Savannah due to the absence of a visit to a foreign 
port. I must say, it is curious that an act of Congress 
superseded an act of God in this case.
    The Savannah Convention Center has since estimated that the 
ZENITH could have contributed as much as $1/4 million to the 
local economy. I regret the loss of revenue to the Savannah 
economy, and yet I am reluctant to go against our fundamental 
commitment to support a strong U.S. merchant marine. We are 
here today in order to attempt to find a balance between a 
vital maritime policy and the future of domestic passenger 
commerce.
    I want to thank the chairman for opening the dialog on how 
to revive the U.S. passenger vessel fleet. I look forward to 
working with my colleagues in order to find a viable, long-term 
solution to revitalize the American passenger vessel industry 
while maintaining and enhancing the position of American 
workers, both of which have suffered from a lack of attention 
in Congress for over 4 decades.
    Thank you, Madam Chairman.
    Senator Hutchison. Thank you, Senator Cleland. Senator 
Gorton.

                STATEMENT OF HON. SLADE GORTON, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Gorton. Well, Madam Chairman, welcome to the spider 
web.
    [Laughter.]
    Senator Gorton. I was looking at our staff memorandum on 
his subject, and the first thing that came to mind is that we 
are now dealing with the second oldest statute that still 
creates a great deal of controversy. Every year, we have 
eloquent debates on the necessity to amend the Mining Act of 
1872. It is exactly 14 years older than the Passenger Vessel 
Services Act, and I am not sure which one I would place my 
money on for any actual revisions within the foreseeable 
future.
    I have been involved in sponsoring bills of this nature for 
sometime, and Madam Chairman, if I may say, they all seem to 
fall into two categories. Category 1 is a bill relating to 
passenger vessels that would actually change the way in which 
business is conducted in the real world, and they are opposed 
by so many people they have no chance of passage.
    Category 2 are statutes that seem to do something but would 
not change the way in which the world operates, and they have 
at least a remote chance of passage. I am not at all sure that 
you have not combined category 1 and 2 in this case with 
something with very little chance of passing, the success of 
which I find relatively dubious, and it certainly is not for 
want of trying.
    It does seem to me, as it does to almost everyone else, 
that when we have so significant an industry, or a business as 
this one, that we ought to be able to manage it in a way that 
provides more jobs and economic opportunity for citizens of the 
United States as well as even greater choices for American 
citizens than the type of cruises in which they are engaged, 
but no matter how we try to do it, there is some major economic 
interest in the United States whose ox is gored by an effective 
way of going at this, at attempting to meet this challenge.
    Given the secondary or tertiary nature of this debate--and 
by that I do not mean to deprecate its importance, except to 
say that it is not something that any Senate Majority Leader is 
going to allow the Senate to spend a month on the floor 
debating in the face of a filibuster, that it is just extremely 
difficult to get from here to there. To get everyone, to get a 
panel, a representative panel, all who would say the bill was a 
good idea would be a true miracle, but as I say, I suspect 
would not really have any impact on the way in which the cruise 
ship industry is actually conducted.
    So I guess I have to say, I am very interested, I admire 
your courage and the courage of your cosponsors on this bill, 
but I strongly suspect we have not found a way to change the 
business and get enough approval to get a bill passed yet, but 
maybe we will some day. After all, it is only 113 years since 
we last dealt with this issue in any effective fashion. Maybe 
we will find the charm.
    Senator Hutchison. Well, on that note----
    [Laughter.]
    Senator Hutchison.----I would love to hear the testimony on 
the bill that the Senator from Washington says has very little 
to remote chance of passage. That is a wide area of 
possibility.
    But let me just say that I do think there is a chance. We 
all want more jobs. We all want more tourism. That is good for 
every single State that is affected in our country, it is good 
for American workers, and I think a 3-year try is perhaps the 
window.
    This does not permanentize the issue, but it does say, 
until we have a shipbuilding industry that is viable for 
passenger ships in our country, let us see if we can do 
something good for shipbuilders and have repairs there, and 
give them a chance to gear up, and if we can get a shipbuilder 
in America that will make cruise ships, then after 3 years they 
will be able to gear up.
    So I think there is a window here, and maybe it is because 
of my small tenure as compared to yours, Senator Gorton, that I 
do think there is a chance here, but it will take everyone 
pulling together, because I think what you said is totally true 
about the patience of our Majority Leader to have a 1-month 
filibuster on this issue. Talk about remote, that is remote, 
but if we can have everyone that has an interest, from the 
unions to the industry, to the shipbuilders, then working 
together and agreeing out of committee on a bill that will have 
something good in it for each industry that would not be there 
under present law, that is the way to do it.
    So I want to hear today from the six of you who give very 
different opinions, and see if there is a way that we can 
satisfy each of you that there is something that can be added 
that you would not have if we do not change the law, and 
realize that a lot of other opportunities for people not 
sitting at the table would be presented if we could have this 
chance.
    So with that, I will call in the order that I have it, 
listed on my sheet that I did not prepare, in order to show you 
this was a lottery, I am just going to go in that order, and I 
would call first on Ms. Cynthia Colenda, the President of the 
International Council of Cruise Lines.

   STATEMENT OF CYNTHIA A. COLENDA, PRESIDENT, INTERNATIONAL 
                    COUNCIL OF CRUISE LINES

    Ms. Colenda. Good morning, Madam Chairman and distinguished 
members of the subcommittee. It is a pleasure for me to be 
here. I am here representing International Council of Cruise 
Lines, and we are pleased to outline to the Committee ICCL's 
position on S. 1510, the Cruise Ship Tourism Development Act, 
which amends the Passenger Vessel Services Act to allow 
foreign-flagged vessels to carry passengers in the United 
States coast-wise trade.
    ICCL is a nonprofit trade organization that represents the 
interest of 17 of the largest cruise lines operating in the 
North American cruise market. We also represent over 60 
associate member companies that are cruise industry business 
partners and suppliers located throughout the United States.
    ICCL member cruise lines serve major ports of the United 
States, and we call on more than 200 ports worldwide. Last 
year, ICCL member cruise vessels carried approximately 5 
million passengers on 95 vessels.
    We welcome the opportunity to be here before the Committee 
today to discuss our industry's perspectives on this 
legislation. The bill, S. 1510, would modify the Passenger 
Vessel Services Act and allow certain qualified vessels to 
engage in coast-wise trade. ICCL has been requested to present 
its views on how any changes to the PSA would impact our 
industry.
    Since the foreign passenger vessel industry from its 
inception has been engaged in international voyages, 
modification to the PSA would not change our current 
operations, nor encourage our members to engage in coast-wise 
trade. For this reason, ICCL has not taken a position on any 
legislation that amends PSA, since we do not anticipate any 
significant changes to our members' current itineraries.
    We understand the objectives the proponents of the 
legislation are trying to achieve. The Cruise America Coalition 
is comprised of tourism interests, U.S. ports, many other 
travel industry partners which the passenger cruise industry 
works on a host of important issues.
    The members of the coalition are interested in bringing 
expanded economic development to their cities, States, and 
regions. We do not believe that a reformed PSA is necessary to 
achieve these objectives. We encourage growth in all segments 
of the cruise industry, and with the slated expansion of our 
members' fleets, passenger vessels will bring more business and 
economic activity to additional U.S. ports of call without any 
modifications to U.S. law.
    The ICCL member cruise lines are operating in an 
international market-driven competitive environment. Global 
passenger cruise capacity has significantly increased in the 
past several years. Last year, there were approximately 223 
vessels that carried 9-1/2 million passengers worldwide.
    Global capacity in the past 6 years has increased by almost 
50 percent. Today's passenger vessel capacity is based on what 
the market will support. While a significant part of our 
business continues to be in the Caribbean, Alaska, Bermuda, and 
Trans-Canal, the largest growth has been experienced outside 
North America in the Trans-Atlantic, European, Southeast Asia, 
and Far East regions.
    During consideration of this important issue, we would like 
to provide the committee with information regarding the 
economic benefits that our industry operations generate in the 
United States. A study that was recently conducted by 
PricewaterhouseCoopers concluded that the total economic impact 
of the cruise industry, their passengers, and their U.S. 
suppliers, reached $11.6 billion in 1997.
    This spending was responsible for creating 176,000 jobs for 
U.S. citizens. With the addition of 47 new vessels by the year 
2002, both industry expenditures and the number of U.S. jobs 
created are significantly going to increase as well.
    A second study, which many of the Members mentioned today, 
looked at the direct spending that the cruise industry and its 
passengers spent in select States. That number reached almost 
$7 billion in 1997, and extended into all 50 States.
    It is interesting to note that in the State of Texas we had 
significant expenditures to the tune of millions of dollars. We 
also had major expenditures throughout the U.S.
    The cruise industry is proud of the economic partnerships 
we have developed with other U.S. industries across the 
country. While ICCL member vessels spend most of their time at 
sea, our member lines are responsible for stimulating business 
activity not only in the U.S. coastal States but in other 
regions of the country.
    Cruise industry operations depend on the vital support of 
many U.S. businesses and service sector suppliers. In 
conclusion, as the industry continues to expand, it will be 
able to provide more opportunities for businesses located 
throughout the United States, and in addition, as the industry 
brings new vessels to the North America market, it will provide 
expanded service to additional U.S. ports and offer new 
itineraries for cruise passengers.
    We appreciate the opportunity to express our views, and 
will be happy to answer any questions. Thank you very much.
    [The prepared statement of Ms. Colenda follows:]

         Prepared Statement of Cynthia A. Colenda, President, 
                 International Council of Cruise Lines
    On behalf of the International Council of Cruise Lines (ICCL), we 
are pleased to submit this statement outlining ICCL's position on S. 
1510, the Cruise Ship Tourism Development Act of 1999, which amends the 
Passenger Vessel Services Act (PSA) to allow foreign-flag vessels to 
carry passengers in United States coastwise trade.
    ICCL is a non-profit trade association that represents the 
interests of 17 of the largest cruise lines operating in the North 
American cruise market and over 60 Associate Member companies that are 
cruise industry business partners and suppliers. ICCL member cruise 
lines serve major ports in the United States and call on more than 200 
ports around the world. Last year, ICCL's cruise vessel operators 
carried more than 5 million passengers on 94 vessels.
    We welcome the opportunity to appear before the Committee today to 
discuss our industry perspectives on S. 1510. This legislation would 
modify the Passenger Services Act and allow qualified vessels to engage 
in coastwise trade. ICCL has been requested to present its views on how 
any changes to the PSA would impact our industry.
    Since the foreign passenger vessel industry, from its inception, 
has been engaged in international voyages, modifications to the PSA 
would not change our current operations nor encourage our member's to 
engage in coastwise trade. For this reason, ICCL has not taken a 
position on any legislation that amends the PSA since we do not 
anticipate any significant changes in our member's cruise itineraries.
    We understand the objectives that proponents of this legislation 
are trying to achieve. The Cruise America Coalition is comprised of 
tourism interest, U.S. ports, and many other travel industry partners 
with which the passenger cruise industry works very closely on a host 
of other important issues. The members of this coalition are interested 
in bringing expanded economic development to their cities, states and 
regions. We do not believe that a reformed PSA is necessary to achieve 
these objectives. We encourage growth in all segments of the cruise 
industry and, with the slated expansion of our member's fleets, 
passenger vessels will bring more business and economic activity to 
additional U.S. ports of call without any modifications to U.S. law.
    The ICCL member cruise lines are operating in an international, 
market-driven, competitive environment. Global passenger cruise 
business has significantly increased in the past several years. Last 
year, over 223 vessels carried approximately 9.5 million passengers 
worldwide. Global capacity in the past six years has increased by 
almost 50 percent. Today, passenger vessel capacity is based upon what 
the market will support. While a significant part of the business 
continues to remain in the Caribbean, Alaska, Bermuda, and Trans Canal 
cruises, the largest growth has been experienced outside North American 
in the Transatlantic, Europe, Southeast Asia and Far East regions.
    During consideration of this important issue, we would like to 
provide the Committee with information regarding the economic benefits 
that our industry operations generate in the United States. A study 
recently updated by PricewaterhouseCoopers (PwC) and Wharton Economic 
Forecasting Associates (WEFA), concluded that the total economic impact 
of the cruise lines, their passengers, and their U.S. suppliers reached 
$11.6 billion in 1997. This spending was responsible for generating 
over l76,000 jobs for U.S. citizens. With the addition of 47 new ICCL 
member vessels by the year 2002, both industry expenditures and the 
number of jobs created are expected to significantly increase as well.
    The PwC and WEFA study not only examined the cruise industry's 
nationwide purchases of U.S. goods and services, it also examined the 
state by state impact of industry purchases. The study concluded that 
the direct spending of the cruise industry and its passenger was almost 
$7 billion in l997 and extended into all 50 States. The top industries 
benefiting from the cruise industry are manufacturing; finance, 
insurance and real estate; and transportation, communications and 
utilities. A listing of cruise industry expenditures by state and by 
industry is enclosed in the Appendices.
    The cruise industry is proud of the economic partnerships we have 
developed with other U.S. industries across the country. While ICCL 
member vessels spend most of their time at sea, our member lines are 
responsible for stimulating business activity not only in U.S. coastal 
states but also in other regions of the country. Cruise industry 
operations depend on the vital support of many U.S. business and 
service sector suppliers. Industry purchases range from California, 
Alaska and Washington state, to Texas, Louisiana, Tennessee and New 
York. An example of direct cruise industry spending in ten selected 
states follows:


Alaska                                                           $363.3M
Arizona                                                           $47.4M
Louisiana                                                        $107.2M
Massachusetts                                                    $120.6M
Michigan                                                          $99.7M
Mississippi                                                       $10.8M
Oregon                                                            $99.7M
South Carolina                                                    $21.8M
Texas                                                            $123.1M
Washington                                                       $162.9M


    Of course, the most important component of this industry is our 
passengers. Today, the typical cruise passenger is from middle America 
and comes from every state and age bracket. The continued success of 
the cruise industry is in large part attributable to the fact that a 
cruise vacation is affordable for the average American. The following 
provides a selected state listing of passengers who cruised in l998:


Alaska                                                               969
Arizona                                                           78,161
Louisiana                                                         73,894
Massachusetts                                                    172,542
Michigan                                                         137,546
Mississippi                                                       15,708
Oregon                                                            40,818
South Carolina                                                    55,622
Texas                                                            199,068
Washington                                                        83,682


    In conclusion, Mr. Chairman, as the industry continues to expand, 
it will be able to provide more opportunities for businesses located 
throughout the United States. In addition, as the industry brings new 
vessels into the North American market, it will be able to provide 
expanded service to additional U.S. ports and offer new itineraries for 
cruise passengers.
    ICCL appreciates the opportunity to express its views to the 
Committee on this important issue.

                 INTERNATIONAL COUNCIL OF CRUISE LINES

MEMBER LINES

Carnival Cruise Lines
Celebrity Cruises
Commodore Cruise Line
Costa Cruise Lines, N.V.
Crystal Cruises
Cunard Line Limited
Disney Cruise Line
Holland America Line
Norwegian Cruise Line
Orient Lines
Premier Cruise Lines
Princess Cruises
Regal Cruises
Royal Caribbean International
Royal Olympic Cruises
Seabourn Cruise Line
Windstar Cruises
                      ICCL Associate Members (62)
                        As of September 29, 1999

U.S. Members

Atlantic Marine, Inc.
Mobile, AL

SHR Perceptual Management
Scottsdale, AZ

FreshPoint, Inc.
Los Angeles, CA

Kaye, Rose & Partners, LLP
San Diego, CA

Marine Hotel Association
Sausalito, CA

Port of San Diego
San Diego, CA

Strategic Cruise Line Services
Inglewood, CA

Unitor Ships Service Inc.
Long Beach, CA

Air Transport Association
Washington, DC

Amadeus
Miami, FL

Callenberg Engineering, Inc.
Miami, FL

Canaveral Port Authority
Cape Canaveral, FL

Ecolab Inc.
Tampa, FL

Flagship Games International, Inc.
Hollywood, FL

Florida Restaurant Association
Tallahassee, FL

Fuji Photo Film U.S.A., Inc.
Miami, FL

Harbour Marine Systems, Inc.
Miami, FL

Howard Snoweiss Design Group
Coral Gables, FL

Image Photo Services, Inc.
Miami, FL

International Paint
Hollywood, FL

Keller & Houck, P.A.
Miami, FL

Maritime Telecommunications Network, Inc.
Miami, FL

Onboard Media
Miami Beach, FL

Port of Miami
Miami, FL

Steiner Transocean, Ltd.
Miami, FL

Teakdecking Systems
Sarasota, FL

Tropical Shipping & Const., Co., Inc.
Riviera Beach, FL

Mail-Well Print Group
Atlanta, GA

Oneida Foodservice
Atlanta, GA

The Coca-Cola Company
Atlanta, GA

J.R. Simplot Company
Boise, ID

3M
St. Paul, MN

Hann & DePalmer
Robbinsville, NJ

International Terminal Operating Co. Inc.
Jersey City, NJ

Konica USA
Englewood Cliffs, NJ

Miller Freeman
Princeton, NJ

American Insurance Group
New York, NY

Berkely Group, The
Garden City, NY

Paul, Weiss, Rifkind, Wharton & Garrison
New York, NY

Cascade General, Inc.
Portland, OR
G.E.T. Enterprises, Inc.
Houston, TX

Hospitality Financial and Technology Professionals
Austin, TX

Port of Galveston
Galveston, TX

American Association of Port Authorities
Alexandria, VA

M. Rosenblatt & Son, Inc.
Arlington, VA

Mobil Aviation and Marine Sales Inc.
Fairfax, VA

Elgin DDB
Seattle, WA

Port of Seattle
Seattle, WA

Todd Pacific Shipyards Corporation
Seattle, WA

Overseas Members

Multiport Ship Agencies NetworkLondon, England

Steamship Mutual Underwriting Association
London, England

Sterling Publications Limited
London, England

Thomas Miller P&I Ltd.
London EC3A 5BA, England

Willis
London, England

Kvaerner Masa-Yards Inc.
Helsinki, Finland

Chantiers De L'Atlantique
Paris, France

Blohm+Voss GmbH
Hamburg, Germany

Jos. L. Meyer GmbH & Co.
Papenburg, Germany

Fincantieri-Cantieri Navali Italiani S.p.A.
Trieste, Italy

Assuranceforeningen GARD
Arendal, Norway

SKULD
OSLO, Norway







    Senator Hutchison. Thank you. Mr. Al Wallack, the President 
of Voyager Holdings.

              STATEMENT OF AL WALLACK, PRESIDENT, 
                     VOYAGER HOLDINGS, INC.

    Mr. Wallack. Thank you, Madam Chairman, for giving us the 
opportunity to come here and speak in support of S. 1510 today. 
If someone said 25 years ago that the cruise industry would 
carry 6.5 million people in the beginning of the new 
millennium, I would think that it would be judged difficult, if 
not impossible, and highly unlikely.
    If anyone had said that the cruise industry 25 years ago 
would have grown 900 percent in the ensuing 25 years, I think 
people would have perhaps said that is a difficult or an 
impossible task, and maybe some of the tasks have a certain Don 
Quixote-like aura about them, but we have some very 
underdeveloped assets in the United States that we believe can 
be developed.
    The cruise industry is a very large and dynamic, well-run 
and growing industry, yet there are some parts of it that are 
growing at a much slower rate, and I refer to, obviously, the 
U.S.-flagged portion of the business. The underdeveloped assets 
on this side of the world are the tremendous tourism potential 
that the port cities of the East Coast, West Coast, Gulf, and 
Great Lakes have and the great potential to bring not only 
Americans cruising to new destinations, but Europeans seeing 
America in a way that they have not yet been able to do.
    Under S. 1510, Voyager Cruises has a very pragmatic and 
straightforward business plan. Our plan is to build modern 
cruise vessels in the United States and to finance those 
vessels with conventional financing and with conventional Title 
XI application, that any ship being built in the United States 
would be afforded. There is nothing unusual about that, but we 
understand that building new ships in yards that have not built 
them takes time.
    In yards that are significantly experienced in building 
cruise ships, the general building cycle for a ship that has 
been a repeat copy of a previously built ship is approximately 
2 years. When one starts a new venture, that is, a ship to be 
built for the first time, with a new design, the building 
program can take 3 years. In a new yard that has never built 
cruise ships before, this program could take at least 4 years 
from the time the button was pushed until the time the 
inaugural festivities begin pier-side in some U.S. port.
    In order to get from here to there, our strategy is to 
apply a tried and true method, one that has been used by cruise 
lines for the past 25 years. That is, to acquire existing 
vessels, and to put them into a trade so that we can build the 
brand and train our staff and do all the things necessary to 
have a viable business while the new ships are under 
construction. These are the steps we have proposed to take 
under S. 1510.
    We have a willing seller prepared to sell us three modern 
cruise ships, 1990 vintage cruise ships. We have conventional 
financing, nothing tricky, regular bankers to purchase those 
vessels and put them into service. We have a manning agreement 
with Patriot Holdings on the West Coast to provide us with 
American crews to staff these ships.
    As we take these vessels into service, modifications, if 
necessary, will be done in U.S. yards, and we will put them 
into service in the kinds of itineraries I alluded to before, 
along the coasts of America, and the Great Lakes of America. 
This is perhaps an impossible dream, but one, if one applies 
normal business acumen and experience, can be actually done. We 
can actually bring an American flag business into reality.
    Will it be a dominant megabusiness and take over the cruise 
industry? Only a fool would say that, but we can make 
significant growth, and nothing in my experience draws 
attention to a new business like a successful business 
operating in it. I feel confident that if our plan is allowed 
to go forward under S. 1510, if we are able to convert these 
vessels and build new vessels, then we are going to attract 
attention from a lot of other competitors.
    Imitation is the sincerest form of flattery, and I believe 
that we will be imitated, and additional vessels will be plying 
the trade that we will initiate. Thank you very much for giving 
us the opportunity to tell you our story this morning, and I 
will be happy to answer any questions you might have.
    [The prepared statement of Mr. Wallack follows:]

  Prepared Statement of Al Wallack, President, Voyager Holdings, Inc.
    Mr. Chairman and Members of the Committee:

    My name is Al Wallack. I am the President of Voyager Holdings, 
Inc., a wholly-owned subsidiary of the D'Arcinoff Group. The D'Arcinoff 
Group is a United States corporation whose present ownership and 
management consists of cruise, leisure, and shipyard industry 
professionals. Voyager Holdings was formed to acquire, operate, and 
construct large, modern cruise vessels for the United States domestic 
market.
    As for myself, I have spent my entire adult working life in the 
tourism industry, first in the airline industry and, since 1981, in the 
cruise industry. I was a founder and Senior Vice President of Celebrity 
Cruises; the Chairman of the Cruise Line International Association 
(CLIA) and twice chairman of this cruise industry association's 
marketing committee; and, most recently, President of Royal Olympic 
Cruises, USA.
    Mr. Chairman, the D'Arcinoff Group and Voyager Holdings support 
your legislation, S. 1510. We support this legislation because the 
status quo as defined by the existing statutory and regulatory 
framework governing the operation of cruise vessels in the domestic 
trades simply has not and will not work to achieve the goal of a fleet 
of large, modern U.S.-built, U.S.-flag cruise vessels. Unless the 
existing law is adapted to meet the realities of the cruise industry--
as it has been done in the past to assist companies that want to 
develop and expand domestic cruise vessel operations--our country will 
continue to lose a tremendous opportunity to participate in the 
economic benefits that are derived from expanded cruise vessel 
operations.
    We support the enactment of S. 1510 because it will allow Voyager 
Holdings and any other American company to acquire existing foreign 
cruise vessels for reflagging and immediate operation in the United 
States domestic market under the United States flag. Based on my 
personal experience and observations, and the history of the cruise 
industry itself, it is clear that virtually every major cruise line has 
either started operations or expanded and modernized it operations by 
acquiring existing ships and establishing a market presence and 
identity before and during the time it expended the capital to build 
new ships. This pattern, followed by the large cruise lines at their 
beginning, serves as a blueprint which can and should ``and must'' be 
followed by companies seeking to enter this highly competitive business 
today.
    The development and growth of a cruise line is market driven, and 
the decision to obtain and build cruise ships, and where to operate, is 
an economic determination. It is, as the lack of an oceangoing United 
States-flag cruise vessel fleet demonstrates, a decision that is 
greatly influenced by the relevance of the legal framework governing 
cruise vessel operations to the nature of the industry itself. 
Otherwise, the existing law would be working.
    As I stated, history repeatedly shows that to be successful, the 
cruise venture begins with a realistic bridge strategy, a strategy that 
allows a company to operate in its chosen markets while it has more 
attractive and more modern vessels under construction. This bridge 
strategy allows the company to offer consumers a new cruising option, 
laying the groundwork for the introduction of its new ships.
    For Voyager Holdings, therefore, the most significant aspect of S. 
1510 is that its enactment will allow us to implement our bridge 
strategy and to proceed with our plans to acquire existing cruise 
vessels for operation in the United States domestic market. Given the 
opportunity authorized in this legislation, Voyager Holdings will 
implement our plans to acquire vessels, to place them as quickly as 
possible under the United States flag, to provide significant new 
employment and economic opportunities to American shipboard and shore 
side labor, and be in a position to offer Americans new business and 
pleasure cruise options aboard American ships.
    In short, the enactment of S. 1510 will give Voyager Holdings the 
final ingredient to start a new American flag cruise line. It will 
allow us to implement a bridge strategy, a strategy that will allow us 
to bridge the gap that would otherwise exist by operating existing 
cruise vessels as new vessels are being built in an American shipyard. 
The amount of capital required to build cruise vessels, and the amount 
of time it takes, added to the fact that many United States domestic 
markets and itineraries are untested, make it essential that Voyager 
Holdings and other companies interested in entering the domestic cruise 
trades be given the opportunity to follow the same path to success that 
other cruise lines have followed. It is, in my opinion and based on my 
experience in the cruise industry, unrealistic to expect American 
cruise vessel ventures to succeed in any other fashion.
    We are also extemely pleased that S. 1510 contains a preference for 
United States-built and United States-flag cruise vessels over foreign 
cruise vessels when the Secretary of Transportation approves 
itineraries. This provision of the bill is necessary to encourage 
vessel owners to expand United States cruise vessel operations and to 
eliminate a disincentive to American cruise vessel operations.
    Equally important, we support the provision in S. 1510 that is 
intended to apply United States laws equally to United States-flag and 
foreign-flag vessels operating in the domestic cruise trades. Again, we 
feel very strongly that cruise vessel development legislation should 
encourage, not discourage, the operation of large United States-flag 
cruise vessels. We are confident that the Secretary of Transportation 
will ensure that American law does not work to the disadvantage of the 
American cruise industry.
    Voyager Holdings is not afraid to compete--provided that our 
competition plays by the same set of rules we are obligated by law to 
uphold. If implemented the way we believe it is intended, S. 1510 can 
and should help guarantee that ultimately, large cruise vessels 
operating between United States ports will be built in the United 
States and operated under the United States flag by American workers.
    In conclusion, I would like to thank you, Mr. Chairman, and the 
cosponsors of 
S. 1510 for introducing this important and long-overdue legislation 
that provides the incentives to develop a United States flag cruise 
vessel fleet. Given the authority contained in this legislation, we are 
ready and eager to begin operating United States flag cruise vessels in 
the United States domestic cruise trades.

    Senator Hutchison. Thank you, Mr. Wallack.
    Mr. Edmund Welch, Legislative Director for Passenger Vessel 
Association.

 STATEMENT OF EDMUND B. WELCH, LEGISLATIVE DIRECTOR, PASSENGER 
                       VESSEL ASSOCIATION

    Mr. Welch. Thank you, Madam Chairman and Senators. I am Ed 
Welch. I am legislative director for the Passenger Vessel 
Association. I would like to report that our president of our 
association, Mr. Chris Hendricks from Norfolk, Virginia, 
president of Spirit Marina, has come to the hearing and is in 
the audience.
    The Passenger Vessel Association is the national voice of 
U.S. flagged passenger vessels of all types, including 
overnight cruise ships, and obviously from the earlier 
statements there are folks that are under the misimpression 
that there are no U.S.-flag overnight cruise ships, other than 
the S.S. INDEPENDENCE in Hawaii, but it is just simply not so! 
There is a vibrant and exciting market segment in the U.S. 
trades that consist of a number of small-ship overnight cruise 
ships, and these ships will have anywhere from 75 to 250 
passengers, and the Passenger Vessel Association represents 
these U.S.-flag operators.
    These passenger vessels, these U.S.-flag passenger vessels 
are everything that you in Congress want to have in a maritime 
policy. The ships are built by American workers in American 
shipyards. They employ American seafarers, and their shoreside 
staffs, and their vessels operate on popular American routes 
throughout the U.S. Their companies and their employees all pay 
U.S. and State income taxes.
    In my statement, I describe seven member companies in our 
association that operate 22 existing overnight cruise vessels, 
and there are seven more that are imminent in the next year or 
two, some of them being constructed in the yards right now.
    In addition to our vessel members, PVA represents a number 
of associate members that are smaller shipyards that build 
these types of ships, including Nichols Brothers in Washington 
State, Senator Gorton, and our message to you is, we are here. 
We are here right now. We are U.S.-flagged, we are U.S.-built, 
U.S.-owned, and U.S.-crewed passenger vessels, and we have 
relied on the Passenger Vessels Services Act in establishing 
and operating our businesses.
    Make no mistake, if Congress were to change the law so that 
foreign-flag vessels entered our markets, we would suffer 
enormously. How could we stay in business, paying good wages at 
American rates to American citizens, while competing against 
foreign vessels paying far lower rates to noncitizens?
    How could we continue to pay income taxes on all of our 
operations, even when we take our vessels to the Caribbean or 
to Mexico, while our foreign competitors would pay hardly any, 
or even no U.S. income taxes? Why would Congress want to favor 
foreign businesses at the expense of our existing American 
ones?
    Turning to the specifics of the bill before you, we must 
report that we have serious concerns about the legislation, 
although we recognize that the intent of the bill, and the 
intent of the sponsors, is to jump-start the domestic industry 
for large cruise ships.
    We believe that any bill to amend the passenger act should 
embrace the principle of first do no harm, and we fear that S. 
1510 would harm our existing thriving small passenger vessel 
fleet. In some cases, it will permit foreign flag vessels of no 
more than 9,000 gross tons, and carrying no more than 200 
passengers, to come into our domestic service and compete 
directly against us. That threshold is entirely too low.
    Second, the bill attempts to give a preference to coast-
wise qualified U.S. vessel operators over other vessels, but 
because of the way the bill defines cruise vessel, and because 
of its comparability standard, it really provides no protection 
at all for most of our vessels. A foreign-flag vessel could 
enter our markets, and under our bill our vessels would have 
absolutely no recourse, and it is simply not right to assume 
that a larger vessel, foreign vessel entering our market has no 
competitive impact on a smaller vessel.
    Our operators in Southeast Alaska already struggle against 
foreign flag competition up there, and they can tell you how 
tough it is, and an analogy would be, consider a foreign Wal-
Mart--not just a regular Wal-Mart, a foreign Wal-Mart, paying 
foreign workers non-American type wages, coming in, competing 
against American Main Street businesses. That is what you would 
have.
    A serious shortcoming of the bill is that it fails to make 
clear whether or not all the vessels that would be allowed into 
the coast-wise trade have to abide by the same laws. For 
instance, would the National Transportation Safety Board have 
jurisdiction to investigate accidents on their vessels? Under 
current law, it would not, because their jurisdiction is 
restricted to 3 miles, and even under the bill that is being 
presented to Congress right now, the NTSB jurisdiction goes out 
only to 12 miles on foreign-flag vessels, but the NTSB has 
jurisdiction over our vessels wherever they operate. That is 
not fair.
    Similarly, would the Americans With Disabilities Act apply 
to every vessel operating in the U.S. coast-wise service? It 
applies to us now, but the foreign-flag industry says that it 
does not apply to them, and the bill should clarify this.
    Would the Federal minimum wage law apply to all vessels 
entered into the domestic service under this? It certainly 
applies to our vessels. How equitable would it be to exempt one 
category of vessels, the foreign vessels, and not provide the 
same treatment to us, their competitors.
    Madam Chairman, we believe that operators in the U.S. 
coast-wise trade should fly the American flag on their vessels. 
They should abide fully with all the laws and rules that affect 
American companies. Our vessels fly the U.S. flag. We hire 
American citizens. We pay them American-level wages. We are 
fully subject to all U.S. Federal and State laws. If we can do 
it, why can't they?
    Why should they receive the favored treatment for at least 
7 years without extracting any commitment from these foreign 
companies that they would have to build vessels in the United 
States, or operate passenger vessels under the U.S. flag, but 
under the terms of the bill, that is exactly what would happen.
    Our members do not fear competition. They compete among 
themselves. They compete against shoreside attractions. But 
they would hope that Congress would ask them to compete in a 
fair environment, where all the applicable rules and laws apply 
to everyone equally.
    Thank you, Madam Chairman.
    [The prepared statement of Mr. Welch follows:]
     Prepared Statement of Edmund B. Welch, Legislative Director, 
                      Passenger Vessel Association
    Mr. Chairman, and members of the Subcommittee, I am Edmund B. 
Welch, Legislative Director of the Passenger Vessel Association.
    The Passenger Vessel Association is the national voice of U.S.-flag 
passenger vessels of all types. We represent the interests of owners 
and operators of overnight cruise ships, dinner cruise vessels, 
sightseeing and excursion vessels, gaming boats, car and passenger 
ferries, and private charter vessels. The passenger vessel industry 
carries nearly 200 million passengers each year.
    With nearly 500 vessel-operating and associate members, PVA is the 
industry's voice and advocate in the halls of Congress and with the 
U.S. Coast Guard and other federal agencies.
    Our associate members are key suppliers to the passenger vessel 
industry, including shipyards, marine architects, vessel builders and 
decorators, insurance companies, publishers, food supply companies, 
computer software vendors, marine equipment suppliers, engine 
manufacturers, and others.
    You may be under the misimpression that there are no U.S.-flag 
overnight passenger vessels, other than the S.S. Independence in 
Hawaii. You may hear such a statement during the testimony today. But 
it's simply not so! There is a vibrant and exciting market segment in 
the U.S. trades consisting of small-ship overnight cruise vessels. The 
Passenger Vessel Association counts most of these companies as 
members.You may not be aware of these small passenger vessel companies, 
but they embody everything Congress wants in a maritime policy. Their 
vessels are built by American workers in U.S. shipyards in places such 
as Rhode Island, Indiana, Florida, Louisiana, Alabama, and Washington. 
They employ American workers as crew and on their shoreside staffs. 
Their vessels operate on popular itineraries throughout the United 
States. The companies and their employees all pay U.S. income and other 
taxes. Let me describe our overnight cruise members.
    We are pleased to have Delta Queen Steamboat Company of New Orleans 
as a PVA member. The company operates the Delta Queen, Mississippi 
Queen, and American Queen riverboats. It will soon operate an 
additional vessel, the 161-passenger Columbia Queen in the Pacific 
Northwest. Nichols Brothers Shipyard in Freeland, Washington, will 
complete that vessel later this year. And Delta Queen has embarked on a 
building program of up to five new coastwise passenger vessels to be 
known as the Coastal Queens. Each will carry 226 passengers. These 
vessels will operate on itineraries on the Atlantic, Gulf, and Pacific 
Coasts, and may possibly serve the Great Lakes. Delta Queen has signed 
a $60 million contract for the first two Coastal Queens with Atlantic 
Marine in Jacksonville, Florida, and work is already underway.
    American Hawaii Cruises currently operates the S.S. Independence 
among the Hawaiian Islands. As a result of enabling legislation enacted 
by Congress, the company has signed a contract with Ingalls Shipbuiding 
in Mississippi to construct two cruise ships of 72,000 gross tons 
carrying 1900 passengers each. They will operate in Hawaii. In the 
interim, American Hawaii Cruises intends to purchase the Nieuw 
Amsterdam and place it under the U.S. flag for Hawaiian operations. The 
vessel will carry 1214 passengers.
    Cruise West is headquartered in Seattle, Washington. The company 
operates seven vessels along the West Coast of North and Central 
America. The vessels accommodate from 52 to 102 passengers. Six of 
these vessels are overnight cruise ships. The company fears that if a 
larger foreign cruise vessel were to enter its domestic markets, its 
revenues could be impacted, in part because of the dominating marketing 
and advertising messages of the foreign-flagged cruise lines.
    Special Expeditions Marine is another Seattle-based Company. It 
operates two 70-passenger passenger vessels on the West Coast from 
Alaska to Baja California.
    Yet another Seattle company is American West Steamboat Company. 
They operate the 163-passenger overnight sternwheeler Queen of the 
West. Their expansion plans include the 244-passenger Empress of the 
North, a vessel that has already been designed with a projected launch 
in 2002.
    American Canadian Caribbean Cruise Line of Warren, Rhode Island 
currently operates three overnight cruise vessels with passenger 
capacities of between 84 and 100 along the Atlantic and Gulf coasts. 
The vessels were built in 1998, 1997, and 1994 in the company's sister 
shipyard, Blount Industries of Warren, Rhode Island.
    Clipper Cruise Line of St. Louis, Missouri, operates a 138-
passenger vessel on routes in the Great Lakes, Atlantic Canada, and 
U.S. East Coast. A second 102-passenger vessel sails in Alaska and the 
West Coast. The company estimates its capital investment in the two 
vessels at nearly $28 million.
    Glacier Bay Tours and Cruises of Seattle operates four overnight 
cruise passenger vessels on the West Coast from Alaska to Baja 
California; their passenger capacities range from 48 to 88. The 
company, owned by an Alaskan native corporation, has an annual payroll 
of $4.1 million for 150-200 employees.
    Other PVA members, such as The Boat Company and American Safari 
Cruises, sail very small overnight cruise vessels (20 passengers or 
fewer) in Alaska waters.
    In addition to vessel-operating members, PVA has associate members 
that build and supply small passenger ships. Examples are: Nichols 
Brothers Boat Builders of Freeland, Washington; Blount Industries of 
Warren, Rhode Island; and Atlantic Marine of Jacksonville, Florida
    Our message to you today is ``We are here! We are U.S.-flagged, 
U.S.-built, U.S.-owned, and U.S.-crewed passenger vessels. We depend 
upon the Passenger Vessel Services Act and we fully support all the 
principles underlying it.''
    Make no mistake: if Congress were to change the law so that 
foreign-flagged vessels entered our markets, we would suffer 
enormously. How could we stay in business paying good wages to American 
citizens while competing against foreign vessels paying far lower wages 
to noncitizens? How could we continue to pay income taxes on all of our 
operations, no matter where the vessels sail, while our foreign 
competitors pay fewer or even no income taxes to the United States? Why 
would Congress want to favor foreign businesses at the expense of 
existing American ones?
    Let's make one thing clear: the Passenger Vessel Services Act is 
not the absolute bar against foreign-flag vessels serving U.S. ports 
that some erroneously claim. Under existing law, a foreign-flag 
passenger vessel can sail on a cruise-to-nowhere into international 
waters from a U.S. port anytime it wishes. It can have passengers 
embark at a U.S. port, subsequently call upon other U.S. ports (where 
the passengers can go ashore, but not disembark from the vessel 
permanently), and then sail to a foreign destination. In the Great 
Lakes, it is a simple matter for a foreign vessel to embark passengers 
at a U.S. port, call upon subsequent U.S. ports, and then disembark the 
passengers at a Canadian port (or vice versa); two foreign passenger 
vessels will do so next year. In recent years, a foreign passenger 
vessel has offered extensive service from Alexandria, Virginia, and 
advertised these cruises heavily in the Washington Post. 
    Does the Passenger Vessel Services Act serve a purpose today? Does 
it accomplish that purpose? You bet it does. Under its auspices, there 
has developed a strong industry of small passenger vessels flying the 
U.S. flag and serving U.S. coastwise routes. New U.S.-built vessels 
continue to enter this market. We have a positive story to tell about 
the Passenger Vessel Services Act. Turning to the specifics of S. 1510, 
Mr. Chairman, we must report that we have serious concerns about the 
legislation, although we recognize that your intent is to ``jump-
start'' the domestic industry for large cruise ships. Mr. Chairman, we 
believe that any bill on the Passenger Vessel Services Act should 
embrace the principle of ``First, do no harm.'' We fear that S. 1510 
could harm the existing, thriving small vessel U.S.-flag fleet. In some 
cases, it will permit foreign-flag vessels of no more than 9,000 gross 
tons to come into domestic service. This threshold is too low. It will 
bring in vessels that will compete directly with the 226-passenger 
Coastal Queens. We recommend that you scrap the bill's reliance on 
tonnage and simply have it apply to passenger ships that have overnight 
accommodations for 750 passengers or more. Secondly, the bill attempts 
to give a preference to a coastwise-qualified U.S.-flag vessel over all 
other vessels. However, because of the way the bill defines ``cruise 
vessel,'' and because of its ``comparability'' standard, it provides no 
protection at all for most of our vessels. A foreign-flag vessel could 
enter our markets, and under the bill, our vessels would have 
absolutely no recourse. It's simply not accurate to assume that a 
larger vessel entering a market has no competitive impact on a smaller 
vessel. Our operators in southeast Alaska already struggle against 
foreign-flagged competition in the same region. They can tell you how 
tough that it.
    A serious shortcoming of S. 1510 is that it fails to make clear 
whether or not all vessels in the coastwise trade will have to abide by 
the same laws. For instance, will the National Transportation Safety 
Board have jurisdiction to investigate accidents on foreign-vessels 
operating in domestic commerce more than three miles from our shore? 
Right now, the answer would be no, although NTSB has jurisdiction over 
U.S.-flagged vessels no matter where they operate. That's not fair. The 
bill should specifically provide that NTSB has jurisdiction over any 
passenger vessel operating in coastwise service.
    Similarly, will the Americans with Disabilities Act apply to every 
vessel operating in coastwise service? It applies to us right now, and 
it would be unfair and contrary to U.S. policy towards persons with 
disabilities to allow a vessel to provide domestic service without 
being subject to the ADA. However, as of now, the foreign-flag 
passenger industry strongly maintains that the Americans with 
Disabilities Act does not apply to their vessels, even those embarking 
and disembarking passengers at U.S. ports. The bill should provide 
specifically that the ADA applies to every vessel operating in U.S. 
domestic service.
    Would the Federal minimum wage law apply to the vessels allowed 
into domestic service by S. 1510? It certainly applies to our vessels. 
How equitable would it be to exempt one category of vessels and not 
provide the same treatment to their competitors. But, right now, the 
Fair Labor Standards Act has a statutory exemption for a ``seaman'' on 
a foreign vessel. S. 1510 ought to ensure equal treatment.
    Finally, Mr. Chairman, we believe that operators in the U.S. 
coastwise trades should fly the U.S. flag on their vessels. They should 
abide fully with the laws and rules that affect American companies. Our 
vessels fly the U.S. flag, we hire American citizens and pay them 
American-level wages, and we are fully subject to all Federal and state 
laws. If we can do it, why can't they? Why should they receive favored 
treatment? Unfortunately, we believe that S. 1510 will provide that 
favored treatment to foreign companies for at least seven years without 
extracting from them any binding commitment to build vessels in the 
U.S. or operate passenger vessels under the U.S. flag.
    Mr. Chairman, our members are providing the type of domestic 
cruising experiences sought by the Cruising America Coalition, and we 
are doing it on U.S.-flag vessels. Our operators are expanding their 
fleets. If this committee is to act on S. 1510, we ask that it be 
amended so that it will not have a detrimental or unfair impact on us.

    Senator Hutchison. Thank you, Mr. Welch. I certainly do 
want to address some of your issues in the question and answer 
part of our hearing, because I think you have raised concerns 
and I think we need to address them, so let us talk about how 
we can.
    Ms. Veronica Sanchez, Executive Director of Cruising 
America Coalition.

  STATEMENT OF VERONICA SANCHEZ, EXECUTIVE DIRECTOR, CRUISING 
                       AMERICA COALITION

    Ms. Sanchez. Good morning, Madam Chair, members of the 
Committee. My name is Veronica Sanchez. I am the manager of 
governmental affairs for the Port of San Francisco and also the 
executive director of the Cruising America Coalition.
    Our coalition is a grassroots coalition of U.S. ports, 
cities, convention bureaus, tourism, and maritime businesses, 
including ship repair yards, stevedores, tug operators, and 
vendors to the cruise industry.
    We started this coalition 4 years ago in California out of 
pure frustration that we had one of the most scenic coastlines 
in the country, and yet we could not market coastal cruises on 
that coastline unless the cruise included a foreign port. That 
is a little bit difficult for most ports in California, because 
we do not have islands off of our coast, as the East Coast 
does, and even our port in San Diego has difficulty with this 
law, because it loses Hawaii cruises to Ensenada.
    Given California's leadership on this issue, which started 
with the 1995 White House Conference on Travel and Tourism, we 
are pleased to have Senator Feinstein's cosponsorship of S. 
1510. I understand that the Senator cannot be here for this 
hearing, but that she will submit her testimony for the record. 
[Refer to Appendix.]
    Our coalition group, to include national associations, 
including the American Association of Port Authorities, and the 
three major travel professional associations, ASTA, ARTA, 
NACOA. It also includes the American Hotel and Motel 
Association, and the American Buses Association [latter 
statement is not available], and for the record, Mr. Chairman, 
I would like to submit the statements of these associations 
into the record of this hearing. [Refer to Appendix.]
    Our coalition also includes consumers who have cruised and 
wanted to cruise to other places in the United States and are 
frustrated by this law.
    Our goals are very simple. It is to develop a new U.S. 
tourism product by reviving coastal cruising between U.S. 
cities aboard large ocean liners. This new product will create 
new business opportunities for U.S. cities and U.S. businesses. 
Most importantly, our goal is to correct the inequity that is 
created by the Passenger Services Act, where the ports that are 
closest to foreign destinations have a competitive advantage 
over others.
    International cruise lines are sailing in and out of U.S. 
ports today en route to other U.S. ports. This is perfectly 
legal under the Passenger Services Act, as long as they stop at 
a foreign port.
    We are pleased that today we are joined by three seafaring 
maritime unions in support for S. 1510. We have come a long way 
from the hearing 2 years ago that Senator Hutchison presided 
over in your committee, where you asked us to work toward a 
compromise and resolve agreements, and we never thought we 
would come to this point, so we have made dramatic progress. We 
also are thankful for the chairman's leadership and interest in 
this legislation, which has motivated us to work very hard.
    S. 1510 benefits U.S. ports and tourism groups because it 
contains incentives. It is realistic from a business point of 
view, because we would not have signed on to legislation that 
would be full of obstacles, that would not bring the ships in.
    As Mr. Wallack noted, it will jump-start the entry of U.S.-
flag ocean liners into this trade. We believe that this 
legislation has the best chance for bringing in the ships into 
the coastal trade. We want to take advantage of the popularity 
of cruise vacations and the market now. We do not want to wait 
for too much time to go by for the financing and construction 
of U.S. flag ships. We need an interim approach, and S. 1510 
provides it by allowing the reflagging of foreign-built ships.
    The legislation responds to the consumer's interest for 
more cruise vacations, and it is this interest that is driving 
the booming cruise market, which is booming at an annual growth 
of 8 percent per year, and 95 percent of those cruises are sold 
by travel professionals who depend on cruise vacations to 
offset the losses from the airlines' cuts.
    But interestingly enough, only 11 percent of the U.S. 
population has ever cruised, so that means there is a huge 
market of people out there that still need to find reasons to 
get on a ship, and that is the biggest challenge for the 
industry. As stated in the industry's own marketing report by 
CLIA, the 2 to 5-day cruise category, the short cruises, is one 
of the hottest-growing markets, and it is here where this old 
statute has the greatest impact on U.S. ports, because the 
ports that are farthest away from foreign ports have the 
hardest time being able to offer the 2 to 5-day cruises.
    The cruise industry's theme right now is more choices, more 
ships, more attractions, more cities and, indeed, the industry 
has added new cities to its itineraries. The best example of 
this is with the Texan ports, where 5 years ago there was a lot 
of doubt that Houston would become a major cruise port as it is 
today. In fact, one cruise official said cruising out of 
Houston is like cruising out of Omaha. Well, that same company 
has now broken into the cruise business in Galveston and will 
start cruising there next year.
    In Seattle, we are seeing Seattle come back, the entry of a 
Norwegian cruise line vessel in that port for next year, 
serving the Alaska itinerary, made possible because the ship is 
very fast and it calls in Vancouver the night before it comes 
into Seattle.
    Savannah will be getting an 1,100 passenger ship, and as 
Senator Cleland stated, it is building a new cruise terminal 
but as you see, the development of other cruise ports and 
increasing business, you note the fact that it is because they 
continue to depend on foreign ports, and yet our port officials 
do see a desire and ability to serve other U.S. ports so that 
they can diversify their cruise portfolio.
    That is the important point here, is that we want to 
provide our U.S. ports with the ability to not just go south to 
Encinada, not just go East to the Caribbean. We want to be able 
to go to different locations to serve the consumer market.
    Our bill is supported by convention bureaus and State 
tourism directors, because the statistics are clear that once 
cruise passengers sample a destination, they will come back. 
Over 50 percent of the passengers said they will return, and 
that is good for our communities.
    The legislation does protect the small U.S. boat companies. 
It is interesting, we have had two hearings on this legislation 
with two different pieces of legislation, and we have heard the 
PVA's concerns and we have addressed those concerns in this 
legislation by actually tightening the cutoffs, so whereas the 
prior legislation, their concern was about 5,000-ton limits 
now, we said OK, let us not allow any foreign vessel into this 
trade that is under 9,000 gross registered tons, and for all 
practical purposes, any vessel that is not an all-suite 
configuration from 9,000 to 20,000 gross tons cannot enter this 
market.
    We respectfully disagree with Mr. Welch that smaller 
vessels are competing with large ocean liners. Our travel 
agents are on the phone every day with consumers. They know the 
difference in the products between a small yacht adventure 
cruise, as those of Alaska sight-seeing, and the larger ocean 
liners that are sailing. There is no competition, and in fact 
the DELTA QUEEN, both vessels that are to be built, the tonnage 
on those is less than 2,000 gross registered tons. Our cutoff 
is 9,000 gross registered tons, and so again, the tonnage is 
different and the product is different.
    In summary, Mr. Chairman and members of the Committee, 
S. 1510 is about new choices for vacationers, new chances for 
U.S. ports to compete for business, and new chances for U.S. 
seafarers to get jobs on U.S. flagships.
    We thank you for this opportunity, and we are happy to 
answer your questions.
    [The prepared statement of Ms. Sanchez follows:]
      Prepared Statement of Veronica Sanchez, Executive Director, 
                       Cruising America Coalition
    Mr. Chairman and Members of the Committee:

    My name is Veronica Sanchez, Executive Director, Cruising America 
Coalition and a founding member. I am also the Manager of Governmental 
Affairs for the Port of San Francisco. I am honored to speak to you 
today in support of S. 1510, The United States Cruise Ship Tourism 
Development Act of 1999.
    The Cruising America Coalition is a grass roots coalition of U.S. 
ports, cities, consumers, convention bureaus, tourism and maritime 
businesses, including ship repair yards, stevedores, tug operators and 
vendors to the cruise industry. It also includes consumers and elected 
and appointed officials.
    Four years ago, California's Ports started this Coalition out of 
frustration over the fact that we have one of the most scenic 
coastlines in the world, but we can't market California coastal cruises 
without including a foreign port. The 113-year-old Passenger Services 
Act impacts our states' ports very seriously because we don't have 
foreign islands off our Coast like the Eastern Coast. Even San Diego, 
the California Port closest to Mexico is disproportionately affected by 
the PSA, as evidenced by the fact that cruises to Hawaii are sailing 
out of Ensenada.
    Our Coalition grew nationally to include the support of the 
American Association of Port Authorities (AAPA) and individual ports of 
all sizes throughout the country. Major tourism groups, like the three 
major associations (ASTA, ARTA, NACOA) representing travel 
professionals, joined our Coalition. Other cruise dependant businesses 
like the American Hotel & Motel Association and American Bus 
Association also joined us. Individual travelers and elected City 
officials have voiced their support for us. Countless times, travel 
agents and port officials must explain to bewildered vacationers why 
they must travel to a foreign port as a condition of cruising between 
their own countries ports.
    Our goal is simple: to develop a new U.S. tourism product by 
reviving coastal cruising between U.S. cities aboard large ocean 
liners. By doing so, we can create new business opportunities for U.S. 
cities and U.S. businesses. The PSA creates an inequity among U.S. 
ports by enabling those that are closer to foreign destinations to have 
a competitive advantage. Even cities closest to foreign ports would 
benefit from S. 1510 because they could diversify their cruise business 
and not be exclusively reliant on cruises to foreign ports.
    Today, we are pleased that three prominent maritime unions have 
joined us in supporting S. 1510: the Master Mates and Pilots, Marine 
Engineers and Beneficial Association and Sailor's Union of the Pacific. 
In the past, we have testified on opposite sides of this issue, but 
over the past few months we've reached agreement and produced a 
compromise framework that can draw bipartisan support. It contains real 
business incentives, not obstacles, for international and U.S. 
companies to enter the domestic cruise market. Our Coalition's members 
are excited about the prospect that S. 1510 provides the best chance 
for U.S. ocean liners to break into the coastal market. If U.S. ocean 
liners succeed, we succeed in increasing our cruise calls and revenues.
    The basic principles that we agree on are:

    (1) The status quo is not working! The PSA is not serving its 
original purpose of preserving jobs for U.S. seamen. The number of U.S. 
seamen working on the Independence and Delta Queen is small when 
considering the dramatic growth of this industry. The PSA combined with 
the decline of the U.S. cruise ship industry has limited job 
opportunities aboard U.S. ocean liners to one U.S. Flag ship in Hawaii. 
It took special legislation passed in the 1997 Defense Appropriations 
bill to stimulate the prospective entry of new U.S. Flag ships into the 
Hawaii trade after a forty-year hiatus.
    (2) Creative Incentives Needed! To stimulate U.S. coastal cruising 
we must be creative and visionary about laying out a framework of 
incentives that will work for the 21st century. If we truly are 
committed to creating jobs from this new domestic trade, we can't be 
paralyzed with fear about the impact of this change on a separate 
maritime law relating to cargo, the Jones Act, which is strongly 
protected in our bill.
S. 1510 is Compromise Legislation to Jumpstart U.S. Coastal Cruising
    The legislation before you today, S. 1510, is a creative framework 
and a reasonable compromise. This is a different approach for the 
Cruising America Coalition. In past years, we pursued legislation 
focused on the international cruise industry because of the 
availability and size of the international fleet. If we had fifteen 
U.S. Flag ocean liners serving all four coastlines, we would not have 
spent so much time, energy and resources asking Congress for help. But 
we don't want to miss out on jobs and business opportunities that could 
be available now with a limited waiver to the PSA.
    S. 1510 works for us because we can sell our Port cities by 
allowing international flag cruise lines to cruise between U.S. ports 
for a limited amount of time (200 days per ship until December 31, 
2006). With a proven track record in these new cruise products, we 
believe the effect of S. 1510 will be to open up a host of new 
opportunities.
    The impressive growth of cruise tourism has stimulated the interest 
of U.S. investors like Voyager Holdings to enter coastal cruises with 
ships manned by U. S. crews. S. 1510 provides a fast track for the 
entry of cruise ships by allowing foreign built ships to be reflagged 
U.S. and enter the U.S. domestic market. This means real dollars in one 
or two years for ports, travel agents and hotels. Meanwhile, U.S. 
investors would simultaneously contract to build a replacement ship. 
With S. 1510, we are creating a new market opportunity for the building 
of the next series of U.S. Flag ships in U.S. shipyards.
    S. 1510 proposes to use foreign assets to build the market for 
domestic cruising for the benefit of all Americans, including potential 
U.S. Flag vessel owners. When the market for new types of domestic 
cruises is tested, investors will follow.
U.S. Coastal Cruising Will Meet Passenger's Interest in More Cruise 
        Vacation Choices
    The cruise industry is the most exciting growth category in the 
entire leisure market, according to the market survey recently 
completed by CLIA, the international cruise industries own marketing 
group.\1\ Since 1980, the industry has had an average annual growth of 
8%. By 2000, 6.5-7 million passengers per year will cruise. These are 
very exciting numbers for ports trying to diversify their maritime 
portfolios and travel agents striving to offset losses from airline 
caps.
---------------------------------------------------------------------------
    \1\ Cruise Line Industry Association (CLIA), The Cruise Industry-An 
Overview: Marketing Edition, February 1999.
---------------------------------------------------------------------------
    But most important to the development of U.S. coastal cruises for 
both international and U.S. Flag cruise lines are the following figures 
from CLIA's report:

          Taking a cruise is the dream of 56% of all adults in 
        the North American market. \2\
---------------------------------------------------------------------------
    \2\ North American market as defined in the CLIA report disignates 
only U.S. and Canada. The highest rate being exhibited in the emerging 
baby boomer category.
---------------------------------------------------------------------------
          To date, only 11% of the U.S. population have ever 
        cruised.
          Market potential for the next five years: 75 million 
        people.
     Of the number of people surveyed 56% expressed an interest 
in cruising over the next five years. The cumulative economic impact 
over the next five years from these individuals cruising could be as 
high as $97 billion.
     31% of the people surveyed, said they will probably cruise 
in the next five years, for a cumulative impact of $54 billion.

    The industry is responding to these projections with aggressive 
shipbuilding plans. Forty-seven ocean liners are on order through the 
year 2004 for a total of $14 billion dollars. Two of these vessels 
include the first U.S. built, U.S. Flag ships to enter the U.S. 
domestic market: the American Classic Voyages ships for the Hawaii 
market, which have an estimated total cost of almost $1 billion.\3\
---------------------------------------------------------------------------
    \3\ Seatrade Cruise Review September 1999.
---------------------------------------------------------------------------
    As stated in the CLIA report, ``the on-going challenge for our 
cruise industry is to convert cruise prospects into new cruisers.'' The 
international lines have responded to this challenge with new ship 
design (ships of all sizes), new on board/on-shore activities 
(including rock climbing walls, spas, shopping malls, ice rink, and 
alternative dining rooms) and new themes.
New Cruise Destinations Lure First Time Cruisers.
    In the last four years since the Cruising America Coalition was 
started, we have seen new ports added as major cruise hubs that we 
never envisioned would be on the list of major cruise Ports. This 
proves the industries desire to open up new cruise destinations to keep 
the cruise vacation product fresh and exciting. It also reflects the 
need to make room for newer and bigger tonnage by testing new cruise 
products with older ships.
    Here are some examples:
    Texas -- The entry of Norwegian Cruise Lines (NCL) into Houston for 
Texarribbean Cruises was a major turning point in the diversification 
of cruise ports. NCL line is capitalizing on the regional market in the 
Southwest and Midwest to attract customers. The itinerary includes 
small ports in Honduras where the infrastructure was not in place. 
Texarribbean Cruises have been so successful that this year, NCL 
positioned a larger vessel, the NCL Sea carrying 1600 passengers. 
Another cruise line will begin Yucatan itineraries in 2000.
    This year Carnival Cruise Lines announced it will homeport the 
``Celebration'' in Galveston for 70 cruises per year to Mexican Ports. 
A new $4.8 million cruise terminal, financed with revenue bonds, will 
be built to accommodate the new business. This is an important change 
for Carnival whose President, Bob Dickinson, once remarked ``Cruising 
out of Houston was like cruising out of Omaha.''
    Corpus Christi, gateway to San Antonio, will open its cruise 
terminal next month. The cruise terminal and waterfront commercial 
development is funded with a sizeable grant from the U.S. Department of 
Commerce (EDA).
    If S. 1510 passes, Texas' Ports can offer new cruise itineraries to 
New Orleans, Tampa and Key West. With their proximity to the Gulf 
Coasts beautiful coastline, why should Texas' ports be limited to only 
Mexican cruises?
    Seattle -- With its proximity to Vancouver, Seattle has been at a 
severe competitive disadvantage and has seen more cruise passengers 
move out of SEATAC Airport than its cruise terminal. In 2000, Seattle 
will generate 21 new cruise calls to Alaska from one of the fastest 
ocean liners to be built by NCL. The ship will stop in Vancouver as a 
port of call the night before it arrives back in Seattle to get around 
the PSA. RCCL will also do 9 short cruises to British Columbia.
    Boston -- Boston has become one of the top cruise ports in the 
nation with 77 cruise calls because of the popularity of New England-
Canada cruises and Bermuda. The Cities prominent position as a 
historical and cultural center and its proximity to regional markets 
makes it very marketable as a point of embarkation for Bermuda cruises. 
Carnival recently gave the City a vote of confidence by positioning a 
larger vessel, the Destiny, a 2,600 passenger ship for its New England-
Canada cruises. Boston has certainly established itself as a cruise 
port but it has the potential for cruises that go South to the Mid 
Atlantic, South Atlantic and Florida ports. It is also a prime location 
for marketing charter and incentive cruises because of the presence of 
numerous large corporations and institutions, its large airport and 
popular visitor attractions.
    Charleston -- Charleston will have 23 cruise calls with 21,500 
passengers. The Carnival also been positioned there. The charter and 
incentive market is also promising for Charleston's Destiny because of 
its proximity to fabulous golf attractions beaches and historical 
sites.
    Baltimore will get 18 cruise calls next year, an increase from 
seven calls. But Baltimore is dependent on Bermuda sailings and because 
of the PSA can't market itself as a hub for American historical 
cruises. Next year, Holland America's Rotterdam will arrive from a 
Transatlantic voyage. It will generate hundreds of jobs for metal trade 
workers at Baltimore Marine Industries where it will be repaired. The 
Rotterdam will embark passengers for a Caribbean cruise terminating in 
Florida.
    Philadelphia completed its cruise terminal last year after 
rehabilitating an old cargo pier. In 1999, 17 ships called with 21,000 
passengers. The new terminal is a refurbished a former Navy Yard 
facility and cost the Port Authority $ 5 million. Next year, 26 cruise 
calls are expected with new business from Philadelphia to Bermuda.
    Cities like Norfolk and Savannah are planning new cruise terminals. 
The QE2 already comes into the cruise terminal at Newport News with 
proximity to Williamsburg and Virginia Beach. Savannah's business 
community is strongly behind our efforts. The need for changes to the 
PSA were evident when Celebrities' Zenith was not allowed to call at 
Savannah from Canaveral during Hurricane Floyd. U.S. Customs threatened 
to enforce the $200 fine under the PSA.
    Cruise marketing groups in the Great Lakes have successfully 
attracted two international cruise ships with European passengers to 
Chicago, Cleveland, Toledo, Saugatuck, Detroit and Duluth. There will 
be twelve cruise itineraries between Great Lake's ports and Canada. 
These local communities hadn't seen cruise ships in decades. But the 
Great Lakes reports logistical problems in having to work within the 
constraints of the PSA because some Great Lakes ports are too remote 
from Canada, adding days to itineraries.
    These statistics show the moving trend towards opening new ports. 
While new ports and more calls have been added under the existing PSA 
structure, the potential for growth among these ports and others is 
much greater. If cruise itinerary planners weren't constrained by the 
PSA they would not have to include days in foreign ports that may not 
be as interesting to vacationers as a day in a U.S. port of call.
    Or, smaller ports that are too remote from foreign ports would be 
able to break into the market in significant way. In California, and 
Washington State, we have prime examples of ports like Eureka, 
Monterey, and Grays Harbor that desire new cruise tourism but don't 
have a fair chance to pursue it because of the PSA. My own City of San 
Francisco, a Conde Naste destination, relies on longer Alaska cruises 
(10-12 days) as the core of its business. If two of our Alaska 
homeported ships leave, our Cities cruise numbers drop from fifty 
annual calls to 30. This was our experience in 1998 when local 
restaurants at Fisherman's Wharf were directly impacted by the loss of 
43,000 passengers.
    Every port (including the larger cruise ports) needs to diversify 
its cruise business to anticipate redeployment of vessels from their 
core business, weather changes or changes in the consumer marketplace. 
Additionally, larger cruise ports desire cruise calls on days besides 
weekends when the longer seven day cruise ports need facilities. As new 
cruise terminals are built with public and private capital, there is a 
need to keep them busy for more than one or two days a week when ships 
turn around.
Shorter Cruises are Fastest Segment of Cruise Market
    S. 1510 will allow U.S. Ports that are too remote from foreign 
ports to compete in the booming short cruise market. According to the 
CLIA study, the cruise industries hottest growth category has been the 
2-5 day cruise category. From 1980 to 1998, there was a 407.5% growth 
in the 2-5 day cruise market versus 250.9% in the 6-8 day cruise market 
and 207.2% in the 9-17 day market. From 1983 to 1991, there was a 
steady decline in the length of cruise vacations is a reflection of 
more capacity being added in the short cruise market.
    Shorter cruises offer travel agents exceptional marketing 
opportunities to put passengers on the decks of ships. Shorter cruises 
that cost less are more tempting for passengers who'd like to explore 
cruising as a vacation option without committing a longer period of 
time. They also appeal to baby bloomers who have busy schedules and/or 
are juggling retirement and college tuition.
    Once you get them on the deck of the ship, passenger satisfaction 
is very high. Whether first-time or frequent cruisers, 60% of those 
surveyed in the CLIA Report rated cruising better than other vacation 
experiences. This means that travel agents will get these customers 
back to their agencies, because 95% of cruises are sold via travel 
agents.
    Cruise line executives constantly remind travel agents at trade 
shows of how cruise vacationers desire for more choices. More choices 
.. more ships, more attractions ... more cities! These are the 
marketing themes of the industry. The industry has a huge marketing 
campaign to capture the other 89% of the U.S. population that haven't 
cruised. Lines are aggressively competing for new and repeat cruises 
and are venturing to establish new cruise ports.
    S. 1510 will provide international cruise lines with new 
opportunities to meet the consumer interest in new cruise destinations 
and shorter cruises. Ultimately, it will be a business decision for 
every international cruise line to review the legislation as passed and 
assess whether it will take advantage of it. Some may and others may 
not. But if market trends continue as they do, the opening of the 
domestic market will be very attractive to cruise lines competing for 
new and repeat cruisers. In the end, our Coalition will have done our 
job in advocating for legislation that has the least amount of 
restrictions to enter this market.
    S. 1510 enables more U.S. cities to enable passengers to ``sample'' 
their destination, which is one of the reasons cited by passengers (79% 
of CLIA survey respondents) for why they enjoy their cruise vacation. 
Nearly 50% of passengers surveyed in the CLIA study stated they expect 
to return to the same geographical area/destination for another type of 
vacation. Local tourism businesses (i.e. hotels, buses, restaurants and 
retailers) will directly benefit from the cruise Passenger's visits and 
their return visits to their cities. For this reason, convention 
bureaus and state tourism associations have strongly supported the 
Cruising America Coalition's efforts.
Protections for Small U.S. Boat Companies
    Our Coalition has always sought to fill the void in the market 
place of cruises aboard large, overnight, deep sea going vessels 
without impacting the successful operations of smaller U.S. vessel 
operators. S. 1510 responds to the concerns raised in last years 
hearing in the House Coast Guard Committee from smaller vessel 
operators over competition from larger international cruise lines. This 
bill prohibits the entry of international vessels under 9,000 GETS from 
entering the coastal cruise market. Between the range of 9,000-20,000 
GETS, the vessel must have an all suite luxury configuration with cabin 
sizes not smaller than 240 square feet.
    This language was drafted with the input of travel professionals 
who speak daily with customers and understand the difference in the 
type of entertainment and amenities that vessels offer. Smaller U.S. 
vessel operators highlight the benefits of a small yacht adventure 
cruise in their marketing brochures. Travel agents and prospective 
customers know the differences between large ocean cruises and smaller 
vessels. It is similar to travelers who know the difference between 
hotels and bed and breakfast. They do not compare and they do not 
compete.
    Smaller U.S. flag vessel companies are thriving because they indeed 
operate in different niches. Alaska Sightseeing, for example, operates 
in a market where there are as many as 30 foreign flag cruise vessels, 
because both products are distinct. Similarly, the entry of the smaller 
Delta Queen vessels with 250 passengers (1580 GETS) will be a distinct 
product marketed to a certain type of cruise passengers. The new Delta 
Queen vessels will truly not be a competitor for the same customers as 
large U.S. Flag ocean liners in coastal itineraries.
    In summary, Mr. Chairman, we thank you for you your commitment to 
keep changes to the PSA at the top of this Committee's maritime agenda. 
Your leadership and interest in opening up this U.S. market have been 
essential in getting us here today. We have produced a reasonable 
compromise full of incentives for opening up a new tourism product for 
our nation.
    S. 1510 is about new choices and new chances! It provides cruise 
customers with new choices of U.S. ports. S. 1510 provides American 
ports, businesses and maritime workers with new chances to benefit from 
the boom in cruise vacations. Every U.S. port deserves a chance to tap 
into the growth of this market for the benefit of their local 
communities, regardless of their distance from foreign ports.
Thank you for this opportunity.
CRUISING AMERICA COALITION SUPPORTERS
PORTS AND CITIES
American Association of Port Authorities

Great Lakes: 
American Great Lakes Ports
Port of Duluth
Port of Milwaukee
Port of Toledo--Lucas County Port Authority
City of Chicago

East Coast:
North Atlantic Ports.Association (Maine, New Hampshire, Rhode Island, 
Connecticut, New York, New Jersey, Pennsylvania, Delaware & Maryland)
South Carolina State Ports Authority (Charleston)
Georgia Ports Authority (Savannah)
MASSPORT (Boston)
Fall River Line Pier, Massachusetts
Port of Philadelphia and Camden
Port of Baltimore
Port of Palm Beach

Gulf Coast:
Texas Port Authorities (13 ports)
Tampa Port 1Authority
Port of Galveston
Port of Houston
Port of Corpus Christi Authority

West Coast:
California Association of Port Authorities
San Diego Unified Port District
Port San Luis Harbor District, California
City of Monterey
Port of Los Angeles
Port of San Francisco
City of Eureka
San Luis Obispo Council of Governments
Humboldt Bay Harbor, Recreation and Conservation District
Port of Kalama, Washington
Port of Grays Harbor (Aberdeen, Washington)

NATIONAL, STATE & REGIONAL TOURISM ORGANIZATIONS
United States Tour Operators Association (USTOA)
National Council of State Tourism Directors
American Society of Travel Agents (AS TA)
Association of Retail Travel Agents (ARTA)
National Association of Cruise Only Agencies (NACOA)
American Hotel and Motel Association
American Bus Association
Society for Advancement of Travel for the Handicapped

STATE AND REGIONAL TRAVEL AND BUSINESS ASSOCIATIONS
Southeast Tourism Society (private businesses in 10 Southeast states)
Travel South USA (Southern travel directors in 12 states)
Great Lakes of North America Tourism Association (6 states)
Western States Tourism Policy Council. (8 states)
Mississippi River County Tourism Association (10 states)
California Tourism Commission
California Travel Industry Association (CALTIA)
California Trade & Commerce Agency
California Hotel and Motel Association
California Roundtable on Recreation Parks & Tourism
California Chamber of Commerce
Meeting Professionals International, Northern California Chapter
Illinois Bureau of Tourism
Texas Economic Development Council, Inc.
Texas Department of Economic Development
South Carolina Department of Parks, Recreation & Tourism
State of Maine Department of Economic Development

CONVENTION BUREAUS & LOCAL BUSINESS GROUPS
Philadelphia Convention and Visitors' Bureau
Greater Boston Convention & Visitors' Bureau
Baltimore Area Convention & Visitors' Bureau
Charleston Area Convention & Visitors' Bureau
Tampa Hillsborough Convention & Visitors' Bureau
Monterey Peninsula Convention & Visitors' Bureau
San Diego Convention & Visitors' Bureau
Los Angeles Convention & Visitors' Bureau
San Francisco Convention & Visitors' Bureau
Humboldt County Convention & Visitors' Bureau
Saugatuck Convention and Visitors' Bureau, Saugutuck, MI
Charleston Metro Chamber of Commerce
Greater Boston Chamber of Commerce
Galveston Chamber of Commerce
Corpus Christi Hispanic Chamber of Commerce
San Francisco Chamber of Commerce

    The Chairman. Thank you very much, Ms. Sanchez. Mr. 
O'Toole.

         STATEMENT OF LAWRENCE H. O'TOOLE, PRESIDENT, 
            MARINE ENGINEERS' BENEFICIAL ASSOCIATION

    Mr. O'Toole. Good morning, Mr. Chairman and members of the 
Committee, and thank you for this opportunity to speak to you 
today on S. 1510, the U.S. Cruise Ship Tourism Development Act. 
My name is Larry O'Toole, and I am the president of the Marine 
Engineers' Beneficial Association, the MEBA. I am also 
testifying on behalf of my own union as well as the 
International Organization of Masters Mates and Pilots, the 
MM&P, and the Sailors' Union of the Pacific, the SUP. I hope 
that all the Committee members realize that they should not 
construe my testimony today to be any change in our position on 
the Jones Act. All our unions strongly defend it, and this 
testimony should have no impact on it.
    Now, less than a year ago I was serving on board a U.S.-
flag tanker in the Persian Gulf. It is one of my many 
assignments in my career in the United States Merchant Marine 
that has taken me to places around the world, far from home and 
family, doing a job that demands a high degree of training and 
responsibility, but also one that I and other Americans who 
serve on U.S. flag ships are justifiably proud.
    Today is the first time that I have testified before a 
congressional committee since my election last December as 
president, and I am pleased that at my first opportunity to 
appear before you I can speak on a bill that our maritime labor 
unions believe can make our industry stronger, provide badly 
needed maritime jobs, and offer new opportunities for our 
Nation's economy to grow.
    The American working men and women of our maritime labor 
unions strongly support S. 1510 because it represents the only 
realistic, workable approach to give American companies and 
American workers a fighting chance to make it in the U.S. 
domestic cruise industry.
    Today's market for vacation and business-related cruises on 
large, modern cruise vessels is served almost entirely by 
foreign-flag vessels. If this situation is ever to change, and 
we believe it can, it will only be through the innovative 
approach envisioned in S. 1510.
    The bill calls for a temporary, limited waiver of the 
Passenger Vessels Services Act. This would create a short-term 
opportunity to use large, foreign-built, foreign-flag vessels 
and foreign-built, U.S.-flag vessels to test the viability of 
new domestic cruise markets.
    There should be no mistaking the fact that such a waiver 
represents a marked departure for us, maritime labor. Maritime 
labor has long defended America's domestic shipping statutes, 
including the Passenger Vessels Services Act, but it has become 
abundantly clear to us that if something is not done, if a new 
and different approach is not tried, the cruise market in 
America will continue to be dominated by foreign-flag vessel 
operators, and there will be no opportunities for American 
workers and American companies to make any inroads into this 
constantly growing market.
    S. 1510 contains language specifically stating the limited 
use of foreign-built, foreign-flag cruise vessels in the 
domestic trades shall not affect or modify the requirements 
applicable to the carriage of cargo under the Jones Act. This 
bill also recognized the undeniable fact that the conditions in 
our Jones Act cargo trades and in the domestic cruise trades 
could not be more different. The Jones Act will not be altered 
as a result of this legislation.
    Once you come to the conclusion, as we have, that American 
workers are being shut out of their country's own cruise 
markets, it becomes clear that a new approach is called for. 
What we are proposing is an opportunity, a limited window of 
opportunity that has the potential to pay off in a big way for 
American companies and American workers. This window of 
opportunity will allow foreign vessels and foreign-built, U.S.-
flag vessels to come into new and undeveloped cruise markets 
and provided that if their efforts succeed, the market will 
ultimately be served by U.S.-flag, U.S.-built, and U.S.-citizen 
crewed vessels.
    I want to emphasize that S. 1510 is aimed at encouraging a 
rapid transition from a foreign-flag test market to a 
permanent, thriving U.S.-flag market. More importantly, it is 
the clear intent of this legislation, which we strongly 
support, that U.S. laws apply equally to all vessels in our 
U.S. cruise trade.
    Any foreign-flag vessels brought into the domestic trades 
under this bill will have to comply with all U.S. rules and 
regulations relating to health, safety, environmental 
protection, and other operating standards, as set forth by the 
Secretary of Transportation, and these foreign-flag vessels 
will be subject to U.S. corporate income tax on the income they 
earn during the domestic portion of their operations.
    I want to emphasize that this bill, as we understand it, 
does not adversely affect any American company. It represents 
opportunities for American companies, pure and simple. If 
someone can show that they will be economically disadvantaged 
and harmed by this bill, we would be happy to work with them to 
find a solution that meets their needs, but as I have said, 
this bill represents real opportunity and hope for U.S. 
companies and American workers, while the alternative, the 
status quo, offers us nothing.
    In closing, I would like to thank you once again, Mr. 
Chairman, for your leadership and for this opportunity to 
express our strong support for S. 1510. We also wish to thank 
the cosponsors of this important piece of legislation, Senators 
Hutchison, Feinstein, and Murkowski. The MEBA, the MMP, and the 
SUP together hope to see our Nation's domestic cruise market 
served by large, modern, attractive cruise vessels flying U.S. 
flags and carrying trained, loyal American-citizen merchant 
mariners.
    I would be happy to answer any questions later. Thank you.
    [The prepared statement of Mr. O'Toole follows:]
Prepared Statement of Lawrence H. O'Toole, President, Marine Engineers' 
                         Beneficial Association
    Thank you for this opportunity to speak to you today about S. 1510, 
the U.S. Cruise Ship Tourism Development Act. My name is Larry O'Toole, 
and I am the President of the Marine Engineers' Beneficial Association 
(MEBA). I am testifying today on behalf of my own union as well as the 
International Organization of Masters, Mates & Pilots (MM&P) and the 
Sailors' Union of the Pacific (SUP).
    Less than a year ago, I was serving on board a U.S.-flag tanker in 
the Persian Gulf. It was one of many assignments in my career in the 
United States merchant marine that has taken me to places around the 
world, far from home and family, doing a job that demands a high degree 
of training and responsibility, but also one that I and other Americans 
who serve on U.S.-flag ships are justifiably proud.
    Today is the first time that I have testified before a 
congressional committee since my election last December as president. 
And I am pleased that at my first opportunity to appear before you I 
can speak about a bill that our maritime labor unions believe can make 
our industry stronger, provide badly needed maritime jobs, and offer 
new opportunities for our nation's economy to grow.
    The American working men and women of our maritime labor unions 
strongly support S. 1510, because it represents the only realistic, 
workable approach to give American companies and American workers a 
fighting chance to make it in the U.S. domestic cruise industry. 
Today's market for vacation and business-related cruises, on large, 
modern cruise vessels, is served almost entirely by foreign-flag vessel 
operations. If this situation is ever to change, and we believe it can, 
it will only be through the innovative approach envisioned in S. 1510.
    The bill calls for a temporary, limited waiver of the Passenger 
Vessel Services Act, to allow a short-term opportunity to use large, 
foreign-built and foreign-flag cruise vessels to test the viability of 
new domestic cruise markets. There should be no mistaking the fact that 
such a waiver represents a marked departure for us. Maritime labor has 
long defended America's domestic shipping statutes, including the 
Passenger Vessel Services Act. But it has become abundantly clear to us 
that if something is not done, if a new and different approach is not 
tried, the cruise market in America will continue to be dominated by 
foreign-flag vessel operators, and there will be no opportunities for 
American workers and American companies to make any inroads into this 
constantly growing industry.
    S. 1510 represents a thoughtfully crafted compromise among a broad 
range of interests--including maritime labor, representatives of 
American ports and others who are members of the Cruising America 
coalition. Under the leadership of Chairman McCain, our maritime labor 
unions have sought compromise with other interests, and we are proud to 
have played a role in producing a proposal that gives our members and 
the American companies they work for a real shot at success.
    Our support for S. 1510 in no way conflicts with our continuing and 
wholehearted support for the Jones Act. Our maritime labor unions have 
always been, and will continue to be, strong defenders of the Jones 
Act, because it remains essential to the economic and national security 
of the United States. S. 1510 contains language specifically stating 
that the limited use of foreign-built, foreign-flag cruise ships in the 
domestic trades shall not affect or modify the requirements applicable 
to the carriage of cargo under the Jones Act. This bill also recognizes 
the undeniable fact that the conditions in our Jones Act cargo trades 
and in the domestic cruise trades could not be more different.
    Clearly, maintaining the status quo will never lead to the 
development of a large-vessel, American domestic cruise industry. The 
status quo has not and will not ever lead to more American maritime 
jobs. And the status quo has not and will not give American vacationers 
an American alternative to foreign-flag vessels--vessels that are 
crewed by Third World nationals, and whose owners use their foreign-
flag status as a way to avoid the jurisdiction of American laws and to 
avoid paying state and federal taxes.
    Once you come to the conclusion, as we have, that the status quo is 
not an acceptable situation, and that American workers are being shut 
out of their country's own cruise markets, it becomes clear that a new 
approach is called for. What we are proposing is an opportunity--a 
limited window of opportunity--that has the potential to pay off in a 
big way for American companies and American workers. This window of 
opportunity will allow foreign vessels to come into new and undeveloped 
cruise markets, and provide that, if their efforts succeed, the market 
will ultimately be served by U.S.-flag, U.S.-built and U.S.-citizen 
crewed vessels.
    I want to emphasize that S. 1510 is aimed at encouraging a rapid 
transition--from foreign-flag test market to permanent, thriving U.S.-
flag market. For the first year after enactment of S. 1510, only U.S.-
flag vessels will be allowed to offer domestic cruise service, so ships 
brought under the U.S. flag will have first shot at the best new 
markets. Only U.S.-flag vessels will be able to offer the ``convention 
tax deduction,'' so U.S.-flag vessels will have an undeniable edge in 
the business convention market. And, U.S.-flag vessels will be able to 
``bump'' competing foreign-flag vessels off an itinerary comparable to 
its own. And only U.S.-flag vessels will be able to remain in the 
domestic trades after 2006.
    Most importantly, it is the clear intent of this legislation, which 
we strongly support, that U.S. laws apply equally to all vessels in our 
U.S. cruise trade. Any foreign-flag vessels brought into the domestic 
trades under this bill will have to comply with all U.S. rules and 
regulations relating to health, safety, environmental protection and 
other operating standards, as set forth by the Secretary of 
Transportation. And these foreign-flag vessels will be subject to U.S. 
corporate income tax on the income they earn during the domestic 
portion of their operations.
    I also want to emphasize that this bill as we understand it does 
not adversely affect any American company. It represents opportunity 
for American companies, pure and simple. If someone can show that they 
would be economically disadvantaged and harmed by this bill, we would 
be happy to work with them to find a solution that meets their needs. 
But as I have said, this bill represents real opportunity and hope for 
U.S. companies and American workers, while the alternative--the status 
quo--offers us nothing.
    Right now, the only place in the United States where a large U.S.-
flag cruise ship can be found is in the Hawaiian Islands. Outside of 
the Hawaii trades, no one has operated a large cruise vessel in the 
United States in more than 40 years. But it is obvious that there is a 
market for vacation cruises outside the Hawaiian islands, because 
large, modern cruise ships leave American ports outside Hawaii every 
day, carrying thousands of American vacationers. S. 1510 represents the 
best, most reasonable, most workable approach to give our country's 
workers an opportunity to benefit from those vacation dollars.
    In closing, I would like to thank you once again, Chairman McCain, 
for your leadership and for this opportunity to express our strong 
support for S. 1510. We also wish to thank the cosponsors of this 
important piece of legislation--Senators Hutchison, Feinstein and 
Murkowski. The Marine Engineers' Beneficial Association, the 
International Organization of Masters, Mates & Pilots, and the Sailors' 
Union of the Pacific together hope to see our nation's domestic cruise 
markets served by large, modern, attractive cruise vessels flying the 
U.S. flag and carrying trained, loyal American-citizen merchant 
mariners. I would be happy to answer any questions you might have.

    The Chairman. Thank you, very much, Mr. O'Toole. We 
appreciate very much your being here, and by the way, we also 
appreciate your many years of service to our country.
    Mr. Walker, welcome.

             STATEMENT OF ALLEN WALKER, PRESIDENT, 
                SHIPBUILDERS COUNCIL OF AMERICA

    Mr. Walker. Thank you, Mr. Chairman, and thank you for the 
opportunity to testify this morning. My name is Allen Walker. I 
am the president of the Shipbuilders Council of America. SCA is 
the national trade association representing the domestic 
shipyard industry that builds and repairs commercial and 
Government vessels. We represent 50 shipyard companies that own 
and operate over 100 shipyards in 20 States.
    Mr. Chairman, we share your goal of expanding the cruise 
ship industry in the United States. An industry offering wide 
consumer choice and providing shipbuilding and repair 
opportunities for American yards would certainly be a win-win 
situation for everyone.
    In that regard, SCA worked during the last Congress with 
Senator Breaux's office and several of the parties testifying 
here this morning on legislation aimed at encouraging growth in 
our domestic cruise ship industry while protecting U.S. 
shipyards against further harm from the infusion of heavily 
subsidized foreign-built ships.
    As I understand it, the bill before us today would 
basically create incentives aimed at encouraging foreign-flag 
cruise ships to enter the U.S. market with the eventual goal of 
creating an expanded U.S.-flag cruise ship industry.
    We believe to be successful any initiative aimed at cruise 
ship growth in the U.S. must address the reasons why our 
domestic industry's growth lags behinds its foreign competition 
and also encourages expansion of the U.S.--flag fleet. We 
believe that these efforts should be focused on easing entry 
into the marketplace for U.S. companies that are committed to 
operating the U.S.-built and U.S.-crewed vessels.
    For example, one of the biggest obstacles to market entry 
for new operators is the difficulty of finding adequate 
financing to build vessels. One way we think that would solve 
this problem would be for Congress to accelerate the 
depreciation schedule for newly built U.S.-flag cruise ships. 
We think this would significantly ease the financing 
requirement at no cost to the American taxpayer. Measures like 
this would accomplish the same goal as S. 1510, the one we 
share.
    Mr. Chairman, any legislation that encourages the use of 
used foreign-built vessels in the U.S. marketplace without a 
strong requirement that they be replaced in a timely manner 
with U.S.-built tonnage will harm our domestic shipbuilding 
industry. Our industry has been crippled in the international 
marketplace by foreign Governments that subsidize the cost of 
vessel construction in their shipyards. In fact, the cost of 
construction of every single cruise ship eligible to enter the 
U.S. market under this legislation was subsidized by a foreign 
Government.
    For example, the SUN PRINCESS, which cost at least $417 
million to build at the Fincanterry Shipyard in Italy in 1993 
was sold to Princess Cruise Lines for $300 million. The $117-
million difference was paid for with a subsidy from the Italian 
Government to the shipyard.
    To put that figure in perspective, that one subsidy payment 
alone is more than the entire title XI loan guarantee 
appropriation for the past 4 years.
    At this point, Mr. Chairman, I would like to thank you, 
Senators Breaux and Lott, Senator Hutchison, and others for 
your efforts to rectify this situation with your support for 
the OECD shipbuilding agreement, but despite all our best 
efforts, foreign subsidies have denied American shipyards any 
real opportunity to participate in the boom in cruise ship 
construction. Now allowing these subsidized foreign-built 
vessels to operate in our coastwise trades at a competitive 
advantage over U.S. operators would stop the momentum that has 
finally begun to build in the U.S. cruise ship industry.
    Today, small- and mid-size cruise ship operations between 
U.S. ports are expanding. Two 226-passenger coastal steamers 
are currently under construction at Atlantic Marine in 
Jacksonville, Florida, and the company has an option to build 
another identical vessel. Nichols Brothers Boat Builders in 
Freeland, Washington is converting an unfinished casino vessel 
into a state-of-the-art 161-passenger cruise ship, and America 
West Steamboat Company is in serious discussions with several 
yards to add another cruise ship to its U.S.-flag fleet.
    Furthermore, two additional operators are negotiating with 
U.S. yards right now to build two more medium-sized cruise 
ships. These are real shipbuilding opportunities, and the 
operators involved have already hired naval architects, at 
considerable cost, to design these vessels.
    Mr. Chairman, the changes proposed in S. 1510 would have a 
negative impact on the current growth of the U.S.-flag cruise 
ship fleet. Without a doubt, operators would be forced to 
reevaluate each of these building projects in light of added 
foreign competition.
    I know there are those that argue that the provisions in S. 
1510 would not slow the growth of the small and mid-size U.S.-
flag cruise ship industry, because the targeting vessels would 
be different, or much larger than the vessels under 
construction today. We could agree with that assertion, except 
for the fact that the foreign-flag vessels would operate with 
considerable tax, labor, and capital asset cost advantages, 
allowing them to charge significantly less for cruises in the 
same markets.
    U.S.-flag cruise ship operations both big and small will be 
hurt by foreign-flag operations that can charge less for a 
cruise in the same market due to the competitive advantages 
they enjoy.
    Now, having expressed our concerns about the direction of 
the legislation, we also believe that there are provisions in 
the legislation that could benefit American shipyards. We are 
pleased that the bill includes a U.S. repair provision, but we 
are concerned about how the provision will be enforced, in 
light of the fact that these foreign-flag vessels can move in 
and out of the U.S. trades at will.
    Mr. Chairman, in the final analysis, Congress must make a 
decision whether to encourage growth in the domestic cruise 
ship industry by offering incentives to foreign-flag vessels to 
enter our trades, our by looking for ways to expand U.S.-flag 
operations. We respectfully urge the Committee to adopt the 
latter option. Our economic and national security depends on a 
strong and vibrant shipbuilding industry. We must not allow 
this vital industry to be further harmed by an international 
marketplace where successful shipyards are determined by how 
much of the construction cost of a vessel their Government is 
willing to underwrite.
    In closing, let me again emphasize how much we appreciate 
your efforts to expand the cruise ship industry, and express 
our willingness to work with you and others to accomplish the 
goal.
    Thank you, and I would be happy to answer any questions.
    [The prepared statement of Mr. Walker follows:]
            Prepared Statement of Allen Walker, President, 
                    Shipbuilders Council of America
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to testify this morning on the United States Cruise Ship 
Development Act of 1999.
    My name is Allen Walker and I am the President of the Shipbuilders 
Council of America (SCA). SCA is the national trade association 
representing the domestic shipyard industry that builds and repairs 
commercial and government vessels. SCA represents 50 shipyard companies 
that own and operate over 100 shipyards in 20 states. Our members 
employ approximately 35,000 workers, more than 70 percent of the total 
domestic shipyard workers primarily engaged in non-Navy shipbuilding. 
SCA also represents 30 affiliate companies that provide goods and 
services to the shipyard industry.
    SCA member companies build, repair and service passenger vessels 
including cruise ships, ferries, tugboats, towboats, barges of all 
kinds, vessels and rigs for the offshore oil industry, fishing vessels, 
large yachts, Coast Guard and other government craft and any other type 
of workboat you can name. The owners and operators of these companies 
are true entrepreneurs in every sense of the word. They operate in an 
extremely competitive environment without government subsidies and they 
are good at what they do.
    The Passenger Vessel Services Act (PVSA) is important to the 
continued success of a large number of SCA shipyards and to the U.S. 
shipyard industry in general. Many of our shipyards are building, have 
built or have the capability to build small and mid-sized cruise ships. 
Companies like Atlantic Marine, Gladding Hearn, Blount Industries and 
Chesapeake Shipbuilding on the East Coast; the Halter Marine Group, 
Bollinger Shipyards, Bender Shipbuilding & Repair, First Wave Marine 
and Leevac Shipyards on the Gulf Coast; Nichols Brothers Boat Builders, 
MARCO Seattle and Todd Shipyards in the Pacific Northwest; Marinette 
Marine and Bay Shipbuilding on the Great Lakes; and, Jeffboat in the 
nation's heartland have the know-how, experience and capacity to build 
passenger vessels. Let me assure you that the U.S. shipyard industry is 
ready, willing and able to meet the shipbuilding needs of anyone 
interested in operating cruise ships in our domestic coastwise trades.
    Mr. Chairman, thank you for holding this hearing and for your 
interest in expanding the cruise ship industry in the United States. 
This morning I would like to make some general comments about the 
shipyard industry and how the legislation under consideration today 
would affect it. As I understand this legislation, the bill would 
basically create a number of incentives aimed at encouraging foreign-
flag cruise ships to enter the U.S. market with the eventual goal of 
creating an expanded, U.S.-flag cruise ship industry.
    Certainly, SCA shares your goal of expanding our coastwise cruise 
ship industry. A U.S.-flag cruise ship industry offering wide consumer 
choice and providing shipbuilding and ship repair opportunities for 
American shipyards would be a win/win situation for everyone. We also 
agree that the speculative and untested nature of much of the U.S. 
market requires that incentives of some kind be offered to speed growth 
in our domestic cruise ship industry. No one can question the fact that 
the U.S.-flag cruise ship industry has not kept pace with the dramatic 
growth of the industry worldwide.
    SCA supports efforts to encourage growth in this industry and, in 
the past, has worked with other interested groups to craft legislation 
with this goal in mind. In fact, during the last Congress we worked 
with Senator Breaux's office and several of the parties testifying this 
morning on legislation that would encourage growth in the domestic 
cruise ship industry and protect U.S. shipyards against further harm 
from the infusion into our domestic market of heavily subsidized, 
foreign-built cruise ships.
    However, SCA believes strongly that any initiative aimed at cruise 
ship industry growth in the U.S. must address the reasons why our 
domestic cruise ship industry lags behind its foreign competition and 
encourage U.S.-flag cruise ship growth. We believe that failure to 
address these issues will result in, at best, a temporary fix at the 
expense of current U.S-flag cruise ship operators, operators with plans 
to enter the market and our domestic shipbuilders.
    SCA believes that efforts to promote growth in this industry should 
be focussed on easing entry into the marketplace for U.S. companies 
that are committed to operating U.S.-built and U.S.-flag vessels, not 
on encouraging further growth on the foreign side. U.S.-flag cruise 
ship operations have been disadvantaged for too long by foreign-flag 
cruise ship companies operating with considerable competitive 
advantages. Foreign-flag cruise ships today operate virtually tax 
exempt, while U.S.-flag operators pay U.S. corporate income taxes; 
foreign-flag operators employ third world crews at a fraction of the 
cost of U.S.-flag vessel crew costs; they operate outside U.S. 
environmental laws, and last, but not least, they have long had and 
continue to have the ability to purchase heavily subsidized vessels in 
foreign shipyards. U.S. consumers, through lack of domestic cruising 
options, and U.S. shipyards, through lack of shipbuilding 
opportunities, have paid a high price for these market inequities.
    SCA members are committed to working with Congress to find ways to 
accelerate the growth in the U.S.-flag cruise ship industry. For 
example, we have found that one of the biggest obstacles for new U.S.-
flag operators wishing to enter our market today is the difficulty of 
finding adequate financing to build vessels and establish their 
operations. Right now, more than one potential cruise ship operation is 
on hold waiting for adequate financing to construct a vessel. At this 
point, cruises between U.S. ports are speculative operations and credit 
requirements for loan applications are difficult to meet for start-up 
companies. Congressional action aimed at alleviating this problem would 
go a long way towards meeting our goal of building more cruise ships in 
the U.S. and expanding cruising opportunities for U.S. consumers.
    One way to ease the financing difficulties of U.S. operators 
wishing to enter this market under the American flag would be for 
Congress to enact legislation allowing companies building new cruise 
ships in the U.S. to depreciate vessels over a much shorter period of 
time than is currently allowed. This would significantly ease financing 
requirements at no cost to the American taxpayer. This is just one 
example of the kind of measure that we believe would accomplish the 
same goal as S. 1510, without putting U.S. companies at a competitive 
disadvantage in the U.S. marketplace and jeopardizing U.S. shipbuilding 
opportunities.
    I will focus the remainder of my remarks this morning on how 
changes to the PVSA contained in S. 1510 would affect the segment of 
the U.S. shipbuilding industry that I represent. Mr. Chairman, any 
legislation that encourages the use of used, foreign-built vessels in 
the U.S. marketplace, without a strong and enforceable requirement that 
these vessels be replaced in a timely manner with U.S.-built tonnage, 
will harm our domestic shipbuilding industry.
    As all of you are aware, in many areas the U.S. shipbuilding 
industry has been crippled in the international marketplace by foreign 
governments that subsidize the cost of vessel construction in their 
shipyards. No segment of the industry has been more affected by foreign 
subsidies than the cruise ship industry. In fact, the cost of 
construction of every foreign-built cruise ship that would be eligible 
to enter the U.S. market under the terms of this legislation was 
subsidized by a foreign government, some as much as 33 percent in 
direct subsidies plus incalculable indirect subsidies.
    It should come as no surprise given the magnitude of foreign 
shipbuilding subsidies that their effect on U.S. shipyards has been 
devastating. Our shipyards have been denied any real opportunity to 
participate in the boom in cruise ship construction. Now, allowing 
these heavily subsidized, foreign-built vessels to operate in our 
coastwise trades at a competitive advantage over U.S. operators would 
compound the problems caused by foreign shipbuilding subsidies and stop 
the momentum that has finally begun to build in the U.S.-flag cruise 
ship industry.
    Yes, it is true that no large, U.S.-flag cruise ships are currently 
operating between coastal ports in the continental U.S.; however, it is 
not true that no U.S.-flag cruise ship industry exists. In fact, small- 
and mid-sized cruise ships are operating between U.S. ports and the 
industry is growing. Two 300-foot, 226 passenger cruise ships that will 
serve the domestic coastal market are currently under construction at 
Atlantic Marine in Jacksonville, Florida and the same company has an 
option to build another identical vessel. The operator has also 
announced its intentions to continue its building program. Nichols 
Brothers Boat Builders in Freeland, Washington is converting an 
unfinished casino vessel into a state-of-the-art, 218-foot, 161-
passenger overnight cruise ship and America West Steamboat Company is 
in serious discussions with several yards to add an additional cruise 
ship to its U.S.-flag fleet. In addition, two other cruise ship 
operators are in serious discussions with U.S. shipyards about building 
two more U.S.-flag cruise ships--one for the East and Gulf Coast market 
and another for the West Coast market. These are real shipbuilding 
opportunities and the operators involved have already hired naval 
architects, at considerable costs, to design these 375-foot long 
vessels.
    Mr. Chairman, we fear that the changes proposed in S. 1510 would 
have a negative impact on the current growth of the U.S.-flag cruise 
ship fleet and the shipbuilding opportunities that come with that 
growth. Without a doubt, operators would be forced to reevaluate each 
of these building projects in light of added foreign-flag competition 
that would come as a result of S. 1510.
    There are those that argue that the provisions in S. 1510 will not 
slow the growth of the small and mid-sized, U.S.-flag cruise ship 
industry, because the vessels eligible to enter the U.S. market under 
the terms of this bill are different or much larger than the vessels 
under construction today in SCA member shipyards--even that the larger, 
foreign-flag vessels will complement, not compete against, our domestic 
fleet. We could agree with that assertion except for the fact that the 
foreign-flag vessels will operate with considerable tax, labor and 
capital asses cost advantages, allowing them to charge significantly 
less for cruises in the same markets. Mr. Chairman, U.S.-flag cruise 
ship operations, both big and small, will be hurt by foreign-flag 
operations charging significantly less for a cruise in the same market.
    Having expressed our concerns about the direction of the 
legislation, we also believe that there are provisions in the 
legislation that could benefit American shipyards. SCA is pleased that 
this bill includes a provision requiring foreign-flag vessels obtaining 
a waiver to participate in the U.S. trades to have all necessary repair 
work to enter the U.S. market and subsequent repair work performed in a 
U.S. shipyard. We are concerned; however, about how this provision 
would be enforced, especially in light of the fact that these foreign-
flag vessels can move in and out of the U.S. trades at will. Moreover, 
there is no requirement that any upgrades performed after entry must be 
in a U.S. shipyard.
    Mr. Chairman, in the final analysis Congress must make a decision: 
whether to encourage growth in the cruise ship industry in the U.S. by 
offering incentives to foreign-flag vessels to enter our trades or by 
looking for ways to promote U.S.-flag operations. We respectfully urge 
the Committee to adopt the latter option. It may be the more difficult 
option, but it is the right option to choose. Our economic and national 
security depend on a strong and vibrant shipbuilding industry. We must 
not allow this vital industry to be further harmed by an international 
marketplace where successful shipyards are determined by how much of 
the construction cost of a vessel their government is willing to 
underwrite. Mr. Chairman, I would like to take this opportunity thank 
you, Senators Lott and Breaux and others for your unwavering support 
for the OECD Shipbuilding Agreement, which we believe would have gone a 
long way towards eliminating the international shipbuilding subsidies 
that are wreaking havoc in the world shipbuilding market.
    In closing, I want to again emphasize that SCA greatly appreciates 
your efforts to expand the cruise ship industry and express our 
willingness to work with you and other interested parties to accomplish 
that goal. We understand that this will not be easy and that our goals 
will not always coincide with those of other interested parties, but we 
believe that the benefits are worth the effort. A vibrant U.S.-flag 
cruise ship industry will mean more American shipbuilding and merchant 
marine jobs, enhanced national security, more tax revenue for federal, 
state and local governments and more cruising options for our 
citizens--a win/win situation for all concerned.
    Again, thank you for the opportunity to testify. I will be happy to 
answer any questions.

    The Chairman. Thank you very much.
    Senator Hutchison.
    Senator Hutchison. Thank you, Mr. Chairman.
    Mr. Chairman, I want to thank you first for your leadership 
in having this hearing. Again, we have come a long way since 2 
years ago when we had our last hearing. I really think there is 
a nugget here, after listening to each of the individuals, and 
so I do want to ask a couple of questions.
    I think Mr. Welch brought up some valid points, and I just 
wanted to ask you if you think that the fact that the bill does 
give the Secretary, in conjunction with other Federal agencies, 
the power to enumerate all the rules, regulations, and 
operating requirements relating to health, safety, 
environmental protection, and anything else that would be 
required for any foreign-flag vessel to come into our U.S. 
ports, if that would not level the playing field to an extent 
that you would feel comfortable on those issues.
    Mr. Welch. Two comments to that, Senator. First, the way I 
read the bill, the Secretary of Transportation does not have 
the authority to make decisions about a wide range of laws such 
as the Americans with Disabilities Act, the Fair Labor 
Standards Act, a variety of other economic type of laws.
    There is the authority for the Secretary to make judgments 
about operating laws or environmental laws, so the Secretary's 
authority is not as broad. It does not cover the full range of 
laws that apply to our ships.
    Second, we are really hesitant about Congress deferring 
that decision to an individual, the Secretary of 
Transportation. We see all too frequently inequitable results 
when Congress refers tough choices to the agencies.
    My brother is general counsel of the FCC, and they are 
struggling with the Telecom Act, and they are catching all 
sorts of grief, because Congress did not give sufficient 
direction as to what they wanted, and I think deferring that 
decision to a single individual, no matter how well-
intentioned, is not the way to go.
    If Congress is going to pass legislation, Congress should 
say specifically this law or that law does or does not apply. 
They should not defer it to the Secretary of Transportation. Of 
course, all my comments about what laws apply would be solved 
if what you were talking about were American flag ships.
    So, for example, Mr. Wallack's ships, the way I understand, 
he's proposing a reflag. None of the observations I make, or 
made earlier, would apply in that situation.
    Senator Hutchison. Let me take that, because that is 
something I have just been discussing with our staff counsel, 
and that is, would it be feasible, and would it add to the 
industry in reality to allow foreign-built ships be reflagged 
to U.S.-flagged ships? Would that increase the capabilities, 
and would, in fact, enough ships come into the market that we 
would be increasing the opportunities for consumers in the 
tourism industry and the ports?
    Mr. Welch. Well, last Congress our association was in 
discussions with Senators and staff folks about, and some of 
the folks here at the table about possible legislation that 
would allow reflagged ships to come in under certain 
circumstances, and there was an effort also at that point to 
try to protect our size smaller ships from this type of lower 
capital cost competition, and so we would be willing to 
reengage in discussion on something like that.
    We prefer to see U.S.-built, U.S.-flag ships, but the real 
difficulties about the application of laws comes when you allow 
foreign-flag ships in, and under the bill, the way I read it, 
there is a period of up to 7 years when foreign-flag ships can 
operate without making any legal binding commitment that they 
have to replace their tonnage with U.S.-flag vessels.
    The Chairman. Can I interrupt one second, Senator 
Hutchison? We kind of free-flow sometimes here. We would prefer 
to see U.S.-built and U.S.-flag ships, too, but it has been 40 
years since one has been built. We just saw a recent example of 
Newport News that was going to get into the business and 
failed. It is nice to say that we would prefer these things. We 
would prefer a lot of things, but I do not share your optimism, 
in view of the record.
    I am sorry to interrupt, Senator Hutchison, but I think it 
is a logical follow-up to your question.
    Mr. Welch. If I could, Senator, I testified about how there 
is a market segment right now that I represent of smaller U.S.-
flag passenger vessels.
    The Chairman. This legislation only affects larger vessels.
    Mr. Welch. But, sir, the way we read it, this would allow 
vessels to carry as few as 200 passengers, foreign-flag vessels 
that carry as few as 200 passengers, and I can identify the 
vessels for you, to come into the trade, and we see that as 
competing with our vessels that carry roughly the same number 
of passengers, so we do not believe--with all due respect I do 
not see--the protection you are citing I do not think is 
effective for our existing U.S.-flag vessel operators.
    The Chairman. Thank you.
    Senator Hutchison. Let me just say that I think that of 
course what Senator McCain says is true, and we are talking 
about big vessels, and even with the encouragement and cajoling 
and also pressure from the Senate Majority Leader, he cannot 
even get a big ship built in Mississippi for cruise purposes, 
and so I think we are talking about apples and oranges, and I 
think we may be seeing the potential here for U.S. flagging 
giving shipbuilders repair and replacement part opportunities 
which would add to their business, trying to level the playing 
field in every possible way. That is what we want to do.
    There is no question, certainly in the income tax area on 
any business that is done in our ports we need to level the 
playing field. There is no question about that. So I would just 
ask you all to look at ways that we can add to everyone's 
opportunities, and add something to every segment, and let us 
forge a coalition and get this bill out.
    We will not be able to get it to the floor without the 
agreement and consensus of everyone that has an interest, but I 
think we are missing a huge opportunity for our country in 
jobs, in use of our ports, and adding to the shipbuilding 
capabilities, and we are talking about 3 years. If we do so 
well that we encourage a U.S. shipbuilder to say, hey, I see 
the potential here and I am going to build a ship, then we are 
out of here. Then that has created a market that is not there 
now, and we will readdress, because this would go out of 
existence in 3 years.
    So I think we need to open our minds and look at the 
opportunities here, and I do see a nugget of agreement, and I 
want to get all of our heads together and make this happen, and 
Mr. Chairman, I am willing to do that, and work with you, and 
with them, and see if we cannot do something good for everyone 
here.
    Thank you.
    The Chairman. Thank you very much, Senator Hutchison. I am 
very grateful for your considered involvement in this issue. 
Senator Burns.
    Senator Burns. Thank you, Mr. Chairman. I just have a 
couple of questions. We do not get a lot of big cruise ships 
that stop in Montana.
    [Laughter.]
    Senator Burns. But one more earthquake, and we may.
    [Laughter.]
    Senator Burns. I am interested in this because--and Mr. 
Welch, I was told that we have only got one flag, and that is 
in Hawaii. Where are the rest of them?
    Mr. Welch. Sir, we have approximately 22 existing U.S.-flag 
vessels. All except for one right now are what we would call 
medium or small U.S.-flag vessels, and we are talking anywhere 
from the 75 to 250 passenger range. Several of them operate 
with headquarters in the Seattle area, and they serve Southeast 
Alaska in the summer, and then as the winter progresses they 
move down to the Columbia River.
    Some of them, one of them the operators goes into San 
Francisco Bay and up the Sacramento River, and then down to 
Southern California in the winter.
    We also have operators on the East Coast that have selected 
routes up and down the East Coast and the Gulf, and a couple of 
them go into the Great Lakes.
    You need to understand that these routes are not permanent 
routes. In other words, the vessels will sail two or three 
times a year on one particular itinerary, and then they will 
move to another itinerary. The market is not such that you can 
keep your vessel in the same route the entire year, but I can 
provide you--in my testimony I provide the names of the 
companies and a little bit of information about the vessels.
    We also have seven vessels, additional, that are either 
under construction or will be in yards in the next year or two, 
so this is a growing and workable segment of the U.S. maritime 
industry, and we fear that the way the bill is written in its 
shot at large vessels is going to perhaps unwittingly have some 
negative impacts on our smaller vessels.
    Senator Burns. Tell me, do we have access to foreign ports 
with American flags? Is not the playing field level? Are we 
prevented right now--a foreign-flag, he can come in, but he 
cannot stop in a second port in the United States? In other 
words, his next stop has to be at a foreign port. Are those 
requirements made in any other country other than this country?
    Mr. Welch. Senator Burns, there are various--first on the 
international voyages, any U.S.-flag vessel, just like any 
other foreign-flag vessel, can make an international voyage to 
another country's port, so that is pretty much standard. There 
are different types of cabotage laws around the world, and 
there are some restrictions.
    For example, some of the Mediterranean countries restrict 
their passenger carriage between their own individual ports to 
either their own flag vessels or perhaps some other EU-flag 
vessels. They are beginning to expand the cabotage of the 
Europeans. For example, restricting the Greek Isles to only 
Greek Isle ships, that is beginning to be--the EU is pressing 
them to say, open that up to other EU-flag vessels.
    Senator Burns. Mr. Wallack, you have shown some interest in 
the last question I asked.
    Mr. Wallack. Yes, because it has not been a level playing 
field up to now, but it really was irrelevant, because there 
were not any American ships to go into it. None of the smaller 
vessels could transit, or were transiting the ocean to get to 
the other side to compete. Until January of this year if you 
wanted to cruise round-trip from the Piraeus in Greece, you had 
to have the Greek flag. As of the first of this year, now any 
EC-flagged ship can do that kind of cruising.
    So it is not a matter of not having the opportunity, it is 
just that there are not any U.S.-flag ships to do that. If we 
develop a cruise industry here, we could begin to challenge 
these kinds of exclusions.
    Senator Burns. Do you think this legislation would enable 
that?
    Mr. Wallack. Yes, I think it will. I think we are not going 
to create a U.S.-flag cruise industry full-blown from the head 
of Zeus. I think we have to have a beginning, and great 
companies begin by taking small steps. Carnival Cruise Lines, 
probably the best cruise line, largest cruise corporation in 
the world, started with one converted liner.
    A great guy, Ted Arenson, who recently passed away, 
acquired one old liner--I think it was a Zim Line--and began 
Carnival Cruise Lines with it, and knew if he was successful 
with these older ships, he could afford to build and buy new 
ships.
    I am encouraged by the fact that American Hawaiian is able 
to move forward with the building of a ship in the United 
States. I know that it is not profitable for shipyards to build 
one ship, or even two. They have to build three or four, or 
six, in a series in order to make it a profitable operation. 
The shipbuilding industry in the United States needs the 
support of U.S.-flag cruise lines to step up to the table and 
order those kinds of vessels.
    In our case, we want to order blue water ships, large, 
economical, big cruise ships, the kind that compete in the 
world today, and we believe that American shipyards can produce 
these kinds of ships. We do have confidence that the small ship 
business can work and coexist within that environment. It does 
now.
    We have so much of a commitment to that idea that we have 
recently negotiated an agreement with Goldbelt, a Native 
American corporation in Alaska, to take over their four-ship 
overnight cruise operation based in Seattle. So we have a 
commitment on both sides to do both small-ships and large-
ships, because we believe it is part of the same marketing 
grab, if you will, and can be comarketed very, very nicely, and 
very profitably.
    Senator Burns. I was a cosponsor of last year's bill, and I 
am also a cosponsor--I assume I am. We have been doing other 
things around here--because I just think it opens up the 
market. I really do not see where the big vessels of the 2,500 
to 3,000 capacity is going to make much of an impact on your 
business, Mr. Welch, because I think it is two different 
markets.
    Mr. Welch. Well, Senator, all I can report is the amount of 
operators that feel that they are to some degree in competition 
with large. In fact, part of the problem is not just the size 
of the ships. Part of the problem is the cost of the cruise.
    For example, if you go out on an international-flag cruise 
ship you are going to see a wide range of ticket prices. The 
cost of the cruise, I do not know exactly what their marketing 
strategies are, but they range from high to low, and there will 
be lots of folks on those cruise vessels that are paying less 
than what our U.S.-flag operators--so I agree that the type of 
service that we are operating is somewhat different, but it is 
not totally different, and it is also somewhat price-dependent, 
and when you have foreign-flag vessels--and that is what we are 
concerned about.
    We are not so concerned about a U.S.-flagged vessel, a 
larger U.S.-flagged vessel competing against us. That is the 
breaks, you know. We will compete against them however best we 
can. But when we have to compete against a foreign-flagged 
larger cruise vessel, and they are offering a price that is 
lower than what our fellows can offer, that is where we start 
having problems.
    Senator Burns. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Mr. O'Toole, what is it that prompted you and your 
organization to be involved in this issue?
    Mr. O'Toole. Well, Mr. Chairman, let me just give a little 
story. When I was 28 years old I sailed on the SS BRAZIL. It 
was a cruise ship. I sailed on the SS UNITED STATES, when that 
owned by was U.S. Lines. I sailed with Grace Lines, on the SS 
SANTA PAULA. That was when I was 28. I am 58 now, and I have 
not seen a U.S.-flagged passenger ship since then, and I think 
my time is running out. In fact, it has run out.
    I was just up at Kings Point for my homecoming. I saw 
graduates, potential graduates from the Merchant Marine Academy 
in their splendor. It was a glorious day up there, this past 
weekend, and I thought to myself as I was watching them parade 
around, they are going to come to me in a few years and ask for 
a job, and I am going to have only a few jobs to give them, and 
so our union decided to go into this for the opportunity of 
jobs for our members, and we see this as an opportunity, a real 
opportunity. That is why we joined this coalition.
    The Chairman. Well, I thank you, and your support is of 
significant importance to us.
    Mr. Welch, I do not want to have this Committee beat up on 
you just because we have some disagreement here. We want you 
here in this debate and discussion, because as Senator 
Hutchison said, I hope that we can arrive at some agreement.
    Did your organization support the action taken by Congress 
to allow the use of a foreign-built cruise vessel in Hawaii?
    Mr. Welch. We did not have a position on that as an 
organization. Now, the company is a member of our association.
    The Chairman. Well, has that exemption hurt the Jones Act?
    Mr. Welch. That exemption is going to bring in an 
additional U.S.-flag vessel, and it is going to bring in two 
newly constructed U.S.-flag large passenger vessels, and they 
are going to be U.S.-flag vessels, so we think that that is 
going to be a positive benefit to the entire industry.
    The Chairman. Ms. Sanchez, you heard Mr. Welch say there is 
room for optimism, I believe he said because we have U.S.-flag 
carriers. Do you share that optimism?
    Ms. Sanchez. Mr. Chairman, the U.S.-flag vessels that he is 
talking about that he has well-described, they are a fleet of 
smaller passenger ships. In fact, if you look at the marketing 
brochures received by the travel agents that are given to 
consumers, they state they are small yacht adventure cruises.
    They talk about the differences between their vessels and 
the large ocean liners, and so it is interesting that for 
marketing purposes they highlight the differences, but for 
legislative purposes, they highlight the similarities, and I do 
want to clarify that the legislation, the vessels of the 200-
passenger range that Mr. Welch referred to, the international 
vessels that he is referring to, those would be required to be 
all suites, with a minimum cabin size.
    Those are vessels that the PVA's vessel owners do not have 
vessels of that category, so you can see the length to which we 
tried to make sure that there were wide gaps so that there 
would not be head-to-head competition, so I think that is an 
important point to point out.
    The Chairman. Ms. Colenda, recently there have been some 
very serious transgressions committed by foreign-flag 
operators, environmental abuses, major fines, and on a couple 
of occasions in the past I have been assured that these 
violations have been brought to a halt, and yet we see 
recurrences of them.
    I have a reputation for speaking somewhat candidly. It 
hurts our efforts if these kinds of infractions of law, 
violations of law continue. Can you enlighten the Committee, or 
give us some comments and commitments as to this situation 
being remedied?
    Ms. Colenda. Thank you, Senator McCain. The International 
Council of Cruise Lines has recently adopted, and the top 
executives of our companies have recently adopted, several 
major initiatives to deal and respond specifically to some of 
the issue areas, the major issue areas where there have been 
some concerns.
    We just recently released an environmental policy statement 
where the cruise industry is committed to protecting the 
environment, is working to enhance, as an industry to enhance 
and further strengthen environmental programs, in recognition 
of the fact that there have been some issues. So the top 
executives of this industry association have set policy goals 
for the future to look for ways to improve.
    In particular, another thing that we responded to, another 
issue we responded to this summer is incidents of on-board 
passenger security. The number 1 priority for our industry is 
protecting our passengers, providing for the safety of our 
passengers, providing security for all passengers on board, so 
as an industry association, and representing 17 of the major 
companies, we have strengthened our commitment in many major 
areas and look forward to working with Congress.
    We listen to regulators, we listen to the international 
community, and we look for ways to improve in the future, and 
that is what we are doing as an association.
    The Chairman. In the case of an allegation of assault, can 
you assure me that every allegation will be reported and 
treated as if it were a crime that were committed in the United 
States of America?
    Ms. Colenda. That is exactly what our policy does, Senator 
McCain. What we have agreed to do as an industry association is 
that when there is any allegation of any sort which we do not 
tolerate, we have issued a zero tolerance policy. We would 
report it to the appropriate authorities. When it is a U.S. 
citizen, the appropriate authority is the Federal Bureau of 
Investigation.
    The lines involved independently have a security officer on 
board every ship who would conduct a preliminary investigation, 
collect evidence, and turn over to the appropriate authorities 
immediately any kind of serious allegations that occur on our 
ships, because our primary goal is to keep passengers coming 
back year after year, and we do carry 5 million passengers.
    As an association, our industry carried 5 million 
passengers last year, and our primary commitment is assuring 
the safety and security of these passengers so they will come 
back year after year. Our success has been that we have a good 
record in that regard.
    The Chairman. This policy statement, you have been working 
with the EPA on it?
    Ms. Colenda. Yes. What we are going to do is--we are 
conducting the primary work through our Coast Guard 
partnership, working with the Coast Guard, because we have a 
formalized partnership with them. But we will also work with 
environmental organizations like the EPA and others, like the 
President's Council on Environmental Quality, and other high-
level environmental associations or administrations.
    The Chairman. I would like for you to work with them, and I 
would like for you to get letters from them endorsing, or 
making additional recommendations to your policies, because 
these are the people who I think you need to get their 
endorsement and support of your efforts.
    You have got a credibility problem right now, and I think 
to have our various agencies of Government to oversee these 
issues will be very helpful.
    Mr. Walker, do you think that S. 1510 would not test new 
markets?
    Mr. Walker. I think S. 1510 would test new markets.
    The Chairman. You think that smaller cruise vessels will be 
hurt by larger foreign cruise vessels, because larger vessels 
can charge less?
    Mr. Walker. Larger foreign-flag vessels can charge less 
than smaller U.S.-flag vessels can charge. I think--I do not 
have the numbers, but I think it is fairly well-documented that 
you can take a foreign-flag cruise now significantly less than 
you can go on a 250-passenger U.S.-flag cruise.
    The Chairman. The difference in cost is because?
    Mr. Walker. The difference in cost is labor cost in the 
U.S. All of our cruise ships, U.S.-flag cruise ship operators 
have to pay U.S. taxes on all of their operations, whether they 
be in the U.S. or outside the U.S.
    As I said, I am happy to--I mean, I am not happy to say it, 
but I fully admit that the vessel cost in the U.S. is higher 
than it is on the international market due to the massive 
amount of Government subsidies that the foreign shipyards 
receive from their home Governments. All of those things enter 
into it.
    The Chairman. Ms. Sanchez, how many American citizens are 
employed just in Miami by the foreign cruise lines?
    Ms. Sanchez. Mr. Chairman, I would defer that question to 
Ms. Colenda.
    The Chairman. Ms. Colenda.
    Ms. Colenda. In Miami, it is about 50,000 to 60,000 U.S. 
citizens are employed.
    The Chairman. Fifty thousand to sixty thousand U.S. 
citizens employed, and, say, San Diego how many are employed by 
foreign cruise ships?
    Ms. Colenda. I am not sure of that number, Senator McCain.
    The Chairman. Maybe a couple of hundred?
    Ms. Colenda. I would think in the California ports, where 
we have significant vessel operations--for example, two of our 
companies are headquartered, one of them is in Los Angeles, and 
we have some of the companies headquartered in California, that 
the headquarters alone would, in the case of--Princess Cruise 
Lines employs probably several thousand people.
    Ms. Sanchez. Mr. Chairman, if I may, I would like to add to 
that, because I think it is important to note there are 
Americans employed on international cruise ships on board the 
ships, and in fact we looked at this, and looked at the 30 
cruise ships that typically serve the Alaska market, and when 
we looked at the number of Americans that are employed, we 
discovered there are over 2,000 Americans employed on those 
ships, which is much greater than the amount of Americans 
employed on U.S.-flag cruise ships, whether it is the Hawaii 
ocean liner, the INDEPENDENCE, or even the smaller vessels that 
Mr. Welch has referred to.
    The Chairman. Mr. Welch, you are eager to respond. I can 
tell because you are sitting up straight there.
    [Laughter.]
    Mr. Welch. Well, thank you, Senator. The only thing that 
concerns me is the tendency that sometimes we feel like that 
we, our industry, get kicked because of our high cost 
structure, but we do not have a high cost structure, we have an 
American cost structure. We pay the same types of wages as 
shoreside folks.
    We are not out of line with the American economy. We are 
very efficient within the American economy, but it is tough for 
us to take somebody that implies you must be doing something 
wrong because you cost more than a foreign-flag ship that pays 
most of their people far below the U.S. minimum wage, that does 
not have to pay U.S. taxes to any meaningful amount, and that 
is able to have a capital cost structure far better, more 
favorable than we are.
    We are not knocking the foreign-flag companies for being 
able to do that. They are entitled to do that. But we do have a 
problem when somebody kind of looks at us and says, your cost 
structure is out of line compared to them. It is not a fair 
comparison, and allowing them to compete with us--and it is not 
just the cost structure.
    They are not subject to the Americans With Disabilities 
Act. We are. They are not subject to the Transportation Safety 
Board. We are. They are not subject to a number of economic 
laws that your bill does not deal with. We are. It is just 
tough for us to compete head-to-head in that environment.
    The Chairman: Mr. Wallack, without this legislation there 
is at least one venture that claims it will enter the U.S. 
cruise industry by building cruise vessels without reflagging. 
Do you believe that is a realistic strategy?
    Mr. Wallack. I think if we look at the history of the 
cruise industry--I have been involved in it since the early 
eighties--the ability of a line to enter service by building a 
new ship and taking all of the expense up-front without any 
existing organization has been marginal. In fact, most of them 
have either failed or become acquired by larger lines who have 
a different set of economics and infrastructure, et cetera, to 
make it profitable.
    I think off the top of my head of Seaborne, a very good 
company and the excellent new ships they built. But, until a 
large part of it was acquired by Carnival Cruise Lines, it was 
floundering. This is not an exception to the rule. It has been 
the rule so far. Our business plan just calls for the tried-
and-true, ``do not reinvent the wheel'' way of doing business, 
the same way Carnival started, the same way many other cruise 
lines started, and we think it is practical, especially 
considering that building ships in the United States--building 
ships takes time. Building ships in the United States is going 
to take more time.
    We feel confident that it can be done, but we should be 
using that time productively to build a business to acquaint 
Americans with the kind of itineraries we can operate, to form 
our allegiances and make our product known to the travel agency 
community, and in training workers who come on board these 
ships, who have had no opportunity to do so, even though they 
have been attempting to work in the maritime sector.
    So we think there is a logical bridge strategy. Can they be 
successful? How deep are your pockets?
    I mean, even large ships like the very fine cruise line, 
Crystal Cruise Lines, required the very deep pockets of a 
company called NYK, one of the largest maritime companies in 
the world, to get its beginnings. That is a tremendous 
commitment from a very, very big company.
    I do not see in this particular plan that you referred to, 
Senator McCain, that kind of deep pockets, so I would be 
concerned about the business approach, but more power to them. 
If he wants to do it and can do it, I applaud the effort.
    I would make--if I may, I would just like to comment on the 
economic issue. Although I am 100-percent in agreement that we 
should have a level playing field wherever possible, in a 
coalition we sometimes take a bump or two in order to make 
things happen. I heard this referred to as ``pie-in-the-sky'' 
and ``it is never going to happen,'' so if we do not take a few 
little bumps, if we do not take a few little hits, if you will, 
real things will not happen.
    I think this is about real things, and in the economics of 
the cruise ship business, size has more to do with the cost of 
the ticket than what you pay in wages. Wages are a significant 
contribution, but we feel that with the wage scales in the 
American maritime industry today, that we could live with that, 
but size is important, and the structure of a small company, if 
you look at small companies, their ticket prices are all very 
high.
    All of the successful small companies under the foreign-
flag are companies like Seaborne and Silver Seas, et cetera. 
Their ticket prices are very similar to the ticket prices 
offered by U.S. flag lines.
    But big ships have different economics, and that is why our 
intention is to build those ships. You only need one driver for 
2,000 passengers. That is a big difference.
    The Chairman. Mr. O'Toole, does it intrigue you that it is 
now more expensive, as far as labor and other costs are 
concerned, for foreign shipbuilders than it is in the United 
States of America, and yet still, we have been unable to get 
that business started by any major shipbuilder in America. They 
are very good at building Navy ships. They make the finest 
warships in the world, obviously, and unique warships.
    We just had the Newport News experience. We have had other 
experience, where supposedly in Philadelphia they have been 
sending workers over to Korea to be trained and come back, and 
yet still we do not have a viable industry.
    The argument used to be, well, it costs so much more in the 
United States to build a ship than it does in Italy, or the 
Netherlands, or wherever else. Now their costs are higher, yet 
they are still building the cruise ships, and we have not been 
able to do that.
    Given your more than 30 years of experience in this 
business, what do you think about that?
    Mr. O'Toole. Well, actually, we had a good discussion on 
that, and it was pointed out our shipyards are specialists. 
Newport News, aircraft carriers, Bath, cruisers, destroyers 
down in the Gulf States. Because of that, they are specialists 
in that, and that makes them good at it.
    The Chairman. Also, could part of it be that they are not 
too concerned about cost overruns?
    [Laughter.]
    Mr. O'Toole. Well, I think they have a guaranteed profit 
margin built in. If they are going to go out and build a cruise 
vessel, now they are at a risk as to whether or not they can 
succeed. I think Mr. Wallack, as he pointed out, the time it 
takes to build cruise vessels, if you have not done it before, 
varies with your experience, but I think for us, if we are 
going to do it, now is the time to do it. Our opportunity is 
now, and I think that this bill, S. 1510, provides for that, 
and I think it gives an opportunity for the shipyards to have 
time to develop an industry in building cruise vessels, and I 
would hope they would join and support this legislation.
    The Chairman. Any final comments, Mr. Welch, beginning with 
you, or do you want me to end with you?
    [Laughter.]
    Mr. Welch. Your choice, Mr. Chairman.
    The Chairman. Please go ahead, Mr. Welch.
    Mr. Welch. Mr. Chairman, my message is that in your efforts 
to construct a bill aimed at large cruise vessels, and of 
course we support the goal of getting more U.S.-flag large 
cruise vessels, please craft that bill in a way so that it 
deals only with large cruise vessels, and does not have a 
negative effect on the existing, vibrant U.S. flag small cruise 
vessels. We think there possibly is a way of doing that, but we 
feel like the way the bill is written now, it has too many 
questions.
    The Chairman. Ms. Sanchez.
    Ms. Sanchez. Thank you, Mr. Chairman. In closing, I wanted 
to just remind the Committee that the waiver for the 
international cruise lines under S. 1510 is very limited. We 
have come a long way from prior legislation. We are talking 
here about only allowing 200 days per international vessel 
until the year 2006.
    Now, there have been suggestions that we submit the 
international cruise lines to a fair playing standard with the 
U.S.-flag industry. While we agree on environmental health and 
safety, because they are already doing that, they are within 
the reach of the U.S. Government already as we have seen 
lately, we do not think that requiring additional standards is 
going to help.
    That, in fact, what it would be, it would be a poison pill 
in the bill, and that the international vessels will not come 
in, and we do not want to create the result that Senator Gorton 
talked about when he opened earlier in this hearing, when he 
said, if it is a good political solution, but it will not 
generate the business, so that I just wanted to expand about 
what our rationale is behind that.
    So our interest is to fill the void with the large ocean 
liners. Our language for the smaller boats we think is tight. I 
am not comfortable that if we increase the tonnage limit to 30 
to 50,000 gross registered tons, that I could get Mr. Welch's 
support for this bill, regrettably.
    Thank you.
    The Chairman. Thank you. Mr. Walker.
    Mr. Walker. Mr. Chairman, I cannot let that pass. I need to 
know if I understand what Ms. Sanchez just said. If she just 
said that if foreign-flag operators have to operate like U.S.-
flag operators have to operate, they would have no interest in 
our market, if that is true, that seems to me to be the real 
reason why we do not have a U.S.-flag fleet now.
    If even the foreign flags do not want to operate here under 
our current structure, maybe we should look, and we want to 
expand the U.S. flag cruise ship industry, but maybe we should 
look at ways to make it easier to operate here in the U.S. Why 
should our own companies----
    The Chairman. How do we know, until we give them a chance?
    Mr. Walker. That just seems to us to be an alternative way. 
We want to work with you to expand the industry. It is good for 
everybody. Nobody doubts that. But we just want to make sure 
that we do it in a way that does not stop the momentum that the 
smaller commercial yards have begun to build in building the 
smaller and medium-sized cruise ships. They need those 
contracts very badly.
    The downturn in the oil industry is--lay-offs are happening 
left and right on the Gulf Coast, and we are not sure a lot of 
these shipyards will be around in 6 years to take advantage of 
this unless something is done.
    The Chairman. Mr. O'Toole.
    Mr. O'Toole. To reiterate my earlier testimony that my 
testimony today in no way deters from the support that both the 
MEBA, MMP, and SUP have to protect the Jones Act. These are two 
separate issues. I have heard the analogy about the camel's 
nose under the tent with regards to that, and I would like to 
say that I think that maybe--I am going to use the analogy of 
the ostrich head in the sand with regards to the future of 
American passenger ships. I think that too often people are 
waiting for something to happen. I think now is the time for it 
to happen. I think the bill, S. 1510, is the vehicle on which 
we could develop a domestic cruise industry, and quoting George 
Allen, I think the future is now.
    Thank you.
    The Chairman. You are showing your age again, Mr. O'Toole.
    [Laughter.]
    The Chairman. Mr. Wallack.
    Mr. Wallack. Thank you, Mr. Chairman. I wanted to use a 
different camel analogy, because I have heard a lot about the 
camel's nose under the tent. I want to talk about S. 1510 
perhaps as a coalition getting together to build a horse and we 
came out with a camel that has got a few bumps, but it is great 
for transportation, and it is particularly good to get us over 
rough ground, and to last a long time until the job gets done. 
That is what camels do.
    I think we have built one, and I think we can make 
something happen here, and we can employ Americans on American 
flag cruise ships, and we can expand the kind of itineraries we 
can offer Americans, and do all of the things that you 
intended, Mr. Chairman, with this bill.
    I think it is realistic, and not a ``pie-in-the-sky.'' It 
is certainly a beginning, and you have our undying pledge that 
we are going to do everything possible to make that happen.
    The Chairman. Thank you, sir. Ms. Colenda.
    Ms. Colenda. Thank you, Chairman McCain.
    One of the things I would like to point out is that our 
industry believes--we last year created jobs for 176,000 U.S. 
citizens. We brought $11.6 billion to the U.S. economy, and we 
think that the objectives that you are trying to achieve can be 
achieved with expansion of our industry.
    We have brought on new itineraries. We have visited new 
U.S. ports. We have added Galveston and Houston; we have added 
the port of Seattle; we have expanded operations in Boston; we 
have expanded tour operations in New Orleans; we have expanded 
our operations in San Diego; we are calling on San Francisco, 
and 2 years ago our vessels were not doing that.
    So there are broad opportunities for the industry, but our 
primary market still has been outside. It has been primarily in 
the Caribbean area. Worldwide, we had 95 vessels call on over 
200 ports last year, and so we are a worldwide market, and I 
think we are a very competitive and responsible industry, and 
we welcome the opportunity to work with you, and thank you for 
asking us to come today.
    The Chairman. Thank you. The aspect of it that appeals to 
my constituents is the fact that, especially out of Miami now, 
but hopefully other places if we pass this legislation, the 
incredible variety of enjoyment they can get out of a cruise, a 
weekend cruise, singles cruise, old geezers cruise--I mean, the 
weekend, the month-long, we can--the incredible selection now 
that Americans and others who may come to this country have is 
really quite remarkable.
    That is what has impressed me more about the growth of your 
industry, and the growth has been dynamic, and if it is true in 
Miami and other places where the Jones Act really does not 
affect them, and the Passenger Cruise Vessel Act does not 
affect them, then I think it opens up incredible opportunities 
for American citizens to have an experience that unfortunately 
some citizens who live in different parts of the country do not 
have. It is remarkable.
    In just 5 or 10 years, the incredible expansion, the 
different kinds of experiences that American citizens can have, 
at frankly prices that are not as high as--once upon a time, 
cruising was for the very rich, and now this industry has been 
able to allow most levels of income, certainly not all, but at 
least down to middle income Americans, an opportunity to have 
some very unique experiences, and that is I think what your 
industry has to be congratulated for.
    But I want to caution you one more time. I am appalled when 
I see some of these environmental violations, and some of the 
allegations that have taken place. It has got to stop. It has 
to stop, otherwise the Congress and the Government very 
justifiably are going to have to take some action, and it would 
inhibit our ability to get legislation like this through the 
Congress of the United States, but I do congratulate you on 
enormous progress, besides all the economic aspects of the 
cruise industry in America, the enjoyment that so many 
Americans have been able to have as a result of this 
dynamically growing industry.
    I want to thank you all for being here. I do want to 
reiterate the words of my esteemed dear friend from Texas, 
Senator Hutchison, who said we would like to try to work 
together, and we would like to get it to a point where perhaps 
we could get this legislation through the Congress without 
having some kind of bitter floor fight, which obviously is 
something that none of us look forward to.
    I thank you for being here. This hearing is adjourned.
    [Whereupon, at 11:35 a.m., the Committee adjourned.]
                            A P P E N D I X

    Prepared Statement of Hon. Dianne Feinstein, U.S. Senator from 
                               California
Mr. Chairman:

    I would like to begin by thanking you for the opportunity to 
testify today in strong support of S. 1510, the United States Cruise 
Ship Tourism Development Act of 1999, and to thank you for your 
leadership on this issue.
    California's ports and many cruise related businesses have been 
working on modifying the Passenger Services Act since the 1995 White 
House Conference on Travel and Tourism when California first brought 
this issue to the convention. That Conference identified the PSA as a 
barrier to developing new domestic tourism products and also urged 
incentives for development of a U.S.-flag cruise ship industry. This 
legislation does that.
    I have worked with these groups and with you to form a compromise 
that would bring benefits to all U.S. ports, cruise-related businesses, 
and American maritime unions. This process has also received the strong 
support of the travel agents and tourism industry associations 
throughout California and the United States.
    When I met last year with the Cruising America Coalition and the 
Maritime Unions, I urged them to work closely together without friction 
and bring me a compromise that would be meaningful to both sides. I 
felt the need to jumpstart an American cruise ship industry that would 
bring benefits to U.S. seafaring labor, the ports and the travel 
industry. Even after last year's reverses I did not give up hope that 
there was something Congress can do to help bring back a fleet of U.S.-
flag ocean liners.
    I am especially pleased with how hard both sides have worked on 
drafting this bill, and want to thank them for their efforts. I am 
especially pleased with the bill that resulted from this balanced 
approach.
    This legislation is a compromise, a product of hard work from both 
sides. I am very happy that it has broad support of major maritime 
unions; notably, the Sailors' Union of the Pacific, which is 
headquartered in San Francisco; the Masters, Mates and Pilots; the 
Marine Engineers Beneficial Association; and the Marine Firemen's 
Union. It is also supported strongly by ports in California in 
cooperation with most of the ports in the United States, almost every 
nationwide tourism group of note, hotels, bus operators, and travel 
agents who together are members of the Cruising America Coalition.
    Let me now take a moment to explain why this legislation could.help 
California's ports. All but one of the ocean going cruise ships serving 
the United States is registered under a flag other than the flag of the 
United States.
    Consequently, when these internationally flagged ships visit the 
United States, which they can do legally and do very often, in order to 
carry passengers between U.S. ports, these ships must also touch a 
foreign port in order to drop off passengers without facing legal 
consequences. As a result, U.S. ports that are close to foreign 
destinations benefit by their location; ports such as Miami close to 
the Bahamas and the Caribbean and San Diego near Mexico.
    California has a long and historic border with the sea, but 
California's ports are not close to many foreign destinations. In 
Northern California, there are no islands off the Coast, and San 
Francisco, Monterey, and Eureka must work especially hard just to get 
some port visits. The community of Eureka is a rural community trying 
to transition away from the logging industry, and they see this as one 
path open to them. They are strongly behind this measure.
    In Southern California, there is a similar example in Monterrey. 
The city is an active supporter of the Coalition, as is the Aquarium 
there and Pebble Beach. Because they are small and distant from Mexico, 
they must work especially hard to get any cruise visits, because cruise 
visits mean more revenues. Throughout California food and service 
providers tell me that they, too, can feel the positive effect of 
increases in the cruise ship business. Some of the cruise ships who 
visit Northern California ports will load up an entire year's worth of 
wine from California's vineyards at one time.
    As an example of what this bill could mean to California, I have 
heard from the hotel operators and restaurateurs, especially from San 
Francisco, who tell me that whenever a cruise ship calls on their port, 
they add more workers. This equates to more revenue for the businessmen 
and women, the City and the State.
    The Cruising America Coalition estimates this legislation could 
increase the number of port calls in California--this includes San 
Diego, L.A., Eureka, Monterey and Eureka--to 485 annually from both 
U.S.-flag and international flag cruise lines.
    The legislation would result in entry of two U.S.-flag cruise ships 
operating off the California Coast adding 125 calls to California. 
Additionally, 360 new cruise calls from international cruise lines 
could result under the limited waiver in the bill.
    The combined economic impact to tourism and maritime industries 
from opening up the California Coastal cruise market is projected to be 
$168 million to the State.
    Let me explain briefly how this bill will work in California. This 
bill will allow international-flag cruise ships to call on California 
ports, and pick up and drop off passengers, without having to visit a 
foreign port. Remember, every one of these international-flag ships can 
legally enter and depart any U.S. port. What this legislation intends 
is to do is to use these existing international-flag assets to 
rejuvenate a moribund industry. It intends to allow these ships, on a 
temporary and limited basis, to carry passengers in the domestic trade 
without touching a foreign port. Thus bringing more business to 
California's port areas and in the process proving to the American 
financial institutes that there is potential in this trade.
    Even though San Diego is getting an increased number of cruise 
ships, the San Diego port personnel still sit there and watch many more 
bypass them and go to Ensenada just so that they will be ``legal.'' A 
cruise ship that is to sail from San Diego to Hawaii, can load all its 
baggage and supplies in San Diego, but the passengers must be bussed 
down to Ensenada and be boarded there. Some ships do not even make the 
stop in San Diego, but go right on past. I believe this bill will help 
ease that problem, and also provide incentives for international-flag 
ships to reflag U.S.
    This bill allows for American businessmen and women to much more 
easily reflag foreign-built cruise ships into the U.S. domestic 
industry with the commitment to build replacement cruise ships in the 
U.S. Until now, each time an owner wanted to reflag a cruise ship it 
required a special piece of legislation for that cruise ship to be 
added to the U.S. fleet. This legislation would allow reflagging of any 
ship that the owner would commit to replace in the future with a U.S.-
built ship. These first cruise ships, even though built in foreign 
yards, would be manned by American seamen, officers and support crew, 
and they will help to rebuild the human infrastructure needed to 
revitalize the American cruise ship industry.
    This bill is not perfect; no bill is. The Cruising America 
Coalition believes there are too many restrictions on the use of 
existing assets, while the maritime unions believe there are too many 
concessions to these foreign assets. Consequently, it is probably a 
good bill, but we will work with all parties to continue to refine it 
as we move forward in the process.
    Thank you for your attention and your leadership and support in 
this effort.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
   Al Wallack, President, D'Arcinoff Group and Voyager Holdings, Inc.
    Question 1. As a company seeking to operate American cruise 
vessels, are there aspects of S. 1510 that you believe need to be 
strengthened or changed?

    Answer. We are confident that if properly implemented, the 
provisions of S. 1510 will allow for the operation of United States-
flag cruise vessels in the domestic trades. We believe it is extremely 
important that the Committee on Commerce, Science and Transportation 
and the Congress as a whole make clear its intention that the 
implementation of S. 1510 not discourage or penalize United States-flag 
cruise vessel operations. The so-called ``bumping'' provisions 
contained in this legislation must ensure that foreign flag cruise 
vessels cannot operate on itineraries that are comparable in scope, 
nature, and purpose to those offered by American flag cruise vessels. 
Equally important, United States laws should be applied equally to 
American flag and foreign flag cruise vessels. It is, in our opinion, 
critical that all cruise vessels in the domestic trade operate under 
the same rules, regulations, and tax obligations.

    Question 2. It is argued that S. 1510 is contrary to the 1997 
Cruise Ship Pilot Project and unfair to the company operating cruise 
ships in Hawaii. Do you agree?

    Answer. No, we do not agree. On the contrary, we believe the 
approach taken by S. 1510 regarding the operation of cruise vessels 
under the United States-flag and the construction of cruise vessels in 
an American shipyard properly reflect the realities of the cruise 
industry outside the intra- Hawaiian Island trade.
    The so-called ``pilot project'' legislation enacted in 1997 enabled 
the operator in Hawaii to proceed knowing he has the exclusive right to 
operate cruise vessels in this market. Obviously, the approach taken in 
that legislation is not available to any other American operator or to 
any other domestic cruise market. It is, however, the approach 
advocated by the Hawaii operator and the approach that has proven 
effective as that company proceeds with its plan to build cruise 
vessels in the United States.
    In contrast, S. 1510 takes another approach which we believe can be 
effective and which we strongly support. As we testified, S. 1510 would 
allow us to implement our strategy to acquire existing cruise vessels 
for operation under the United States-flag in the domestic cruise 
trades, while we negotiate for the construction of replacement vessels 
in an American shipyard.
    This approach is, in our opinion, the most realistic to help 
generate United States-flag cruise vessel operations. It acknowledges 
the fact that the existing operator in Hawaii and operators seeking to 
enter new coastwise itineraries, have different considerations that 
must be reflected in legislation. For example, it was appropriate to 
require the operator in Hawaii to enter into a ship construction 
contract as a precondition to his operation of a foreign built cruise 
ship in that trade because:
    (1) The Hawaii market has been developed for approximately twenty 
years and the operator in this market, unlike those of us who are 
seeking to operate cruise vessels in other domestic markets, had 
firsthand knowledge of the size and type of vessel and the amenities 
suitable for this particular market and could thereby enter into a 
contract with the benefit of firsthand, direct experience in the trade;
    (2) The operator in Hawaii was able to maintain his market presence 
while he engaged in negotiations with an American shipyard; and (3) The 
operator in Hawaii has been given the exclusive right to operate cruise 
vessels in this market, a protection not available to us or to any 
other operator in any other domestic cruise market.These factors are 
not applicable to other domestic markets. It is therefore appropriate, 
right, and fair to give operators who are seeking to develop new 
domestic itineraries an opportunity to operate cruise vessels before 
entering into a ship construction contract. To do otherwise would be 
unfair to Voyager and other companies seeking to serve American ports 
outside Hawaii.

    Question 3. Since foreign flag cruise vessels would be eligible to 
operate in the domestic cruise trades under this legislation, why would 
someone choose to operate a U.S.-flag cruise ship?

    Answer. We believe there are a number of reasons why it is 
advantageous to operate United States-flag cruise vessels:

    (1) United States-flag cruise vessels, and not foreign flag cruise 
vessels, can offer regular service between American ports during the 
first year after the enactment of S. 1510;
    (2) United States-flag cruise vessels can bump all comparable 
foreign flag cruise vessels from a comparable itinerary;
    (3) Only United States-flag cruise vessels can operate in the 
coastwise trade after December 31, 2006, and serve the domestic cruise 
markets that have been developed under this legislation; and
    (4) Only United States-flag cruise vessels can offer passengers the 
opportunity to deduct up to $2,000 of the cost of attending a 
convention, business meeting, or seminar on a vessel traveling between 
American ports.

    Question 4. Without S. 1510, there is at least one venture that 
claims it will enter the U.S. cruise industry by building cruise 
vessels without reflagging. Do you believe such a strategy is 
realistic?

    Answer. Based on years of experience in the cruise industry it is 
readily apparent that such an approach has not been utilized by 
successful cruise companies. We believe that reflagging, and the 
authority to operate reflagged vessels in the domestic trade, is 
critical as construction proceeds on larger, more modern cruise 
vessels. This has been the approach that led to the creation of 
Carnival Cruise Line and the approach being used today by American 
Hawaiian Cruises. Having the ability to operate a reflagged cruise 
vessel as a bridge to the delivery of a newly-built cruise vessel is in 
our opinion, the most realistic and proven strategy.
                                 ______
                                 
      Response to Written Questions Submitted by Hon. John McCain 
       to Allen Walker, President Shipbuilders Council of America
    Question 1. Not one large cruise vessel has been built in a U.S. 
shipyard in more than 40 years. What leads you to believe, as you state 
in your testimony, that current ``serious discussions'' will lead to 
anything more than ensuring that none will be built for the next 40 
years?

    Answer. American Classic Voyages has signed a contract to build two 
large cruise ships in a U.S. shipyard with an option for a third 
vessel. In addition, numerous smaller cruise ships have been built in 
medium-sized U.S. shipyards in recent years. In fact, two smaller 
cruise ships are under construction right now at Atlantic Marine in 
Jacksonville, Florida and Nichols Brothers Boat Builders in Freeland, 
Washington is in the process of converting a casino vessel into an 
overnight cruise vessel. Operators are also in discussions with U.S. 
shipyards to build at least three other 275 passenger overnight cruise 
ships. The industry believes strongly that the market in the U.S. for 
small and medium-sized cruise ships will continue to grow over the next 
few years. Once the door is open for large cruise ships, we believe 
that the small and mid-sized market will be the next target fororeign-
built, subsidized and often less safe cruise ships.

    Question 2. In an attempt to change the status quo and jump start 
U.S. shipbuilding, S. 1510 provides limited opportunity of 200 days 
over five years for foreign cruise vessels to test the domestic market 
to determine if the high cost of building is warranted. S. 1510 offers 
a way to get from no cruise ships to some ships, from no U.S.-built 
cruise vessels to some U.S.-built cruise vessels. Short of government 
subsidies or tax breaks, can you recommend a realistic alternative to 
S. 1510, which would not intrude on our other cabotage laws and still 
offer a realistic expectation for U.S.-built large cruise vessels?

    Answer. We understand and agree with the goals in S. 1510; however, 
we differ with the methods in S. 1510 to reach the goal of building a 
vibrant coastwise cruising industry in the U.S. SCA is anxious and 
willing to work with you, members of the Commerce Committee and others 
to devise legislation that offers a realistic expectation of new cruise 
ship itineraries in the coastwise trades and protects our domestic 
shipbuilding industrial base. We believe that the premise of any 
legislative initiative should include provisions that require vessels 
operating in the U.S. trades to be U.S.-flag, that the proposal should 
include enforceable requirements that all necessary conversion work and 
subsequent repair work on foreign-built vessels be performed in U.S. 
shipyards, and that an enforceable provision be included that will 
require foreign-built tonnage to be replaced by U.S.-built tonnage in a 
timely manner or that coastwise trading privileges be revoked. SCA 
believes that in exchange for coastwise operating privileges, these 
companies must make these minimum commitments.

    Question 3. You argue in your testimony that accelerated 
depreciation of vessels would enhance U.S. shipbuilding. If I were to 
agree that an accelerated depreciation proposal would be beneficial to 
facilitate financing, how would it create economic opportunities today 
for American ports and for those who are ready to operate cruise 
vessels in the domestic trades when it takes 4 years or more to 
construct large cruise vessels?

    Answer. One of the major obstacles to cruise ship construction in 
the U.S. is the lack of financing for untested operators and markets. 
We believe that accelerated depreciation would ease this situation and 
lead to more construction opportunities in U.S. shipyards. Certainly, 
ports and operators would not enjoy the benefits of accelerated 
depreciation immediately. In the interim, SCA may support waivers for 
foreign-built cruise ships for operators willing to make a commitment 
to the U.S. marketplace if it is apparent that such support would 
result in U.S. built cruise vessels. Evidence of this commitment would 
include a willingness to abide by all U.S. laws, including payment of 
U.S. taxes, willingness to begin discussions immediately with U.S. 
shipyards to replace foreign-built tonnage with U.S.-built tonnage and 
reasonable assurances that binding and enforceable contracts for 
replacement vessels would be signed in a timely manner.

    Question 4. When you argue against allowing foreign-built vessels 
into the domestic trade, do you include the foreign built vessel that 
will soon be operating in Hawaii and did your organization oppose the 
legislation that granted American Hawaii Cruises permission to use a 
foreign-built cruise ship in Hawaii?
    Answer. SCA was not asked to and we did not take a position on the 
legislation, which allowed American Hawaii Cruises to operate a 
foreign-built cruise ship in Hawaii. However, had we been asked, we 
would have supported this legislation and would support similar 
proposals in the future. We believe that the American Hawaii Cruise is 
the template and sets the bar for allowing foreign-built vessels into 
the U.S. domestic trade. American Hawaii Cruises agreed to sign a 
contract to build two large cruise ships in a U.S. shipyard and to 
operate the foreign-built cruise ship under the U.S.-flag before 
receiving a waiver to operate one foreign-built vessel in Hawaii. 
Furthermore, it is our understanding that the foreign-built cruise ship 
will be removed from U.S. service in a timely manner after delivery of 
the second U.S.-built cruise ship. We believe that this type of 
proposal could be used as a model for other efforts to grow the U.S. 
cruise ship market.

    Question 5. You argue that small, existing American cruise vessels 
will likely be hurt by larger foreign cruise vessels because larger 
vessels can charge less for a cruise in the same market. As you know, 
it is the intent of S. 1510 that American cruise vessels not be 
adversely affected by this legislation. How would you suggest S. 1510 
address this problem.

    Answer. One of the major reasons why we believe that small cruise 
ship operators would be damaged by provisions in S. 1510 is that the 
bill would allow certain foreign-flag cruise vessels of 9,000 gross 
tons or larger to operate in the U.S. marketplace. These vessels would 
be able to offer luxury accomodations at prices similar to or below 
smaller U.S.-flag cruise ships in the same markets. They can offer 
cruises at lower prices because of unfair tax and labor advantages that 
foreign-flag vessels enjoy. Foreign-flag cruise ships operating in the 
U.S. market would be tax exempt on all voyages except those voyages 
made between U.S. ports, while U.S.-flag vessels pay U.S. corporate 
income taxes on all voyages whether domestic or foreign. In addition, 
in markets where small U.S.-flag vessels have been operating, the 
infusion of large, foreign-flag cruise ships that offer substantially 
lower rates due to their tax and labor advantages would most assuredly 
hurt existing or new small U.S. cruise ship operators. To alleviate 
this situation, we suggest that the tonnage level of cruise ships 
covered under S. 1510 be raised to include only vessels greater than 
30,000 gross tons and that all foreign-built vessels receiving waivers 
to operate in the U.S. market be required to operate under the U.S.-
flag.

    Question 6. There is an impression in some quarters that U.S. 
repair yards charge U.S.-flag vessels more than foreign-flag operators 
for comparable work, on the theory that if the U.S.-flag repairs were 
done in a foreign yard the operator would have to pay Ad Valorem duty. 
To your knowledge is this the case?

    Answer. I have no knowledge of U.S. ship repairers charging U.S.-
flag operators more than foreign-flag operators for comparable work. 
There is ample ship repair competition in all areas of the U.S. market. 
Multiple shipyards compete for all ship repair work, both U.S.- and 
foreign-flag. Even if a U.S. shipyard decided on this strategy, they 
would most assuredly be undercut by another U.S. ship repair yard. In 
addition, there is anecdotal evidence that foreign government subsidies 
for ship repair work is on the rise, which has reduced the amount of 
foreign-flag repair work in U.S. shipyards leading to more competition 
for U.S.-flag repairs.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
 Lawrence H. O'Toole, President, National Marine Engineers' Beneficial 
                              Association
    Question 1. Why do you support S. 1510?

    Answer. The American working men and women of the MEBA strongly 
support S. 1510 because it represents the only realistic, workable 
approach to give American companies and American workers a fighting 
chance to make it in the U.S. domestic cruise industry. S. 1510 will 
provide critically important U.S.-citizen maritime jobs, and it will be 
a vital first step toward providing a real American presence in the 
large vessel cruise market. Today's market for vacation and business-
related cruises, on large, modern cruise vessels, is served almost 
entirely by foreign-flag vessel operations. If this situation is ever 
to change, and we believe it can, it will only be through the 
innovative approach envisioned in S. 1510. I believe that S. 1510 is 
the only feasible way for potential U.S.-flag cruise operators to test 
the market before making the huge capital investment in vessels for the 
U.S.-flag trade. Currently, American citizens are by far the largest 
group of cruise vacation passengers in the world. U.S. companies 
operating U.S.-flag vessels ought to share in this enormous and growing 
cruise market, a market that would deflate to virtually nothing were it 
not for the vacation dollars of American citizens.

    Question 2a. Both proponents and opponents of S. 1510 agree that 
certain aspects of the legislation are unprecedented. They particularly 
point to the fact that it will permit, temporarily, foreign-flag 
vessels into America's domestic cruise trade for the first time. You. 
MEBA, and its members have always been strong supporters of the Jones 
Act and the Passenger Vessel Service Act. Why do you think this change 
is necessary?

    Answer. This legislation calls for a temporary, limited waiver of 
the Passenger Vessel Services Act. This would create a short-term 
opportunity to use large, foreign-built and foreign-flag cruise vessels 
and foreign-built, U.S.-flag vessels to test the viability of new 
domestic cruise markets. There should be no mistaking the fact that 
such a waiver represents a marked departure for us. Maritime labor has 
long defended America's domestic shipping statutes, including the 
Passenger Vessel Services Act. But, it has become abundantly clear to 
us that if something is not done, if a new and different approach is 
not tried, the cruise market in America will continue to be dominated 
by foreign-flag vessel operators, and there will be no opportunities 
for American workers and American companies to make any inroads into 
this constantly growing industry. Further, our support for S. 1510 in 
no way conflicts with our continuing and wholehearted support for the 
Jones Act. MEBA always has been, and will continue to be, a strong 
defender of the Jones Act. The Jones Act will not be harmed as a result 
of this legislation. But, remember, S. 1510 is about passengers; it's 
not about cargo. We would agree wholeheartedly with the approach of 
Chairman McCain to keep these two areas entirely separate. I do not 
know how it could be made more clear. This legislation is not about the 
Jones Act; it's about building the foundation of a U.S.-flag, U.S.-
built, U.S.-crewed presence in the United States cruise trade. It's a 
practical way to get from where we are today--only one large U.S.-flag 
cruise vessel--to where we ought to be in the future--a fleet of cruise 
vessels with the American flag flying with pride.

    Question 2b. Do you believe this legislation (S. 1510) gives an 
American cruise vessel a realistic opportunity to compete against a 
foreign flag cruise vessel?

    Answer. Yes, I do. I believe this legislation is designed to create 
a strong and expanding market whereby an American cruise passenger can 
travel on a U.S.-flag vessel from one U.S. port to another without 
first stopping at an intermediary foreign port either for pleasure or 
as part of a business convention. Only U.S.-flag cruise vessels can 
offer their passengers the advantage of the ``convention tax 
deduction''. And, only U.S.-flag cruise vessels will be allowed to 
operate between American ports without stopping in a foreign port after 
December 31, 2006.

    Question 2c. Do you think that the protections built into this 
legislation concerning foreign vessel operations are adequate?

    Answer. Yes, I do believe the protections are adequate because 
under S. 1510:

          Foreign-flag cruise vessels cannot operate on a route 
        that is comparable to a route served by a U.S.-flag cruise 
        vessel, and further, if a U.S.-flag cruise vessel wants to 
        enter a market where a comparable foreign-flag vessel already 
        has existing service, then the U.S.-flag cruise vessel can 
        ``bump'' the foreign-flag vessel from that route;
          only a U.S.-flag cruise vessel can operate regular 
        cruise service between two American ports during the first year 
        after enactment of this legislation; foreign-flag cruise 
        vessels must comply with all U.S. rules and regulations 
        relating to health, safety, environmental protection and other 
        operating standards as set out by the Secretary of 
        Transportation;
          foreign-flag cruise vessels will be subject to U.S. 
        corporate taxes on the income earned during the domestic 
        portion of their operations; and
          only U.S.-flag cruise vessel passengers can deduct up 
        to $2,000 of the cost of attending a convention, business 
        meeting, or seminar on a cruise vessel traveling between 
        American ports--a potentially huge market not available to 
        foreign-flag ships.

    In short, U.S.-flag incentives are significant; foreign-flag 
vessels will have to meet Department of Transportation requirements; 
and the foreign-flag presence will be out on a date certain.

    Question 3. A great deal of concern has been expressed that the 
legislation does not specifically state which U.S. laws would apply to 
foreign vessels. Do you think the process contained in S. 1510 is 
sufficient?

    Answer. Yes, I do. I believe it is the clear intent of this 
legislation that U.S. laws apply equally to all vessels in our U.S. 
cruise trade. Any foreign-flag vessel brought into the domestic trades 
under this bill will have to comply with all U.S. rules and regulations 
relating to health, safety, environmental protection and other 
operating standards, as set forth by the Secretary of Transportation. 
And these foreign-flag vessels will be subject to U.S. corporate income 
tax on the income they earn during the domestic portion of their 
operations. I have full confidence in the process set forth in S. 1510, 
and I have full confidence that the Secretary of Transportation will 
ensure that the playing field is level and fair to U.S. entrants.

    Question 4. Are you concerned about the impact of this legislation 
on other domestic shipping statutes and trades?

    Answer. Absolutely not. The MEBA has always been, and will continue 
to be, strong defenders of the Jones Act, because it remains essential 
to the economic and national security of the United States. S. 1510 
contains language specifically stating that the limited use of foreign-
built cruise ships in the domestic trades shall not affect or modify 
the requirements applicable to the carriage of cargo under the Jones 
Act. Furthermore, the cruise industry and cargo industry are two 
totally different industries and two completely different markets. As I 
said in my answer to question 2a, S. 1510 will in no way affect the 
Jones Act. We have a strong domestic seagoing cargo industry in the 
United States, and we have a minuscule U.S.-flag cruise industry, 
except for relatively small commercial passenger vessels. I can assure 
you that we would never be part of any plan that would weaken the Jones 
Act. Far from weakening the Jones Act, I believe that in the long run, 
S. 1510 will actually strengthen it, because if we succeed, then we 
will prove that it is possible, that we can get the job done, and that 
there can be an American alternative in the cruise market.
    Under the leadership of Chairman McCain, our maritime labor unions 
have sought compromise with other interests, and we are proud to have 
played a role in producing a proposal that gives our members and the 
American companies they work for a real shot at success.

                                 ______
                                 

October 5, 1999

The Honorable Daniel Inouye
United States Senate
Senate Commerce Committee
Washington, DC 20510

RE: S. 1510, Senate Commerce Hearing on October 6, 1999

Attention: Cameron Naron

Dear Senator Inouye:

    On behalf of the thousands of workers employed by the shipbuilding 
industry, we urge you to oppose S. 1510, the United States Cruise Ship 
Tourism Development Act, which would gut the Passenger Vessel Services 
Act (PSA) by allowing foreign-built and owned cruise ships to operate 
in the U.S. domestic trade.
    U.S. shipbuilders have recently reentered the commercial cruise 
ship construction market, after a 40-year absence. Ingalls Shipbuilding 
of Pascagoula, MS is constructing two large 1900-passenger oceangoing 
cruise ships, with options for more. The state-of-the-art passenger 
cruise ships will be built to meet U.S. safety and environmental 
standards, and this construction project will create thousands of 
highly skilled jobs in U.S. shipyards, in the supplier base, and on 
board the vessels once delivered.
    S. 1510 would allow foreign built vessels to operate in the U.S. 
domestic trade for up to 200 days. After 200 days, or the year 2006, 
the foreign-built and owned cruise ship would be required to re-flag in 
the United States or lose its coastwise privileges. Although the bill 
states that a U.S.-built, U.S.-flag ship could bump a foreign ship from 
the trade, in practice a bumping provision would not be executable for 
a myriad of reasons. Additionally, amending the Passenger Vessel 
Services Act, as proposed by S. 1510, will jeopardize thousands of 
shipbuilding manufacturing jobs and the multi-billion dollar market 
potential for construction of cruise ships in the United States.
Accordingly, we ask you to oppose S. 1510.

Sincerely,

Ande M. Abbott,
Director of Legislation & Shipbuilding,
International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers & Helpers

Luckie McClintock,
Legislative Director,
United Association of Plumbers & Pipefitters

Vincent A. Panvini,
Director of Governmental Affairs,
Sheet Metal Workers' International Union

Rick Diegle,
Legislative Director,
International Brotherhood of Electrical Workers

Alan Reuther,
Legislative Director,
International Union, United Automobile, Aerospace,
Agricultural Implement Workers of America - UAW

Richard P. Michalski,
Director of Legislation,
International Association of Machinists and
Aerospace Workers

Michael E. Mathis,
Government Affairs,
International Brotherhood of Teamsters

Donald Kanlewski,
Legislative Director, Laborers International Union

H. Page Groton,
Legislative Director,
Metal Trades Department, AFL-CIO

William J. Klinefelter,
Assistant to the President, Legislative Political Director,
United Steelworkers of America
      
                                 ______
                                 
        International Brotherhood of Painters and Allied Trades
October 5, 1999

The Honorable Daniel K. Inouye
United States Senate
722 Hart Senate Office Building
Washington, DC 20510-1102

Dear Senator Inouye:

    On behalf of the several thousand members of the International 
Brotherhood of Painters Allied Trades who are directly employed in the 
shipbuilding industry, we urge you to oppose S. 1510, the United States 
Cruise Ship Tourism Development Act. This bill would effectively gut 
the Passenger Vessel Services Act (PSA) by allowing foreign-built and 
owned cruise ships to operate in the U.S. domestic trade.
    U.S. shipbuilders have reentered the commercial cruise ship 
construction market, after a 40-year absence. Ingalls Shipbuilding of 
Pascagoula, Mississippi is constructing two large 1900-passenger 
oceangoing cruise ships, with options for more. The state-of-the-art 
passenger cruise ships will be built to meet U.S. safety and 
environmental standards, and this construction project will create 
thousands of highly skilled jobs in U.S. shipyards, in the supplier 
base, and on board the vessels once delivered
    S. 1510 would allow foreign built vessels to operate in the U.S. 
domestic trade for up 200 days. After 200 days, or the year 2006, the 
foreign-built and owned cruise ship would be required to re-flag in the 
United States or lose its coastwise privileges. Although the bill 
states that a U.S.-built, U.S.-flag ship could bump foreign ship from 
the trade, in practice a bumping provision would not be executable for 
a variety of reasons.
    Amending the Passenger Vessel Services Act, as proposed by S. 1510, 
will jeopardize thousands of shipbuilding manufacturing jobs and the 
multi-billion dollar market potential for construction of cruise ships 
in the United States.
    Accordingly, we ask you to oppose S. 1510.
            Sincerely yours,

                                          Michael E. Monroe

                                                  General President
                   American Shipbuilding Association
October 1, 1999

The Honorable Daniel Inouye
United States Senate
722 Hart Senate Office Building
Washington, DC 20510-1102

Dear Senator Inouye:

    On behalf of the American shipbuilding industry, the American 
Shipbuilding Association asks you to oppose S. 1510, the United States 
Cruise Ship Tourism Development Act. This legislation would amend the 
Passenger Vessel Services Act to the detriment of the shipbuilding 
industrial base of the United States.
    S. 1510 would allow foreign-built and foreign-owned vessels to 
operate in the U.S. domestic trade for up to 200 days, or the year 
2006, which ever comes first. Only then would those foreign-flag ships 
be required to re-flag in the United States, or lose their coastwise 
privileges. Even though the bill provides for a ``bumping provision'' 
whereby U.S.-built and U.S.-flagged ships would have a preference and 
could ``bump'' foreign-built and foreign-flagged ships from the trade, 
in practice, it is doubtful that any ship would be removed from the 
trade. Furthermore, the fact that a foreign-built ship is operating in 
the domestic trade would make it very difficult for art American 
company to secure financing to build a ship for a market that is 
already being served.
    Understandably, some American ports would like to have more cruise 
ships calling at their docks--regardless of where they are built or 
registered. This increase in traffic would increase revenue for the 
ports, the local food service companies, and local tourism. While these 
jobs are important, they only touch the surface of a potentially 
tremendous economic boost that the U.S. economy would realize through 
the expansion of the high-tech ship engineering and manufacturing 
sector that should rightfully serve this market. Building an American 
cruise industry will create thousands of highly skilled engineering and 
manufacturing jobs in our shipyards and in the supplier base that is 
located in 17 states.
    At a time when U.S. Navy shipbuilding is at a historic low, 
commercial shipbuilding contracts must be secured by U.S. shipbuilders 
if the defense industrial base is to be sustained. Oceangoing cruise 
ships comprise a large market potential for U.S. shipyards. This year, 
Ingalls Shipbuilding of Pascagoula, MS began construction of two state-
of-the-art 1,900-passenger cruise ships, with options for more. Other 
U.S. companies also plan to place orders soon with U.S. shipyards for 
the construction of large oceangoing cruise ships. This market should 
he nurtured to provide maximum benefit to the U.S. economy, not 
jeopardized by legislation that would surrender it to foreign 
interests.
    American ownership, construction, and operation of cruise ships for 
the U.S. domestic trade benefits all Americans. Accordingly, I ask you 
to oppose S. 1510 and declare your support for a true American cruise 
industry -- one built by Americans for Americans.
            Sincerely,

                                           Cynthia L. Brown

                                                          President
                                 ______
                                 
                      American Classic Voyages Co.
October 5, 1999

The Honorable John McCain
Chairman
Senate Commerce, Science, and Transportation Committee
United States Senate
Washington. DC 20510

Dear Mr. Chairman:

    Thank you for inviting me to testify at the Senate Commerce 
Committee's hearing on S. 1510, the United States Cruise Ship Tourism 
Development Act of 1999. Unfortunately, I will be unable to do so.
    As you may know, American Classic Voyages is currently in the midst 
of a major program to expand its U.S.-flag, U.S.-crewed, U.S.-built 
fleet of passenger ships. Indeed, this is an especially busy time for 
us. In May, our Delta Queen line acquired and is currently rebuilding 
the Columbia Queen to begin operations on the Columbia River next year. 
It will be our fourth river cruise ship. In August, we began cutting 
steel to construct two new passenger ships that will sail along the 
east and west coasts beginning in 2001. In addition, we are well 
underway to constructing, at Ingalls Shipbuilding, the two largest 
cruise ships ever built in the United States. Design work is being 
finalized, key components are being ordered, and fabrication is set to 
begin next summer on these 1,900 passenger ships. We also have a 
contract to purchase an interim, foreign-built vessel--which we will 
redocument under U.S. flag--for operation in Hawaii beginning in the 
fourth quarter 2000. Finally, we will he unveiling a new ``brand'' for 
our large passenger ships in the next three weeks.
    We very much support increasing cruising opportunities for 
Americans through the expansion of the U.S.-owned, U.S.-crewed, and 
U.S.-built passenger fleet. We commit to you, as we did to Mr. Rob 
Freeman, to work with you on legislative proposals that will promote 
and expedite the development of such a U.S.-flag cruise fleet. 
Unfortunately, we believe S. 1510, as currently drafted, does not do 
so. It would allow foreign-flag cruise ships to operate in our domestic 
trades, would adversely affect ourplanned operations, and we would have 
to oppose the bill.
    We do, however, look forward to working with you and your staff to 
develop legislation that would further develop the U.S.-owned, U.S.-
flag, U.S.-built cruise industry. We already have discussed with Mr. 
Freeman a meeting with our General Counsel for later in October to work 
on substantive proposals.
Best regards.
            Sincerely,
                                              Philip Calian
                              President and Chief Executive Officer
                                 ______
                                 
October 6th, 1999

The Honorable John McCain
and Members of the Committee

    I am forwarding a statement by the National Association of Cruise-
Oriented Agencies in support of S. 1510, the ``United States Cruise 
Ship Tourism Development Act of 1999.''
    NACOA is composed of more than 800 specialized travel agencies 
across the country. Together, the membership sells over half of all 
cruises in the United States. We are made up of retirees, minorities, 
stay-at-home moms and small business owners. We represent ``bread and 
butter'' America. The impact of the proposed legislation on our 
businesses, our port communities and for our clients can be very 
substantial and very positive.
    We urge you to support S. 1510.
    On behalf of NACOA, please contact me if I can provide further 
information or otherwise assist you on this matter.
Thank you.
            Yours truly,

                                       Mary S. Brennan, MCC

                                 Chairperson, Legislative Committee

    The National Association of Cruise-Oriented Agencies endorses the 
"United States Cruise Ship Tourism Development Act of 1999," S. 1510 as 
intelligent, proactive and bipartisan legislation.
    NACOA is composed of more than 800 specialized travel agencies 
across the country. Together, the membership sells over half of all 
cruises in the United States. We are made up of retirees, minorities, 
stay-at-home moms and small business owners. We represent "bread and 
butter" America. The impact of the proposed legislation on our 
businesses, our port communities and for our clients can be very 
substantial and very positive.
    Mr. Chairman. Our cruise customers come from every State and 
Territory in the United States, and they are growing in number and 
influence rapidly. The fastest growing segment of the travel industry 
is cruising. The United States of America has thousands of miles of 
coastline. Over 80% of Americans live within 500 miles of coastal 
waters. Americans love to cruise. Yet, despite the natural opportunity 
that has existed since the advent of leisure cruise vacations in the 
1960's, there is still virtually no large, ocean-going U.S. cruise 
industry. We can book cruises on small coastal ships, but I cannot book 
passengers on any U.S. ocean-going cruise ship outside of Hawaii.
                               __________
    The Passenger Services Act of 1886 protected US ferryboats by 
prohibiting Canadian competition among US ports in the Great Lakes. The 
ferryboats have long since disappeared, but the law prohibiting foreign 
vessels from operating among US ports remains in effect. Today, the Act 
protects a small American fleet of mostly riverboats and small ships 
catering to a tiny segment of the travel market. There are no 
oceangoing, sizable U.S. cruise ships, except for one ship in Hawaii, 
with potentially two more new ships in that State after their operator 
received a 30-year monopoly.
    In the 1960's, bright entrepreneurs turned the tragedy of a dying 
trans-Atlantic ocean liner industry into the rise of a creative new 
vacation product. The ships evolved from modes of transportation to a 
vacation destination. They invented a luxurious vacation at a price 
accessible not only to the wealthy but to the middle class. Today, 
cruise ship vacations allow the Baltimore City worker, the Hibbing 
schoolteacher, and the Kansas City postman to feel special and be 
pampered in Ritz like conditions. The foreign-flag cruise industry has 
opened up new vacation choices to a whole new segment of Americans that 
never traveled before.
    We believe that S. 1510 represents a compelling compromise that 
should move this industry forward. It is bi-partisan, and includes port 
authorities, the travel industry, maritime labor and Americans across 
the country. This bill has achieved wide support from those who can so 
clearly see its possibilities.
    Over four decades, innovative cruise products, skillful marketing 
and public recognition of great vacation values resulted in cruise 
sales growing faster than any other segment of travel, year after year. 
Because of PSA-imposed restrictions, cruise clients have to leave the 
US during their vacation. They cannot board at one US port and 
disembark at another, and the voyage must include a foreign port.
    What is cruising and who does it? An exhilarating escape from 
everyday reality and stress, a cruise takes vacationers on a voyage of 
pampering, relaxation, sightseeing and soft adventure, with a bit of 
education tossed in. With the choices offered for dining, activities 
and entertainment, cruising allows people with differing tastes to 
still enjoy their vacations together. Within the anxiety-free 
environment of a cruise, my clients have had wonderful vacations and 
rediscovered many things about themselves and the world around them.
    I speak to passengers every day on the telephone, and they want 
more cruise vacation choices. The profile of the typical cruiser has 
changed over these past four decades. Once, the passengers may have 
been quite well to do and advanced in years, and they had the means and 
time to afford longer cruises. Today, the passengers could be seventy-
year-old pensioners, baby boomers paying their kids' college tuition 
and saving money for retirement; a thirty-five year old couple with two 
kids, or a newlywed couple. Annual incomes for these new passengers can 
start below $30,000. In fact, families make up the swiftest growing 
demographic in cruising. And the middle class represents the greatest 
number of cruisers in America. With the huge, new, efficient fleet of 
ships in the cruise industry, a middle class family can experience 
luxury usually available only to the wealthy.
    Cruising is also the safest form of travel in the industry, safer 
than driving, flying or traveling by train. Those who claim that 
cruising is not safe or desirable seem to find their voices only when 
this legislation comes up for a hearing. Yet, their concerns do not 
bear up under scrutiny. As I stated in past testimony, we do not put 
our clients on unsafe ships.
    We need and want a US cruise industry that meets the requirements 
of our demographics. When I qualify a prospective cruise passenger, I 
learn what cruise products they can afford--mass market versus a high-
end cruise. I also learn about their interests, whether they prefer 
soft adventure cruising close to glaciers or lots of entertainment on a 
big ship. Based on a detailed evaluation, I know whether to recommend 
Alaska Sightseeing versus Holland America. The products are totally 
different. The marketing brochures for Alaska Sightseeing or Clipper 
cruises highlight those differences by promoting the ``small ship'' 
adventure nature of their cruises. Both the U.S. smaller cruise lines 
and the large foreign cruise lines have unique niches. Alaska 
Sightseeing is indeed thriving in its business in an area where during 
any given season there as many as 30 foreign flag cruise vessels, 
because both products are distinct.
    If S. 1510 passes, who wins? We all do! This bill opens up cruises 
to many more Americans who are limited by time, funds or mobility from 
enjoying these vacations now. It spreads the increasing wealth of 
cruising to more and more of our port communities, through seasonal 
home-porting and delivering more international and domestic visitors on 
day visits during voyages. Cruising stimulates tourism by creating a 
tide of interest wherever it goes, benefiting hotels, restaurants, and 
local tour operators and shop owners. Under this bill, U.S. shipyards 
must be awarded repair jobs while ships run domestic routes.
    In a few years, assuming the expected demand for cruising in 
America booms and this bill passes, cruise lines will want to reflag 
vessels U.S. American shipyards will win new orders, American pilots 
would begin to reverse their shrinking numbers, and American sailors 
will find new jobs.
    If the bill fails, who loses? We all do. There will still be only 
one or two ships plying between the Hawaiian Islands and the fleet of 
U.S. small boats and ships will not find their vessels filling from the 
growing ranks of cruisers in America and from abroad. Our dockworkers 
will lose out on ship calls, and our shipyards will lose out on repairs 
and new construction. America's 100,000 travel agents will lose out on 
sales, and there will be less cruising opportunity for the American 
public!
    S. 1510 opens the door to test the large, ocean-going U.S. domestic 
cruise ship market with itinerary lengths and destinations that will 
bring in new customers and bring back repeat customers interested in 
new trips.
    The current law is not working, Mr. Chairman, and I believe this 
compromise provides us with the opportunity to try something new. This 
industry needs that chance. Please pass S. 1510.
                                 ______
                                 
                American Association of Port Authorities
September 23, 1999

The Honorable John McCain
Chairman
Senate Committee on Commerce, Science, and Transportation
Washington, DC 20510-6125

Dear Mr. Chairman:

    The U.S. public port community applauds your leadership in seeking 
a solution to stimulate the domestic cruise market in the United 
States. We support your introduction of S. 1510, the U.S. Cruise Ship 
Tourism Development Act, as an appropriate compromise approach.
    As you are aware, AAPA represents virtually all major public port 
authorities and agencies in the United States. AAPA members are public 
entities mandated by law to serve public purposes, primarily the 
facilitation of waterborne commerce and the consequent generation of 
local and regional economic growth.
    U.S. public ports have seen many business opportunities lost 
because of the restrictions contained in the 113-year old Passenger 
Services Act (PSA). Passenger cruise business results in tremendous 
economic benefits for ports and port cities. Unfortunately, many ports 
have not been able to reap those benefits because of the restrictions 
in the PSA.
    Unfortunately, the current law has not resulted in any significant 
job protection for U.S. citizens. Rather, it has cost U.S. jobs that a 
revived U.S. coastwise cruise industry would create on the waterfront 
and in related tourism and supplier industries.
    S. 1510 will permit testing of market conditions by foreign-flag 
ships and also provides significant incentives to jump start a U.S.-
flag industry. AAPA believes that the bill will promote cruise 
opportunities and help stimulate the economic benefits that our members 
are charged to develop for their states and local areas. We look 
forward to working with you on this important legislation.
            Sincerely,

                                              Kurt J. Nagle

                                                          President
                                 ______
                                 
October 1, 1999

The Honorable John McCain
United States Senate
Washington, DC 20510

Dear Senator McCain:

    On behalf of the American Hotel & Motel Association, I applaud your 
sponsorship of S. 1510, the U.S. Cruise Ship Tourism Development Act. 
This legislation is important to the tourism industry, particularly in 
coastal and Great Lakes states. The American Hotel & Motel Association 
(AH&MA), a federation of state and local lodging associations, 
represents this nation's hotel and motel industry. Over 47,000 lodging 
properties with more than 3.6 million rooms and over 1.1 million 
employees exist in the United States. Our industry's annual sales 
exceed $60 billion and our payroll exceeds $17 million. AH&MA's 
membership ranges from the smallest independent properties to the 
largest convention hotels. S. 1510 will create new job opportunities 
for all sectors of the tourism industry, including the lodging 
industry, which would benefit from the rapid growth in cruise 
vacations. Cruise customers utilize lodging accommodations before and 
after their cruises. Their visits provide a great marketing opportunity 
for communities to encourage cruise visitors to return at a later date. 
If this bill becomes law, cruise passengers will have greater 
opportunities to spend more time in U.S. cities, thereby creating more 
jobs and revenue.
    AH&MA strongly endorses S. 1510. Your leadership and support can 
make a difference in helping generate new business and job 
opportunities for the lodging industry.
    We appreciate your consideration of our views.
            Sincerely,

                                            John P. Connors
                                 ______
                                 
                  Association of Retail Travel Agents
5 October 1999

The Honorable John McCain
Chairman
U.S. Senate Committee on Commerce,
Science, and Transportation
Washington, DC 20510-6125

Dear Chairman McCain:

    On behalf of almost five thousand small-business-sized retail 
travel agents who belong to our association, I want to thank you for 
introducing S. 1510 (the U.S. Cruise Ship Tourism Development Act) as a 
means of stimulating free and open competition in the domestic cruise 
market.
    Our member agents are the ``moms and pops'' who own and operate 
America's hometown neighborhood travel agencies. These businesses would 
benefit greatly from the ability to sell more domestic cruises as part 
of a revitalized U.S.-flag industry. Beyond our members, the millions 
of consumers we serve would benefit from the greater levels of 
competition and new business opportunities that S. 1510 would foster.
    We appreciate the fact, that you recognized the need for changes in 
the existing Passenger Services Act, which has unfortunately dampened 
domestic cruise competition and the creation of new jobs at U.S. ports 
which would result from U.S.-flag business.
    You have our members' full support for this measure, and we look 
forward to working with you to insure its passage.

Respectfully yours,

John K. Hawks, APR

President
                                 ______
                                 
October 5, 1999

The Honorable John McCain
Chairman
Senate Commerce Committee
Washington, DC 20510

Dear Mr. Chairman:

    The American Society of Travel Agents, ASTA, salutes your 
leadership role in addressing the inequities of coastwise cruising 
created by Passenger Service Act of 1886 (PSA). Your bill, S. 1510, the 
United States Cruise Ship Tourism Development Act of 1999, provides a 
viable and reasonable approach of allowing international flag cruise 
lines to cruise between U.S. ports for a limited amount of time (200 
days per ship until December 31, 2006). As a member of the Cruising 
America Coalition, ASTA is in full support of S. 1510 and looks forward 
to its passage.
    The travel agency community sells approximately 95 percent of all 
cruises. Today, cruise vacations are among the best valued travel 
products on the market but diversity in U.S. cruise itineraries are 
lacking. By allowing more cruise ships into the U.S. domestic trade, 
the public will have more choices. Since 1980, the cruise industry has 
had an average annual growth of eight percent and the two-day and five-
day cruises have emerged as the hottest segment of the cruise vacation 
business with a 407.5 percent growth. By the year 2000, 6.5 million 
passengers per year will cruise. With the prospect of 47 new ocean 
liners being introduced into the marketplace by 2004, U.S. port cities 
in Texas, Washington, Massachusetts, South Carolina, Pennsylvania and 
Maryland have already developed infrastructures in anticipation of this 
growth market.
    Legislatively, S. 1510 is a good example of righting a wrong. 
Changes to the PSA are long overdue. As each year goes by, consumers 
are denied the wonderful experience of exploring the U.S. coastlines 
through coastwise cruising opportunities. More importantly, without 
this legislation the U.S. economy stands to lose thousands of tourism 
dollars generated for ports-of-call by cruise ships.
    Again, Mr. Chairman. ASTA applauds your efforts in this worthwhile 
cause.
            Sincerely,

                                         Joseph L. Galloway

                                                    President & CEO

                                 ______
                                 

October 4, 1999

Senator John McCain, Chairman
U.S. Senate Committee on
Commerce, Science, and Transportation

Dear Senator McCain:

    SeaAmerica Cruise Lines, Inc. ("SeaAmerica") thanks you for your 
invitation to comment on S. 1510 and appreciates your interest in 
promoting the U.S. cruise market bill. As we previously advised, 
SeaAmerica regrettably had prior commitments and will be unable to 
attend the hearing. Unfortunately, SeaAmerica feels that 
S. 1510 falls short of what is truly needed to benefit the U.S. cruise 
market.
    SeaAmerica has been organized to own and operate a U.S.-flagged 
cruise line--operating U.S. port to U.S. port--to meet the demands of 
the business meeting and convention business, as well as the leisure 
cruise traveler. SeaAmerica will build three 41,000 ton passenger ships 
designed to provide a conference center hotel environment aboard luxury 
cruise ships. The ships will be completely built in America.
    SeaAmerica is actively negotiating with several U.S. shipyards who 
have expressed an interest in building SeaAmerica's vessels. SeaAmerica 
has engaged one of the world's leading cruise ship design firms which 
is currently working on the design for SeaAmerica's vessels. SeaAmerica 
has also entered into strategic partnerships with a number of industry 
leaders and labor, all of whom support the SeaAmerica project.
    SeaAmerica does support the provisions of S. 1510 that give U.S. 
built cruise ships a priority over foreign-flagged vessels in certain 
markets. But, SeaAmerica opposes any bill that would allow foreign-
flagged operators to operate foreign-flagged vessels in the U.S. 
coastwise trade. Those provisions will only deter U.S. investment in 
the U.S. cruise market, and instead will encourage foreign-flagged 
operators to do the minimum required to operate within the U.S.
    Instead of focusing on trying to get existing foreign-flagged, 
foreign-owned operators to enter the U.S. cruise market, SeaAmerica 
believes that the U.S.-flagged cruise industry needs incentives that 
will encourage U.S.-based owners and operators to enter the market and 
increase competition with the current foreign-flagged fleet. To do 
this, the U.S.-flagged cruise industry needs, among other things, tax 
incentives, favorable financing schemes, and itinerary priorities for 
U.S.-flagged passenger vessels.
    While there are a number of issues that have been adequately 
addressed by other interested parties that are opposed to S. 1510, 
SeaAmerica would like to emphasize two points. First, in its current 
form, S. 1510 would allow large foreign-flagged operators to rotate two 
foreign flagged vessels under the provisions of S. 1510 such that the 
foreign-flagged operators could offer cruise passengers a year round 
U.S. itinerary, without the requirement for a U.S. crew. At the same 
time, S. 1510 provides little or no definition as to the nature of the 
plans a foreign-flagged operator would have to have for the 
construction of a cruise vessel in the U.S.
    Second, the $5.00 per passenger surcharge will do little or nothing 
to promote the U.S. cruise industry. Even if a foreign-flagged vessel 
was operating at full capacity, with 2,000 passengers per week, this 
would result in only $520,000 per year being generated by each foreign-
flagged vessel being operated under the Act. Compared to the extremely 
high capital costs of entering the cruise industry, and in particular 
the extremely high price for construction of new vessels (in the U.S. 
or elsewhere), any funds that could be generated by the $5.00 per 
person fee would be insignificant toprovide any meaningful economic 
incentives for an emerging U.S. cruise fleet.
    Again, SeaAmerica is encouraged by your interest in promoting the 
American-flag cruise industry. SeaAmerica is eager to work with you to 
achieve the goals of the U.S.-flag cruise industry. Unfortunately, 
SeaAmerica feels that S. 1510 does not meet the goals of the U.S.-flag 
cruise industry and in many respects is in conflict with those goals. 
For these reasons, SeaAmerica opposes the passage of S. 1510.

Albert L. Frevola, Jr.

General Counsel, SeaAmerica

                                 ______
                                 

                      Maritime Cabotage Task Force
                             -- Summary --
Cabotage In U.S. Domestic Passenger Transportation

  The cabotage principles embodied in the Passenger Vessel 
Services Act (PVSA) are not unique to the maritime industry--similar 
requirements exist in every other mode of domestic passenger 
transportation, including aviation. The prohibition on foreign 
registered ships transporting passengers in U.S. coastwise trade is no 
different than U.S. laws prohibiting foreign registered air carriers 
from engaging in domestic air transportation.

The PVSA Is Working Well

  Although over 3,600 U.S-flag passenger vessels carry 
approximately 100 million passengers each year and the United States 
hosts the world's largest ocean cruising industry, the U.S. industry is 
continuing to grow and modernize--

          23 new vessels recently delivered or under 
        construction, including 10 carrying 300 or more passengers;
          new 200-250 passenger U.S-flag coastal cruise ships 
        are under construction for U.S. East, Gulf and West Coast 
        markets; and
          2 new 1,900 passenger U.S-flag cruise ships are under 
        contract for the Hawaii market.

  The fact that today there is only one U.S-flag passenger 
vessel greater than 10,000 grt in the ocean cruise segment of the 
industry or that there are U.S. ports not served by such vessels has 
little to do with the PVSA and a lot to do with other factors such as:
          The easy access of foreign ships to the U.S.-based 
        cruise market;
          U.S. tax and other laws that make it difficult for 
        American cruise ships to compete directly against foreign ships 
        not subject to those laws; and
          The over 40 years that have passed since a U.S. 
        shipyard built a large oceangoing cruise ship--a fact being 
        remedied by the U.S.-Flag Cruise Ship Pilot Project.

Building a U.S.-Flag, U.S.-Built Ocean Cruise Industry

  The Task Force strongly supports the Committee's objective of 
increasing domestic ocean cruising opportunities for the American 
traveling public and for U.S. ports--but with U.S. owned and operated, 
U.S-flag ships, built in U.S. shipyards and employing American crews. A 
strong U.S. industry cannot be achieved by opening the domestic cruise 
market to foreign-flag, foreign crewed ships, operated largely outside 
U.S. laws by foreign owners--such as would be allowed under S. 1510, 
the United States Cruise Ship Tourism Development Act of 1999. For that 
reason, the Task Force has noted its opposition to S. 1510.
  The radical departures from U.S. maritime and transportation 
policy urged by proponents of S. 1510, with no guarantee that when the 
benefits conferred on foreign operators by the Act, expire after 2006 
there would be any commitment to a U.S. industry, are not necessary to 
the goal of creating a viable U.S. ocean cruise industry. We do not 
need to transfer the economic benefits of domestic cruising to foreign 
shipowners to build a viable U.S. ocean cruise industry.
  As Congress faces the challenge of fostering future growth in 
the U.S. ocean cruise industry, the Task Force urges it to pursue only 
solutions embodying the following principles:

          U.S. flag
          U.S. crew
          U.S. owned and operated
          U.S. new construction

[Full 37-page statement is retained in the Committee's files.]

                                
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