[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
REBUILDING VESSELS UNDER THE JONES ACT
=======================================================================
(110-137)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JUNE 11, 2008
__________
Printed for the use of the
Committee on Transportation and Infrastructure
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia, JOHN L. MICA, Florida
Vice Chair DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of JOHN J. DUNCAN, Jr., Tennessee
Columbia WAYNE T. GILCHREST, Maryland
JERROLD NADLER, New York VERNON J. EHLERS, Michigan
CORRINE BROWN, Florida STEVEN C. LaTOURETTE, Ohio
BOB FILNER, California FRANK A. LoBIONDO, New Jersey
EDDIE BERNICE JOHNSON, Texas JERRY MORAN, Kansas
GENE TAYLOR, Mississippi GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California HENRY E. BROWN, Jr., South
LEONARD L. BOSWELL, Iowa Carolina
TIM HOLDEN, Pennsylvania TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts BILL SHUSTER, Pennsylvania
TIMOTHY H. BISHOP, New York JOHN BOOZMAN, Arkansas
MICHAEL H. MICHAUD, Maine SHELLEY MOORE CAPITO, West
BRIAN HIGGINS, New York Virginia
RUSS CARNAHAN, Missouri JIM GERLACH, Pennsylvania
JOHN T. SALAZAR, Colorado MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois TED POE, Texas
NICK LAMPSON, Texas DAVID G. REICHERT, Washington
ZACHARY T. SPACE, Ohio CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii JOHN R. `RANDY' KUHL, Jr., New
BRUCE L. BRALEY, Iowa York
JASON ALTMIRE, Pennsylvania LYNN A WESTMORELAND, Georgia
TIMOTHY J. WALZ, Minnesota CHARLES W. BOUSTANY, Jr.,
HEATH SHULER, North Carolina Louisiana
MICHAEL A. ACURI, New York JEAN SCHMIDT, Ohio
HARRY E. MITCHELL, Arizona CANDICE S. MILLER, Michigan
CHRISTOPHER P. CARNEY, Pennsylvania THELMA D. DRAKE, Virginia
JOHN J. HALL, New York MARY FALLIN, Oklahoma
STEVE KAGEN, Wisconsin VERN BUCHANAN, Florida
STEVE COHEN, Tennessee ROBERT E. LATTA, Ohio
JERRY McNERNEY, California
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
VACANCY
(ii)
?
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION
ELIJAH E. CUMMINGS, Maryland, Chairman
GENE TAYLOR, Mississippi STEVEN C. LaTOURETTE, Ohio
RICK LARSEN, Washington DON YOUNG, Alaska
CORRINE BROWN, Florida HOWARD COBLE, North Carolina
BRIAN HIGGINS, New York WAYNE T. GILCHREST, Maryland
BRIAN BAIRD, Washington FRANK A. LoBIONDO, New Jersey
TIMOTHY H. BISHOP, New York, Vice TED POE, Texas
Chair JOHN L. MICA, Florida
LAURA A. RICHARDSON, California (Ex Officio)
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Love, John P., Vice President, Pasha Hawaii Transport Lines LLC.. 26
Paxton, Matthew, President, Shipbuilders Council of America...... 26
Roberts, Michael G., Partner, Venable LLP, on behalf of Crowley
Maritime Corporation........................................... 26
Watson, IV, Rear Admiral James, United States Coast Guard,
Director of Prevention Policy for Marine Safety, Security and
Stewardship.................................................... 5
Williams, Patricia J., Director, National Documentation Center,
United States Coast Guard...................................... 5
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Cummings, Hon. Elijah E., of Maryland............................ 46
Oberstar, Hon. James L., of Minnesota............................ 59
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Love, John P..................................................... 61
Paxton, Matthew.................................................. 73
Roberts, Michael G............................................... 81
Watson, IV, Rear Admiral James................................... 91
ADDITIONS TO THE RECORD
Horizon Lines, Inc., Robert S. Zuckerman, Vice President, General
Counsel and Secretary, written statement....................... 96
Matson, Navigation Company, written statement.................... 105
Seabulk Tankers, Inc., Kenneth Rogers, President, written
statement...................................................... 109
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REBUILDING VESSELS UNDER THE JONES ACT
----------
Wednesday, June 11, 2008
House of Representatives,
Committee on Transportation and Infrastructure,
Subcommittee on Coast Guard and Maritime Transportation,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2167, Rayburn House Office Building, Hon. Elijah E.
Cummings [Chairman of the Subcommittee] presiding.
Mr. Cummings. This Subcommittee is called to order.
Today's hearing will enable us to closely examine a
critical subject in United States maritime transportation, and
that is the rebuilding of Jones Act vessels in foreign
shipyards. I take this opportunity to thank Mr. Gene Taylor of
Mississippi for his outstanding work in protection of the Jones
Act, and I note that he personally requested this hearing to be
held by the Subcommittee.
The vessels that ply the coastal trade in the United States
providing service between domestic destinations must comply
with the requirements of the Jones Act, meaning that they must
be built in a United States shipyard owned by an American and
crewed by Americans. Provisions added to the Jones Act in 1956
and known as the Second Proviso requires that these ships also
be rebuilt in the United States shipyards. However, that 1956
action did not define the term "rebuild"; and, by 1960, vessels
were using United States shipyards to install middle sections
called midbodies that had been built in foreign shipyards into
Jones Act vessels.
In response, Congress revised the Second Proviso in an
effort to close the loophole that allows the midbodies to be
installed in domestic vessels. Not until 1996, however, did the
Coast Guard issue regulations to clarify the specific standards
that will be applied to determine whether a Jones Act vessel
had been rebuilt in a foreign shipyard.
These regulations state, regardless of its material of
construction, a vessel is deemed rebuilt when a major component
of the hull or superstructure not built in the United States is
added to the vessel. For a vessel of which the hull and
superstructure is constructed of steel or aluminum, a vessel is
deemed rebuilt when work performed on its hull or
superstructure constitutes more than 10 percent of the vessel's
steelweight prior to the work. Further, a vessel may be
considered rebuilt when work performed on its hull or
superstructure constitutes more than 7.5 percent but not more
than 10 percent of the vessel's steelweight prior to the work.
A vessel is not considered rebuilt when work performed on its
hull or superstructure constitutes 7.5 percent or less of the
vessel's steelweight prior to the work.
There apparently appears to exist a lack of clarity
regarding what can be done to a vessel in a foreign shipyard
within the parameters that have been established by these
regulations. Specifically, there is confusion regarding what
constitutes a major component of a hull or superstructure.
Further, there is also concern among some in the Jones Act
trade that the standards that have been set forth have been
inconsistently applied, particularly in terms of calculating
vessel steelweight.
These issues have been the subject of several recent court
cases, including one that examined a Jones Act vessel that was
converted from a container ship to a roll-on/roll-off vessel.
Part of the work on that vessel was completed in a Chinese
shipyard and part was done in the United States. In this case,
the Coast Guard did not count the amount of steel removed when
making the calculation of steelweight to determine whether the
vessel was still eligible for the coastwise trade. Rather, it
counted only the amount of steel added.
Another case involved the installation in a Jones Act
vessel of an inner hull, which essentially converted the vessel
from a single hull to a double hull to meet the standards of
the Oil Pollution Act of 1990. In this case, the Coast Guard
determined that a second hull was not a major component of the
hull or superstructure since the inner hull was not separable
from the outer hull because of the manner in which it was
constructed. In ruling on this case, a United States court
stated that the manner in which a component is added to a
vessel, whether piece by piece or wholesale, is irrelevant to
considerations of whether the component is a major one.
In summary, one of the overarching issues we will examine
today is the lack of transparency to this assessment process.
Shipyards and vessel owners must continually submit Freedom of
Information Act requests to the Coast Guard to find out what
letter opinions the service has issued, because the Coast Guard
does not post these letters on the Internet. We can do better.
In contrast, the Customs and Border Protection Agency posts
its letter rulings regarding the transportation of merchandise
under the Jones Act trade on the Internet so that the maritime
industry can see their current interpretations. I find it
difficult to understand how one can expect one to obey the law
when they don't know what the law is.
Additionally, once someone has received a Coast Guard
letter ruling it is difficult, if not impossible, to obtain the
background information regarding how the Coast Guard came to
the conclusion expressed in the letter. This makes it difficult
for the Coast Guard to obtain the views of both sides of an
issue before it makes a decision.
The issues before the Subcommittee today, the issues are
very complex, but they are critical to ensuring that the
provisions of the Jones Act are appropriately enforced and that
all of the vessels certified for the coastwise trade are
competing on a level playing field.
Finally, I would like to note that the Subcommittee invited
both Seabulk and Matson Navigation, both of which are subject
to litigation regarding the extensive work they have had done
on their ships in China, to testify today. Regrettably, they
declined our invitation. Without their testimony, I believe
that it will be very difficult for the Subcommittee to decide
on any statutory waivers of the Jones Act requirements that
might be proposed for these companies if they should need them
as a result of current court cases.
I look forward to the testimony of all of today's
witnesses; and now I recognize Mr. Poe, who is standing in for
our Ranking Member, Mr. LaTourette. Mr. Poe.
Mr. Poe. Thank you, Mr. Chairman.
The Subcommittee is meeting this morning to review several
recent Coast Guard decisions that have allowed Jones Act
vessels to undergo nonemergency major structural work at
foreign shipyards. In at least two instances, and perhaps
several more, the Coast Guard has determined that these
modifications do not qualify as rebuilding under Federal
statutes and regulations. I am concerned about the process that
has been used to make these determinations and the impacts the
Coast Guard's decisions have been on the U.S. maritime
industry.
Over the past century, Congress has acted many times to
preserve and strengthen the Nation's shipbuilding capacity and
domestic commercial fleet. These are for national security and
economic reasons. The primary protections provided to the
United States maritime industry include the statutes commonly
referred to as the Jones Act. Under the Jones Act, all vessels
engaged in United States coastwise trade are required to be
owned by U.S. citizens, built in the United States and crewed
by U.S. Merchant Mariners. The Act also provides that the
rebuilding of a U.S. coastwise vessel must take place in the
United States in a United States shipyard to maintain the
vessel's eligibility to participate in the Jones Act trade.
However, several vessel operators have recently entered into
contracts with foreign shipyards to substantially modify U.S.-
flagged, Jones Act-qualified vessels with the Coast Guard's
apparent approval.
It is in our Nation's interests to have a robust domestic
fleet and Merchant Marine, and I urge the Coast Guard to
vigorously enforce U.S. law. However, we should not rely solely
on the Jones Act to maintain a strong maritime industry.
I hope that the witnesses will share with the Subcommittee
their thoughts on what American shipyards can do to better
compete with their foreign counterparts and how we can
encourage young people to enter the maritime trade.
I want to thank the Chairman for holding this important
hearing and look forward to hearing from all of the witnesses,
and I yield back.
Mr. Cummings. Thank you very much, Mr. Poe.
Mr. Taylor.
Mr. Taylor. Mr. Chairman, let me thank you for the very
aggressive and thorough job you are doing as Chairman, for the
hearing you had on the 123-foot Bollinger class ships, for this
hearing today.
The Coast Guard is a very honorable service, and on a day-
to-day basis they almost always do the right thing. In the case
of stretching those boats, somebody screwed up, and to date no
one in that organization has stepped forward and said "I
screwed up", which is completely contrary to what they teach
every recruit every day. In the case of this, somebody screwed
up. Somebody in the Coast Guard wasn't doing their job.
So what I would hope we would have as a result of today's
hearing, I hope the Admiral or someone will step forward and
tell us what the rules are. Who is supposed to enforce the
rule? Who in the Coast Guard is responsible for enforcing this
law that was obviously broken over in China? If they have
adequate manpower, then who screwed up? If they don't have the
adequate manpower to enforce the law, what are you going to ask
for? And, above all, I hope I won't hear that the Coast Guard,
similar to the Bollinger class screw-up, won't step forward and
say, well, we gave that responsibility to the private sector
and somebody let us down.
So, again, I want to thank you for having this hearing. I
welcome the Admiral for being here. Again, I want to emphasize
the vast majority of the time the Coast Guard does right thing.
In this instance, they didn't. But we need to find out what
went wrong. If there is a mistake that was made, let's correct
it. If there is a loophole that has to be closed, let's do so.
And I very much, again, appreciate you calling this hearing.
Mr. Cummings. Thank you very much, Mr. Taylor.
Mr. LoBiondo.
Mr. LoBiondo. Thank you, Mr. Chairman.
I join with my colleagues in thanking you for holding this
hearing. Something that a lot of people take for granted with
the Jones Act, but hopefully with this hearing we can emphasize
the critical importance of what it means in terms to our
overall economy, especially our maritime economy, and I think
for homeland security. I think it is critical that these laws
be enforced and not be open to such broad interpretation as we
are dealing with and Mr. Taylor just referred to, which clearly
something is very wrong. So I am very proud to join with most
of my colleagues in very strong support of the Jones Act and
thank you for bringing attention to this critical issue.
Mr. Cummings. Thank you very much, Mr. LoBiondo.
Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
I want to thank you for holding this hearing and inviting
these witnesses here to participate in this important
discussion. I look forward to the testimony from the Coast
Guard, from industry and advocacy groups to discuss the Jones
Act and, most importantly, the Second Proviso of the Jones Act
and determinations made by the U.S. Coast Guard relating to
vessels rebuilt overseas.
As we all know, Congress enacted the Jones Act to protect
the U.S. shipbuilding and ship repair industry. Congress
amended the Jones act to provide assistance to shipyards here
in the U.S. by excluding foreign rebuilt vessels from U.S.
domestic trade. Without any question, the most important issue
here is the Coast Guard's determination with respect to rebuild
cases; and I am most concerned about the transparency of the
existing process and what we can do to ensure that U.S.
companies which abide by the spirit of the Jones Act in the
construction and rebuild of their vessels are not put at a
disadvantage to companies which take their business overseas.
I want to thank the panelists for their participation, Mr.
Chairman; and I yield back the balance of my time.
Mr. Cummings. Thank you very much.
Mr. Larsen.
Mr. Larsen. Mr. Chairman, I just want to thank you for
holding this hearing as well.
I think most of what I wanted to say has been said. Just
echoing all the comments about transparency, about the
appropriate application of the Second Proviso and am looking
forward to the Coast Guard comments about how they are going to
help us help them make sure there is appropriate direction
given to the application of the Second Proviso in the future.
Thank you.
Mr. Cummings. Thank you.
I want to thank all of the panel for your brief opening
statements. I really appreciate it.
We will now go to our witnesses.
The first witness is Rear Admiral James Watson IV of the
United States Coast Guard. He is the Director of Prevention
Policy for Marine Safety, Security and Stewardship.
Ms. Patricia J. Williams of the United States Coast Guard
is Director of the National Vessel Documentation Center. It is
my understanding that you will not be testifying, Ms. Williams?
Or you will? Will you be testifying or do you have an opening
statement?
Ms. Williams. I do have a brief opening statement.
Mr. Cummings. All right. Before we get started, let me just
say this, that the Full Committee has a rail bill, Amtrak bill
on the floor of the House this morning. So from time to time I
will be leaving and going to talk about that bill on the floor.
So one of my colleagues will take Chairmanship during those
periods, and other Members may have to do the same thing.
TESTIMONY OF PATRICIA J. WILLIAMS, DIRECTOR, NATIONAL
DOCUMENTATION CENTER, UNITED STATES COAST GUARD; AND REAR
ADMIRAL JAMES WATSON, IV, UNITED STATES COAST GUARD, DIRECTOR
OF PREVENTION POLICY FOR MARINE SAFETY, SECURITY AND
STEWARDSHIP
Mr. Cummings. With that, we will hear from you, Ms.
Williams. And thank you all for being with us.
Ms. Williams. Thank you. Good morning.
Mr. Cummings. Good morning.
Ms. Williams. I am Patricia J. Williams, the Director of
the National Vessel Documentation Center. The NVDC is a Coast
Guard headquarters unit located in Falling Waters, West
Virginia. I assumed the role of Director this past April upon
the retirement of the former Director, Thomas L. Willis, but I
have served as the second in command of the NVDC since its
formation in 1995.
The NVDC, as you know, administers the Vessel Documentation
Program, which includes foreign rebuild determinations. I have
in some way participated in the definitive rulemakings of
rebuild determinations since 1992, when I assumed a role at
Coast Guard headquarters. So I look forward to discussing this
area of my responsibility with you today.
Rear Admiral Watson has the Coast Guard's opening
statement.
Mr. Cummings. Rear Admiral Watson.
Admiral Watson. Good morning, Mr. Chairman and
distinguished Members of the Committee. My name is Rear Admiral
James A. Watson. I am Director of Prevention Policy at the
Coast Guard. It is a pleasure to appear before you today to
discuss the rebuilding of vessels under the Jones Act.
I would like to briefly explain our regulations and
highlight the challenges of recent Coast Guard rebuild
determinations.
Vessel rebuild determinations under the Jones Act are
administered by the Coast Guard at the National Vessel
Documentation Center. The National Vessel Documentation Center
is the Coast Guard's only 100 percent civilian-operated
command. Its mission requires the same day to day
professionalism and connectivity with the maritime industry as
other Coast Guard units. Its focus is to lawfully issue vessel
documents and--excuse me, rather than carrying out the safety,
security and environmental stewardship, as other Coast Guard
units do in the mainstream.
The current regulations at 46 CFR 67.177 provide key tenets
for foreign rebuild determinations. As detailed in these
regulations, a vessel is deemed rebuilt foreign when any
considerable part of its hull or superstructure is built upon
or substantially altered outside of the United States.
In determining whether a vessel is rebuilt foreign, the
following parameters apply: Regardless of its material of
construction, a vessel is deemed rebuilt when a major component
of the hull or superstructure not built in the United States is
added to the vessel. For a vessel of which the hull and
superstructure is constructed of steel or aluminum, a vessel is
deemed rebuilt when work performed on its hull or
superstructure constitutes more than 10 percent of its vessel
steelweight. A vessel may be considered rebuilt when the work
performed on its hull or superstructure constitutes more than
7.5 percent but not more than 10 percent of the vessel's
steelweight prior to the work. A vessel is not considered
rebuilt when work performed on its hull or superstructure
constitutes 7.5 percent or less of the vessel's steelweight
prior to the work.
The Coast Guard has attempted to steer a consistent path in
applying these regulations despite challenges from a lack of
express definitions in some areas. The term "major component"
has not been expressly defined. Its addition as a parameter to
the current regulation received no comment from industry when
it appeared in the notice of proposed rulemaking in April of
1994.
Last year, the Shipbuilders Council of America filed a
complaint in the District Court for the Eastern District of
Virginia for a review of agency action and for declaratory and
injunctive relief related to, in part, to the Coast Guard's
application of these terms. This action followed the issuance
by the Coast Guard on May 20th, 2005, of a favorable
preliminary rebuilt foreign determination as to the Seabulk
Trader and the Seabulk Challenge and the issuance of a
Certificate of Documentation with a coastwise trade endorsement
to the Seabulk Trader on May 9th, 2007, following the
completion of the work on that vessel in China.
On April 24th, 2008, the District Court for the Eastern
District of Virginia issued an adverse decision on that
challenge to the Coast Guard's determination to issue a
coastwise endorsement to the Seabulk Trader. The court ordered
the Coast Guard to revoke the Seabulk Trader's coastwise
endorsement and remand the case back to the Coast Guard for
further proceedings and consideration as to whether, one, a
major component was added to the vessel in China; two, whether
the foreign work exceeded the permissible steelweight
thresholds; and, three, whether the work resulted in the
installation of required segregated ballast tanks which must by
law be installed in the United States if a vessel desires to
maintain its coastwise privileges.
On Seabulk's request, the Court granted a temporary stay
pending appeal of 60 days on May 9th, 2008, and directed the
parties to begin negotiations on an appropriate appeal bond.
The deadline for filing a notice of appeal is June 23rd, 2008.
The Coast Guard is working closely with the Department of
Justice on its next course of action in this case. And because
the case is still in litigation, all other questions about it
must be referred to the Department of Justice.
The way forward regarding any improvement to vessel rebuild
determination will hinge on at least one of three types of
actions. The first one, judicial action. Although the Coast
Guard cannot discuss our specific recommendations or intended
action with respect to an appeal of the decision in the Seabulk
Trader, clarity could result from actions by the Court in this
matter. However, with regard to action by the Court, generally
speaking, it seems equally possible that clarity going forward
from this or other judicial actions could be uncertain and
might not necessarily resemble the intent of Congress.
Second type of action, agency action. The Coast Guard could
propose new regulations. The rulemaking is a time-consuming
process and, without any additional clear guidance from
Congress, may continue a policy which is misaligned with
congressional purpose and be subject to more judicial actions.
Third is legislative action. Congress could act to bring
greater legislative clarity to the Jones Act. The Coast Guard
would welcome such action. We have more than 50 years of
experience with vessel determinations and are committed to
working as extensively as necessary with Congress to garner
more precise statutory context. The Coast Guard seeks to
administer the Jones Act in good faith through consistent
regulatory actions and vessel determinations. Additional
legislative clarity would necessarily involve refinement of
more precise definitions of statutory terms major component and
considerable part.
Thank you for the opportunity to testify today. I look
forward to discussing these and other facets of our
responsibilities during today's hearing.
Mr. Cummings. Thank you very much to both of you.
Admiral Watson, let me start with you.
As evidenced by today's hearing, there are lots of
questions about the Coast Guard's interpretation of the Second
Proviso of the Jones Act and whether the United States ship
owners are complying with the intent of the law. It appears
that there is room for clarification of the Coast Guard
regulations on this matter.
Does the Coast Guard, first of all, have the authority to
revise its rebuilding regulations without further congressional
action? In light of the concerns expressed about the Coast
Guard's regulations by shipyards and operators and now again by
the Court, a court of law, does the Coast Guard now plan to
revisit its regulations?
Admiral Watson. Sir, the Coast Guard has no plans to
revisit the regulations at this time. We I think are not
limited in proposing regulations related to this subject
matter. We intend to obviously watch closely the outcomes of
these judicial actions. And depending upon their outcome and
whether or not there is any changes to the Jones Act itself
legislatively, we would make a decision at that time.
Mr. Cummings. Now that leads me to my next question. In
your statement you said that the Coast Guard believes that
additional legislative clarity is necessary, did you not?
Admiral Watson. Yes, sir.
Mr. Cummings. And you said that that would hopefully,
hopefully improve the efficacy of the Second Proviso by
clarifying the terms, quote, major component and, quote,
considerable part, unquote. Has the Coast Guard looked into
whether such an amendment may be found to be in violation of
GATT, which could potentially result in sanctions being imposed
on United States trade until the entire United States build
requirement under the Jones Act is repealed? Why should we,
therefore, risk a repeal of the United States build requirement
when the Coast Guard can clarify its standards by regulations?
Admiral Watson. Sir, with regard to GATT, that certainly is
out of the Coast Guard's purview of expertise. What I know is
that that statement you made is definitely something that needs
to be considered. We feel that simply providing clarity and not
expanding on or making changes to Jones Act but rather just
clarifying to communicate the intent of Congress is in the safe
area with regard to GATT. But that would be the Coast Guard's
view on it only, and you would be better off to get advisement
from the trade negotiators. And I think the issue is that there
is consequences of not doing that.
So it is a balance of outcomes that need to be looked at,
and we are experiencing right now the outcome of taking the
purely regulatory route. These regulations just went into
effect in 1996, and now we are involved in a lot of judicial
actions. And the process, I would imagine for the business
side, is at a standstill until all this can get resolved.
Mr. Cummings. Certainly clarification is important. I think
whenever anyone is in business they have to have clarity with
regard to the law, not only because they want to comply but
they also want to make sure that they can properly plan. Any
business person will tell you that planning is of utmost
importance. And all of this would certainly go into their
consideration.
There is just two more questions, and then we will go to
Mr. Poe.
Does the Coast Guard base calculations of steelweight, when
assessing whether a vessel has been rebuilt in a foreign
shipyard, on the amount of steel that has been removed from a
vessel and the amount of steel that has been added to the
vessel, or does it base considerations on the greater of either
the steel removed from the vessel or the steel added to the
vessel, rather than the combined weight of such steel? And can
you comment on this?
Admiral Watson. Our policy is to use the greater, the
second, the greater of the steelweight of the steel added
versus removed.
Mr. Cummings. Okay. Finally, the calculations and
considerations related to rebuilding decisions, as we can see,
are very complex. They involve decisions relating to the
steelweight of the vessel, assessment of whether certain items
constitute major components and the analysis of whether work
being performed is applied to the hull and superstructure of
the vessel. But, as we all know, during any construction
process the scope of work changes to address, for example,
unforeseen issues and to make improvements to the planned
designs.
So my question is, do the owners submit to the Coast Guard
a detailed list of proposed changes or discuss in detail the
potential impacts of these changes on the rebuilding analysis?
And what effort does the Coast Guard make to verify that the
representations of the owners are accurate before making a
final rebuild determination?
Admiral Watson. The applicant is required to do all of the
calculations with regard to the steelweight and all of the
requirements to make a determination for Jones Act rebuild.
The Coast Guard is normally asked to make a preliminary
determination, which is not a final agency decision but is
something that was introduced in 1996, because it does give the
business communities some information that hopefully they can
rely on before they embark on a large project.
So at the Vessel Document Center the information is
evaluated and a determination is made. The evaluation that is
done by these companies is normally accepted as an accurate
calculation.
We have in a number of cases, when there is reason to do
so, sent all of that information, all of the detailed plans to
our Naval Architecture Branch at Coast Guard headquarters,
provide it to the structural engineers and Naval architects to
do a complete duplication in terms of the calculations of what
has been submitted and determined by the applicant. And that
can be done at the preliminary determination and then again at
the end of the process with the detailed information coming
from the shipyard when the work is complete.
Mr. Cummings. Did you have something to add, Ms. Williams?
Ms. Williams. Yes, sir, if I might.
When we issue a preliminary determination in a rebuild
case, we caution the applicants that the work has to be done--
that the rebuild determination, if favorable, applies only if
work is done in conformance with what they have outlined in the
detailed plan and the information provided to us up front. If
the project changes dramatically from those submissions, they
are required to resubmit. And we can at any point ask for
additional information and further clarity, and an applicant
can then make resubmissions.
The final action--the final action would result in a
second--a final rebuild determination letter or the actual
issuance of a Certificate of Documentation with a coastwise
endorsement.
Mr. Cummings. When you say "change dramatically", what do
you mean? Who determines that?
Ms. Williams. Well, if the work has begun and the owners
and the owners' agent determine that the scope of the work is
going to change once they have begun a project, then it is
incumbent upon them to notify the Coast Guard, just as they did
voluntarily in requesting the preliminary rebuild
determination.
Mr. Cummings. So you don't do outside verification then?
Ms. Williams. No, sir, we do not.
Mr. Cummings. All right. Mr. Taylor, I know you have a
question, but I want to just go to Mr. Poe. Mr. Poe?
Mr. Poe. Thank you, Mr. Chairman.
Thank you both for being here.
Section 12101 of Title 46 of the U.S. Code says a vessel is
deemed to be rebuilt in the U.S. only if the entire rebuilding,
including the construction of any major component of the hull
or superstructure, was done in the United States. How does the
Coast Guard define rebuilding? Either one of you or both.
Ms. Williams. Well, we defined it as it is spelled out in
our regulations, is the vessel is rebuilt if any major
component not built in the U.S. has been added to the vessel or
if work exceeding 10 percent of the vessel's overall steel work
is done outside of the U.S.
Mr. Poe. What is the difference in rebuilding and repair?
Ms. Williams. There is no difference. It depends on the
extent of the work. The percentages on a repair are considered
in the calculation for a rebuild determination, as is any other
type of work.
Mr. Poe. So as far as the Coast Guard is concerned
rebuilding and repair are synonymous?
Ms. Williams. They could be, sir, yes.
Mr. Poe. Well, either they are or they aren't. Is repair a
different word than rebuilding?
Ms. Williams. Well, if a repair reaches the extent of a
rebuild in our definition of greater than 10 percent of the
work or a major component added to the vessel not built in the
U.S. Obviously, a repair would not necessarily fall in the
category of a major component added. But if the extent of work
done in a repair exceeds 10 percent, then it could result in a
determination that the vessel has been in fact rebuilt.
Mr. Poe. If a ship has a hull replaced, would you agree
that that has to be done in the United States?
Ms. Williams. If the entire hull is being replaced?
Mr. Poe. If the hull is replaced.
Ms. Williams. Yes, sir.
Mr. Poe. You take the hull off, and you put another one on.
That would be done in the United States?
Ms. Williams. To maintain its U.S.-built determination,
yes.
Mr. Poe. And instead of taking that hull off you put a hull
on the inside of the existing hull to give the ship more life,
or whatever reason, but you put it on the inside, would that
have to be done in the United States?
Ms. Williams. It depends, sir. In a case of an inner hull,
if the total--if the extent of work done exceeds the parameters
of a rebuild, yes, it would be considered a rebuild at that
point if it is done----
Mr. Poe. I am trying to keep it pretty simple. You take the
hull off, put another one on, you got to build it in the United
States. If you leave the old bad hull on there and you put a
hull on the inside like a lining, like we say in Texas, you
know, you have a lining for your pickup bed--truck, you know,
your truck that has a pickup, would you require that that new
hull inside of the existing hull be built in the United States?
Either it would have to be or it wouldn't have to be.
Ms. Williams. It depends on the method used to perform that
work. In the case you are describing, if it is not done as a
major component issue but that we are looking at the separable
parts that were used to do that work in applying the tests of
the 7.5 to 10 percent, then it could not--it could be
determined not to have been a rebuild.
Mr. Poe. Let's go to the opposite. You leave the hull on
the ship and you put one on the outside of it. Would that have
to be done in the United States?
Ms. Williams. Again, it would be dependent on the method of
application.
Mr. Poe. So you don't know? Is that what you are telling
me?
I am just trying to see what the Coast Guard's position is.
All things equal, you put it on the outside, generally would
that have to be done in the United States or you would say that
may not be a major component of the ship?
Ms. Williams. Well, a lot depends on the method of
performing the work on the vessel. It is not as clear-cut as
you described. If there were singularly a whole hull added to
the vessel, that then would fall under a definition of major
component.
Mr. Poe. All right. Thank you, Mr. Chairman.
Mr. Cummings. Thank you.
Mr. Taylor.
Mr. Taylor. Thank you, Mr. Chairman.
Admiral, I am reading your statement, and I am going to
read selective parts of it back to you. This is from page 3.
This is the second to last paragraph.
"There is no requirement, however, that vessel owners seek
a preliminary determination before having foreign work done."
I am going to skip down a few sentences.
"There is no requirement that a vessel owner seek a final
determination after having foreign work done."
What I read into that, and please correct me, is you are
doing this on the honor system. That basically if I want to
beat the system, if I want to take advantage of cheap foreign
labor, still engage in the coastwise trade, I basically let you
know that I am going to do some work, but I am not going to
show you what it is. I am going to take it overseas, I am going
to get my work done cheap, I am going to come back and do the
Jones Act trade, and I don't even have to tell you what I did,
just as long as I pay the fee for a new documentation?
And, again, given the screw-up on the 123s, and there is no
nice word for it, eight ruined vessels, the Nation is out of
$90 million, no one in your organization has stepped forward to
say, you know what, I should have caught it. Nobody on the
contractor side has stepped forward and said we screwed you.
Just eight ruined vessels.
But I can tell you this. I have now become a master at
hogging and sagging calculations. And I realize when you start
chopping up a hull there are vulnerabilities that come out of
that. So what you are basically telling someone is you can go
chop up your hull overseas as long as you don't ask for
permission up front. You can come back and say I did it, but it
really wasn't much work. And you really can create a situation
where your hull is now vulnerable as a result of the work you
have done overseas, and it is going to be documented again by
the Coast Guard, and no one is taking the time to see they have
taken a safe vessel like the 110 and turned it into an unsafe
vessel like the 123?
Have we got a situation now where we are encouraging that
through the law? And I am going by your testimony. So please
explain.
Admiral Watson. Yes, sir. I would like to distinguish
between the work that we do to certificate vessels and to
ensure that they are in compliance with our safety standards.
In the case of these large vessels we are talking about,
they are typically built to class society standards, and they
are referenced through our safety regulations. And quite often
there is an ABS surveyor or another class society surveyor that
is attending that work in the shipyard, and there is a lot of
correspondence between the Coast Guard and the surveyor.
Mr. Taylor. Is it an ABS's job to enforce American law?
Admiral Watson. Sir, no.
Mr. Taylor. Particularly with regard to the Jones Act?
Admiral Watson. No.
Mr. Taylor. Whose job is that, sir?
Admiral Watson. With regard to the Jones Act, that is the
Coast Guard and the Vessel Documentation Center.
Mr. Taylor. And have you at any point delegated that
responsibility to the ABS?
Admiral Watson. No, sir.
Mr. Taylor. Okay.
Admiral Watson. But the processes of validating that there
has been safe construction practices, the requisite amount of
structural material being put in to prevent buckling and
hogging and sagging, as you mentioned, and all of the other
circumstances related to stability and environmental
protection, that is all being done under our safety side. And
the process of issuing a vessel documentation certificate is
done by the vessel documentation side.
Mr. Taylor. Has your safety side talked to the
documentation side or does the safety side take the attitude,
okay, it is not going to create an oil spill even if they broke
the law, so we won't tell these guys over in the documentation
office?
Admiral Watson. Well, the safety people are focused on
safety and environmental protection; and when the Vessel
Documentation Center needs that level of expertise to calculate
steelweight and the kinds of things that are necessary to make
a determination for vessel documentation, they do go to those
experts that can do those sorts of calculations.
But I think you accurately characterized the system for
documentation. It does involve a certain amount of an honor
system here. What you have in place is a very extreme penalty,
and that penalty has been considered the motivator for honesty
and compliance with the standard. And there is a lot of
transparency in the competition, too, with regard to these
issues of reconstruction in a foreign shipyard. Obviously,
there is a lot of people in this room and there is people that
go to the extent of actually the lawsuits.
Mr. Taylor. Mr. Chairman, if you will bide with me for a
minute, Admiral, what I just find mind-boggling and what I
think the average American will find mind-boggling is I have
from time to time had constituents who have documented vessels
call me up, and I am probably going to get the word wrong, but
one of your regs says that a threshold coming off a deck going
into a vessel I believe has to be six inches. And it makes
sense. You catch a big wave, is to keep that wave from going in
the cabin, flooding the engine room, possibly lose power and
the boat capsizes.
And I think I had an instance where a constituent, it was
five and three-quarter inches, Coast Guard wouldn't document
it. He had to go back and do some carpentry work.
Again, rules are rules. How do you think that constituent
would likely feel about seeing this vessel that was gutted in
China, rebuilt in China, certified by the United States Coast
Guard like nothing happened? Does that strike you as selective
enforcement? Because it certainly strikes me as selective
enforcement. Quarter of an inch here, a container ship
converted to a railroad ship there and you guys can't catch it?
And so it leads to the question, is it that you are getting
a message from the administration look the other way? Is it a
lack of manpower? Is it a lack of expertise? Or, lastly, is it
a lack of will within the Coast Guard?
Because I have actually had--I wasn't told this, but one of
my staffers had a conversation with one uniformed Coast Guard
officer who said something to the extent that the Jones Act is
an antiquated law that ought to be off the books.
Now, number one, if it is on the books I would expect you
guys to enforce it; and, quite frankly, I don't think the Coast
Guard ought to be in the position of picking and choosing which
laws they are going to enforce. And if that officer feels that
way about the Jones Act then he ought to run for Congress and
try to change the law. Until then, he ought to live by the law.
So what is it of the scenarios? Are you getting told by the
administration don't enforce the law? Are you short on
manpower? Or do you just don't give a flip in the case of
enforcing this law?
Admiral Watson. Sir, we feel like we have consistently
enforced this law.
Mr. Taylor. That is not very consistent, Admiral. And we
sent you these photos a long time ago. And it took the court
case to do something about it. The Coast Guard didn't do
anything about it until the courts did something about it. So
why is that?
Admiral Watson. Well, sir, what I was going to say is that
that is a lot of work. There had been ships with a lot of work
done for the last I guess 50 years. We have never had a program
that is like we have for safety to do enforcement for the
purpose of Jones Act, where we would actually go and be
resident in a shipyard or be involved with doing the detailed
plan review strictly for the purpose of doing Jones Act. So
when I mentioned consistent, that is what I mean.
Now whether that is adequate, whether there is some changes
that should be made in this area, that would be something that
should be discussed. But I would say that we have been
consistent both doing safety and doing our Jones Act
determinations.
Mr. Taylor. How do you explain this, Admiral? What
happened?
Admiral Watson. What happened in that case is, first of
all, I think there is an explanation that needs to be made
about what constitutes the considerable part and what
specifically is how we are currently defining ``major
component''. And I think, you know, what you are seeing there
is a combination of considerable part that was evaluated, added
to that a lot of parts that were not considered to be
structural, which looks like a lot of ship. But things like
doors and ramps and bolt-on structures that are what we
consider nonstructural are not considered as part of that
considerable part. And then----
Mr. Taylor. Admiral, with all due respect----
Admiral Watson. Yes, sir.
Mr. Taylor. --this ship was gutted. This ship was taken
down to the bare hull and rebuilt. Are you going to tell me no
one in the Coast Guard could recognize that? You couldn't take
a kid out of Cape May and he couldn't make that determination?
Admiral Watson. Sir, I believe that was one of the ships
that we did take a close look at in our Naval architecture
department. But it didn't add up to the greater than 10 percent
rule that we have for----
Mr. Taylor. Thank you, Mr. Chairman. You have been very
patient.
Mr. Cummings. Mr. Taylor, I have given you a little extra
leeway because you did ask for the hearing, and I hope the
Members can appreciate that.
Just one thing, Rear Admiral, is a lot of this based on
trust? I mean, I am listening and I am thinking that there must
be a big trust factor, because it does not seem to be the kind
of verification that I would think would be appropriate. And
trust is nice, but I am just wondering when you are talking
about millions upon millions upon millions of dollars, you
know, sometimes people may find ways to get around our regs.
And I must tell you, in answer to Mr. Taylor's last
question, too--this is just a second thing--it was very
confusing. And it left for me sitting here thinking that if a
ship is pretty much gutted, and this is where we end up,
somebody's not doing something right. There is something
awfully wrong with this picture. And it does concern me, and I
think it will concern the rest of the Committee.
And I want to go back to his question, which you may answer
now or throughout answering other people's questions, do we
have a lack of manpower? Do we have a lack of expertise? Do we
have regulations that just need to be done over again because
they are just not clear enough? Is legislative action
necessary? If so, exactly what is that?
Again, we have to have clear meaning for these people who
are in this business and so that we can make sure that the laws
that we are putting forth are adhered to. There is no need for
us to sit up and go through these changes if the laws are not
going to be adhered to. And they must be administered in a
consistent manner. Very important.
Mr. Larsen. You can answer that throughout the----
Mr. Larsen. Thank you, Mr. Chairman.
Admiral, getting back to the preliminary determination
process, you noted that the Coast Guard generally accepts as
accurate the calculations that an applicant makes, but at times
it goes to the Naval architect's office. What would trigger the
Coast Guard sending plans to the Naval architect's office?
Admiral Watson. Well, one of the triggers would be when we
hear from other people in the industry. And we hear that on a
regular basis. But if it is a close line issue, obviously, if
there has been concerns in the past over these kind of projects
and whether there is any doubt with regard to their ability to
do accurate calculations, those would be some of the
circumstances where we would choose to do that.
Mr. Larsen. Do you have a formal process for that then or
is it mainly hearing from folks from the outside that would
cause the Coast Guard to sit down and make its own
determination about whether or not to send this material over
to the Naval architect's office?
Admiral Watson. I don't think we have a bright line, if
that is what you are looking for, where we would, you know,
automatically send these plans to the Naval architects.
The people that we have at the Vessel Documentation Center
are all civilians. They have been there a long time. They have
done these cases for many years, and the system has been like
that. And that is where I draw my statements that I think that
there is consistency here.
There is a lot of variations in the projects, and some look
pretty significantly different in pictures than others. But the
evaluation and whether or not they go to the Naval architects
is I think consistent by virtue of the people and the
repetitiveness of their process at the Vessel Documentation
Center.
Ms. Williams. Sir, I am sorry, if I might add to that.
Mr. Larsen. Yeah.
Ms. Williams. We might--the NVDC might request a
determination from the Naval Architecture Branch of whether
work is actual structural to the hull or superstructure. That
is without getting any feedback from any competitor or from the
applicant. But if in our view, we are conducting our review, we
have questions as to whether the work being done is in fact
structural and it is work being done upon the hull or
superstructure, we seek their advice in those instances.
Mr. Larsen. Okay. My understanding is that somebody may
apply for preliminary rebuild determination, but there is no
requirement that they do that. Is that correct?
Ms. Williams. That is correct, sir. In their belief----
Mr. Larsen. And why would they request it and why wouldn't
they request it? And how many times--how many times do you get
a request for final determination where you didn't have the
preliminary determination?
Ms. Williams. They generally seek a preliminary. Because,
as the Admiral alluded to earlier, the penalties for violating
the rule are so severe such that they would submit to us their
calculations so that we could confirm their understanding that
they have not reached the level of rebuild. I don't know of any
instance where we have been asked for a final determination
where there has not been a preliminary determination.
Mr. Larsen. Okay. You mentioned the penalties being severe.
And I think if you were to ask the Seabulk Trader folks about
the penalty, that was pretty severe and appropriate in my view.
But has the Coast Guard ever done what the courts have done,
pulling a coastwise endorsement?
Ms. Williams. Not for this purpose, sir, not that I am
aware of.
Mr. Larsen. So what severe penalties--when you talk about
penalties being very severe, what penalties are you talking
about?
Ms. Williams. I am talking about if the work exceeds the
level that we determine is a rebuild greater than the 10
percent and they perform the work, then they are subject to
losing the coastwise strait privileges.
Mr. Larsen. And how many times has that happened?
Ms. Williams. There is one case, a Crowley case that I am
aware of, where they did undertake the work without requesting
any type of review because it was in the nature of an emergency
repair in a foreign shipyard, and the work reached the level of
I think greater than 25 percent. And they did in fact ask for a
ruling, in which case we denied.
Mr. Larsen. So then do you find that in most cases--if I
may, Mr. Chairman, in most cases that the ship owners and
operators are complying with the law? Is that your--would that
be your determination?
Ms. Williams. We would think so, sir.
If I might, the vessel documentation process as a whole,
everything we do at the National Vessel Documentation Center
requires self-certification. When any applicant applies to
document a vessel, whether it be new vessel or a vessel that is
undergoing some changes, they certify it by virtue of their
application that--for instance, to get a coastwise
endorsement--that the vessel has been built in the U.S., which
requires that all components, all major components of the hull
and superstructure have been built in the U.S. and that the
vessel has been entirely constructed in the U.S.
That is a self-certification. We do not verify on any
application any of those facts. The circumstances that the
Admiral was discussing earlier about compliance issues, the
safety facet, there is verification. The Coast Guard employs
folks who look at vessels for those purposes but not for
purposes of verifying that every component that was put on a
vessel was in fact of U.S. origin.
Mr. Larsen. I understand the difference between checking
out the vessel for safety. To be sure it floats when it leaves
is something different than making sure it complies with the
Jones Act. I think we are all pretty clear we are talking about
two different things there. And this is a hearing about the
Jones Act.
Mr. Chairman, thank you very much. I would just like to
note on the next panel I would like to hear a little bit from
the next panelists about the preliminary rebuild determination
process, its transparency, and this whole issue of self-
certification. So just give them a heads up on that.
Thank you.
Mr. Taylor. [Presiding.] The Chair thanks the gentleman.
The Chair recognizes Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
I want to return to the general subject matter of the
questioning that Mr. Poe was pursuing earlier, and it is the
issue of when the Coast Guard and/or the NVDC have the capacity
to exercise discretion. In the Seabulk case, it is pretty clear
that the Coast Guard and the NVDC could have decided that the
construction of a new inner hull was a major component of the
ship's hull; and, in fact, ultimately, that was the thrust of
the Court's decision.
Leaving aside the issue of whether or not the Court's
decision was right, my question has to do with when the Coast
Guard has the opportunity to exercise discretion, and you have
that opportunity often, what principles guide that exercise?
How do you make the judgment?
And again revisiting this decision, you made the judgment--
or the judgment was made that the construction of an inner hull
did not constitute a major rebuild. Court found the opposite.
How does that process go forward and what principles guide you
as you undertake these decisions?
Admiral Watson. Yes, sir. There are two principles involved
here. There is the consideration of whether this work is a
major component, in which case we would be looking to see if it
was a single component that was still structural and added to
the vessel. An example of that would be like a bulbous bow, a
new transom, a complete section of the superstructure,
structural; and if it exceeds 1.5 percent of the weight of the
vessel, excluding all of its fuel and engines and outfitting,
then that would be rebuilt. That would be a determination that
you can't sell coast-wise.
In the case of pieces and parts being put into a vessel, we
have not considered that to be a major component. So were we to
have done that, that would be inconsistent with our work
historically, and that would be a change.
The other thing that we look for is whether there is metal
that is added to the structural parts of the ship, built-up
sections, replaced sections. This could include maintenance
that we were talking about where we would replace steel, and
that would also include the major components as well. If you
add all of that up over the whole ship and that exceeds the 7.5
percent of that steel light ship, then we would start to
consider that this could be a rebuilt case; and there is some
discretion and there are other considerations when we are
between 7.5 and 10 percent. If it exceeds 10 percent, it is
definitely a rebuilt.
Mr. Bishop. I guess the difficulty I am having--and I will
confess to being a layman with respect to naval architecture--
but it just seems that the Second Proviso of the Jones Act, the
intent of it is clear. It is to protect American shipbuilding
and to not give an unfair advantage to those who have not
engaged in shipbuilding in America.
And the construction of an inner hull, it strikes me, is a
major retrofit of a vessel; and it just--I just don't
understand why, if we have a law where the intent is clear and
the activity undertaken by a shipbuilder at a minimum is
subject to a choice, why that choice would not revert--why the
finding would not be one that is supportive of the intent of
the Second Proviso.
Admiral Watson. Yes, sir. Maybe I could just talk a little
bit about the history and how we got to this long-standing
Coast Guard interpretation of the intent.
It was a case that occurred in 1960 where a clarification
occurred with regard to this issue, and what was going on,
there was a whole mid-body section was being floated into the
United States from a foreign shipyard and then it was going to
be put into a ship that was being rebuilt actually in a U.S.
shipyard with this foreign major component.
So this first level of the determination of whether or not
you are putting in a major component really relates back to the
determination and the clarification that we got in 1960 that
had to do with this actual major single component thing that
could be floated from one shipyard to another and installed in
this vessel as a rebuild. And there has never been any other
determination on or clarity about major component. That has
just been the long-standing thing. We have only been looking
for major complete components that exceed 1.5 percent ever
since then.
The changes that were made in 1996 as a result of the court
cases then had to do with the establishment of these
percentages for steel that is added onto structures and the
definition of a considerable part but not major component.
Mr. Bishop. Mr. Chairman, may I be given one additional
question?
Mr. Taylor. Please.
Mr. Bishop. Again, staying with Seabulk--and you just
indicated that certain court decisions have informed further
judgments made by the Coast Guard--in the Seabulk case the
Coast Guard found that the separable/inseparable distinction
that the Coast Guard was making would lead to arbitrary
applications of the Jones Act. Do you foresee the Coast Guard
now rethinking that separable/inseparable distinction so that
there would be greater clarity going forward?
Admiral Watson. Well, I think the Coast Guard is going to
have to deal with the court's decisions; and I think it is
going to be a little bit difficult for me to predict how we are
going to do that.
One thing that comes to mind is that the Seabulk case is
not the only case out there, and there are several cases, and
it is possible that different judges could render different
decisions on circumstances that are very similar. So then I
don't know quite how we would write regs.
Mr. Bishop. Mr. Chairman, thank you for allowing me.
Mr. Taylor. Thank you.
The Chair recognizes Ms. Richardson.
Ms. Richardson. Thank you.
I think my colleagues have done a pretty good job about
dealing with the specifics of the issue today. What I would
like to do is I think talk about the bigger problem, which
hopefully can get us to some resolution.
I am new on the Committee; and back in May we had a hearing
of this group, a body of the Coast Guard National
Transportation Safety Board Casualty Investigation Program, and
at that time the Investigator General found that five out of
six of your folks who were assigned to the marine casualty
investigators in the sector of San Francisco were unqualified
for these positions.
Further, in the report it stated--and that is why it is a
good thing that Members stay around, so we can remember from
one week to the next of what is said. In the report it said, in
August of 2007, the Coast Guard issued a revised standard which
both improved and detracted from the qualifications for marine
casualty investigators. The Coast Guard improved the standards
by updating the task that an investigator must perform to
qualify for this position. These tasks include preparing for an
investigation, initiating, et cetera.
Then we get to the key point here which is why we are here
today: However, in August of 2007 the standard also removed the
prequalification requirement as a whole for machinery and small
vessel investigator, which, in essence, lowered the standard.
Coast Guard personnel stated that knowledge in these speciality
areas is essential to the ability of investigators to correctly
identify the causes of marine casualties and issue appropriate
safety alerts and recommendations. In our opinion removing this
prequalification standard may negatively affect the
qualifications and the capabilities of the Coast Guard marine
casualty investigators.
Now, I realize that one is one issue and one is the other.
But, sir, I have got to tell you also then when I look at the
report of the testimony of Catherine Higgins, where they
suggest that we were last here and we were fighting over who
should have jurisdiction and you guys have done it over the
years and that is why you still want it to do it, I have got to
tell you--and I am going to summarize--what I recommend that
this Committee do is that I think when we get a new
administration we need to send a letter to the Department; and
a complete reevaluation needs to be made of the jobs and
qualifications and what the Coast Guard does.
With all due respect, sir, you are out there fighting a
war. You are doing a whole bunch of things that many of us
didn't anticipate you were going to have to do at this level,
and hence we are having problems with marine accident
investigations, we are having problems with this, and I really
believe that you are stretched too far. And whether it is your
inability to fight with the current administration to demand
that you have appropriate personnel, I don't know what it is,
but I believe it needs to be seriously looked at based upon
your current involvement with the war efforts that we have.
Maybe what you did previously in nonwar environments was okay,
but I believe that we are just seeing holes in the ship all
around us and it has got to change.
So what I am going to ask of our Chairman is that we do a
letter, and I think we need to seriously reevaluate all of
these different things that you are required to do and
determine which ones are the most critical, and the ones that
you can't, maybe somebody else needs to do them. But this is
not working.
Do you have a comment on that?
Admiral Watson. The only comment I would like to make is
that there really isn't a difference in the subject matter we
are talking about here. It is an issue of clarity of a
standard.
I think to characterize the people that we have at the
National Vessel Documentation Center as having not the
requisite experience and competence I think is really not the
accurate characterization for this particular issue.
Ms. Richardson. Well, you just had several Members here who
went through questions and asked you, if you were completely
redoing the hold, didn't you see it? Didn't you know? Didn't
you understand? And there were serious concerns here of the
ability to do the job.
Admiral Watson. Well, in the process of issuing a
certificate of documentation, there is no field visit to the
ship. I mean, that was one thing that we absolutely agree with.
This is a process that relies on honesty on the part of the
applicant to do those calculations. And we don't have, in the
course of every documented vessel, an inspector that goes out
just for the purpose of doing the documentation evaluation.
This is done at the Vessel Documentation Center with the
information that is provided the same way it has been provided
for years and years, and the people that we have there are very
experienced. And it is really not an issue of training. It is
an issue of standards and clarity of purpose on the part of the
statute.
Ms. Richardson. Well, what I would say as I close, because
my time has expired, honesty only works if it is going all the
way; and if it is not going all the way then obviously we need
another process to deal with it. So what I am frustrated with
is I sit on this Committee and in a couple months I have seen
multiple instances where your operation has failed. So I am
willing to give you the fact that I don't think necessarily the
failure is solely that people don't want to do a good job or
the people that are there aren't capable of doing the job. What
I am saying is I think, with all the things you are doing, it
seems to be a little too much.
So we either, one, need to get enough people there to do
the job in a quality fashion or, two, we need to reevaluate all
of what you do. But we shouldn't be fighting over, as we were
just here, your saying that you wanted jurisdiction of another
area when I see areas that you have jurisdiction over where it
is not working. So at some point these pieces need to come
together, and that is what I am concerned about.
Thank you.
Mr. Taylor. The Chair recognizes Mr. Poe.
Mr. Poe. Thank you, Mr. Chairman.
Just to clarify, Admiral, isn't a field visit required
before a Certificate of Inspection is issued?
Admiral Watson. Yes, sir.
Mr. Poe. So there is an inspection of the vessel?
Admiral Watson. Yes, sir. It is an inspection related to
the safety rules in 46 CFR.
Mr. Poe. I just wanted to make sure that was clear.
Thank you, Mr. Chairman.
Mr. Taylor. The Chair recognizes Mr. Baird.
Mr. Baird. Thank you, Chairman. I thank our witnesses.
I don't know if you both have had a chance to look at the
testimony of Michael Roberts, who I think is speaking on the
second panel. Have you had a chance to look at that, by chance?
I am not trying to blind side you here.
Admiral Watson. I looked at it one time through, sir. But I
will be happy to take questions.
Mr. Baird. What is intriguing to me is Mr. Roberts makes a
number of points here about possible changes in the procedures
of the NVDC, and I am just interested--to a layman they seem
like reasonable ideas. What are the pros and cons of these
suggestions from your perspectives respectively?
Admiral Watson. I am trying to remember all the
suggestions, but I noticed there were some that related to
the----
Mr. Baird. Let me just summarize really quickly. And these
are not hostile questions. They are concerned particularly
about, basically, the confidentiality.
The closed nature of the NVDC determination process
suggests that some of the procedures, changes should be public
notice that an application has been filed, an opportunity for
third parties to participate in the proceeding with appropriate
restrictions to protect confidentiality of proprietary
information, a reasonable opportunity for pursuing an
administrative appeal within the Coast Guard, judicial review
under the Administrative Procedures Act, and publishing and
indexing of Coast Guard decisions on these issues.
As I read it, I think the premise is that others might want
to have input into this and maybe offer a different perspective
possibly than NVDC or the Coast Guard might determine. And,
again, to a layman I should tell you who supports the Jones Act
in principle and in its purpose, that makes some sense to me.
But I----
Admiral Watson. Yes, sir. And that is what I was recalling
was in there, was mostly the transparency of the process. And I
think we are looking very closely at adding to the process that
when an application--when a determination is made, a
preliminary determination or a final determination, that that
letter that the Coast Guard produces could be made public and
avoid the current practice of requiring a FOIA and then the
time it takes to process that and--as long as there is nothing
that we inadvertently--we would have to look at our letters
more carefully to make sure we haven't violated someone's
privacy or all the other stipulations in the FOIA.
One of the unintended consequences of changing to that sort
of a process is that the overall process could be slowed down
by adding this amount of information out so that there is a lot
of dialogue that goes on. We could do that. It seems to be
happening anyway. So if it could eliminate something else
afterwards----
Mr. Baird. Litigation, for example.
Admiral Watson. Yes, sir. That might be a net gain.
One thing that we cannot do, and this applies in all of our
areas in working with the maritime industry--I spent 4 years in
my career earlier doing plan review--is that you cannot release
proprietary plans of one company to another company, and that
is described very clearly in the FOIA. So one of the
limitations that we may not be able to overcome that is
suggested there is that they could have all of the information
needed to evaluate this as a third party. The only way they
could get that would be to go directly to the company that made
the application and provided it all to us, because we are not
at liberty to release any of that information.
Mr. Baird. Ms. Williams, do you care to comment?
Ms. Williams. Just to add to what the Admiral said is that
we have already seen complaints about giving only our
determination letter doesn't provide enough information that a
third party would necessarily require to make any type of
comment on our decision. So--and most of that information would
be withheld under FOIA.
Mr. Baird. I think the challenge here is, to the extent you
are empowered to make some of these consequential decisions, if
there is not confidence in the intent of enforcing the law,
then there is a need for a third-party review possibly.
And I want to close, I guess, by following up on the
questions that Mr. Taylor raised.
The comments suggesting that laws that are in place are
archaic or anachronistic leads one to wonder is that the role
of the people in that division to make those assertions? And
what are the consequences? If somebody is empowered, it would
be a little bit like a police officer saying I just never
really bought into the 70-mile-an-hour speed limit myself. You
wonder if that is the role of the police officer or if their
role is to enforce the 70-mile-an-hour speed limit, and what
are the consequences of that happening?
In two senses, what are the consequences for the
individuals who express such opinions? And, more importantly,
what are the consequences to the public who are depending on
such individuals to enforce the laws as they are written?
Do you care to comment on that.
Admiral Watson. Sir, I have never heard anybody in the
Coast Guard make that kind of comment. It is certainly not the
position of the United States Coast Guard, and we do regret
when our employees make comments like that. But it is
impossible to control everybody's comments, and it is hard to
say where that was heard. If someone is in an official capacity
and they are going to make a speech, we do try to review our
public comments by official people in the Coast Guard. We just
would simply say, no, that is not the position of the Coast
Guard; you can't say that.
If they were to have said it and it comes back to us, we
would certainly look into the circumstances and whether we need
to do something about that individual.
But, obviously, we don't condone that. Our purpose is to
enforce the laws of the United States, and the Jones Act is a
very important law.
Mr. Baird. I appreciate that.
I would just close by saying it is so important that the
vast majority of the Members of the Congress of the United
States support it and we support it because we believe in a
strong domestic shipbuilding industry; and I think we would
look unfavorably upon anybody who sought to undermine that,
either overtly or covertly.
I thank the Chairman for his time.
Mr. Taylor. Thank you.
Ms. Williams, just a couple of questions; and I would
invite either you or the Admiral to answer this. But a mistake
was made. A major rebuild occurred. The Coast Guard signed off
on it. You shouldn't have, and it took the courts to tell you,
you made a mistake. So let us leave it at that.
What I am curious about is on this major rebuild. I really
do think any kid coming out of Cape May would have said major
rebuild. Who in your organization looked at that, and who
signed off on it, and what is the procedure? Was it a civilian
who made this call and a uniformed officer signs off on it?
What is the procedure?
The second thing is--and I am trying to cut you some slack
here. I do not have a law degree, and I realize that guys who
don't have law degrees are making these calls every day. So I
am going to read things to you. This is coming out of 46 CFR:
"A, regardless of material of construction, a vessel is
deemed rebuilt when a major component of the hull or
superstructure not built in the United States is added to the
vessel."
And you drop down a little bit: "A vessel is deemed rebuilt
when work performed on its hull or superstructure constitutes
more than 10 percent of the vessel's steelweight prior to the
work, also known as discounted lightship weight."
Now, I am trying to cut you some slack. The guy who has
worked on boats says a lot of this work could be curved welds,
very slow, manually intensive, very expensive. Or if you just
go by weight, a lot of that could have been straight. It could
have been done by machine, pretty cheap to do.
Do the people in your organization look at the complexity
of the work, have the technical expertise to go, "that is going
to be slow, painful, and expensive" or "that is quick and
dirty"? Is that language confusing to you, or did it just
automatically fall to the 10 percent rule?
And, again, I am trying to ask this because I want to solve
this problem, and I am trying to figure out where the problem
is. Is it lack of expertise within your office? Is it lack of
guidance in the law? Is it lack of national will?
And, lastly and I sure hope the last one is way off, are
you being leaned on by this administration or any
administration not to enforce the law?
Ms. Williams. Sir, the process of making a rebuild
determination is that an applicant submits in writing to us a
very detailed explanation of the plant work. With that, they
submit the calculations of the amount of steel work involved in
the proposed modifications as compared to the total steel
weight of the vessel. That information is processed at a very
high level within our organization.
The NVDC is composed of about 101 persons, primarily
paralegals, specialists, and some clerical staff. But the
determinations and most recently--well, at least since the
formation of the NVDC--Mr. Willis, who was the former director,
and I made those determinations until we got a staff attorney;
and the staff attorney, Mr. Willis and I consulted on all
rebuild determinations made since his arrival.
Mr. Taylor. Just for clarification, so you personally were
involved in the Mokihana?
Ms. Williams. Yes, sir. As a reviewer, yes, sir.
Mr. Taylor. And you did not consider that to be a major
rebuild?
Ms. Williams. No, sir. One of the----
Mr. Taylor. Even after the photos were submitted to you?
And, again, I can see the difference between what they said
they were going to do and the photos. So you made your
determination based on their written testimony?
Ms. Williams. On their----
Mr. Taylor. On their written request?
Ms. Williams. On their written request.
Mr. Taylor. So what happened when the photos--because I
know my office submitted to the Coast Guard these photos. What
happened then? And the Coast Guard stuck to their story. This
isn't a rebuild. What happened then?
Ms. Williams. As we applied the test, as we were trying to
explain earlier as far as a major component or major components
added to the vessel, we applied it in conformance with what we
believe led to the addition of that terminology to the statute
itself, is that separate and distinct portions of a vessel that
exceeded 1-1/2 percent of the vessels overall steelweight were
then added to the vessel. The work that was done on the
Mokihana did not rise to that level in our estimation of how
the work was performed on the vessel.
Mr. Taylor. Do you find the law that I just quoted
confusing in any way?
Ms. Williams. No, sir, I don't.
Mr. Taylor. So you go by the 10 percent rule is what you
are telling me.
Ms. Williams. Yes, sir.
Mr. Taylor. You are not looking at it as a major component.
You are looking strictly at the 10 percent rule--
Ms. Williams. No, sir. We look at both portions of it.
Like I said, a vessel--if a major component--in the first
provision under the rule, if a major component of the vessel,
added to the vessel, was not built in the U.S. and was later
added to the vessel, it could rise to the level of being a
rebuilt.
There are two portions of this rebuild determination that
we do in fact----
Mr. Taylor. But I am sensing that in no instance do you
look at the complexity of the work, the value added of the
work, that your fallback is the 10 percent rule, 10 percent of
the steelweight?
Ms. Williams. Yes, sir.
Mr. Taylor. That is your quick and dirty----
Ms. Williams. Well, as far as how complex the work is and
whether it is going to be quick and dirty, no, sir. We go with
the overall calculations in either event.
Mr. Taylor. The second thing I have got to ask, I have been
to shipyards in Korea and had total access; shipyards in
Germany, total access; shipyards across the States, total
access; shipyards in Denmark, total access. I visited one
shipyard in the People's Republic, and I was assigned a goon
who was in my face all day. I am just curious. When your folks
are in a Chinese shipyard, are they given total access to that
yard?
Ms. Williams. None of the folks that work for the NVDC
would ever be in a shipyard, sir.
Mr. Taylor. No one from the Coast Guard ever----
Ms. Williams. Not from the Coast Guard. From the National
Vessel Documentation Center.
Mr. Taylor. I'm sorry, ma'am?
Ms. Williams. No one from the National Documentation Center
would be in a shipyard.
Mr. Taylor. Ever?
Ms. Williams. That is correct.
Mr. Taylor. So you are strictly--again, then you are
counting on the honesty of the applicant. No one is looking
over the shoulder, never a spot check?
Ms. Williams. That is correct. And that is for all our
applications, not just rebuild. Any application to document any
vessel with us is based on a self-certification of the
applicant.
Mr. Taylor. Okay. And the reason for that decision, is that
dollars, limited budget? Is it manpower? Is it the way it has
always--I am just curious.
Ms. Williams. It is the way it has always been. We
document--we have a total of 350,000 documented vessels. About
35 percent of those would be commercial vessels, and I don't
know what the actual----
Mr. Taylor. Again, Ms. Williams, deal with the practical.
Today, out in the Gulf of Mexico, some Coasties are going to
board a boat and say, "Do you guys have any undersize snapper
on board?" And the folks instinctively are going to say, "No."
And they say, "Do you mind if we look in your ice chest?" So
for something as simple as the size of a snapper, the Coast
Guard is going to stop and see if someone is breaking the
rules. You are telling me that no one is bothering to check on
a huge project like this whether people are living by the
rules?
Ms. Williams. Not for the purpose of issuing certificate of
documentation----
Mr. Taylor. All right. I just wanted to get that on the
record. Thank you for being forthright for us.
I don't have any additional questions. Does anyone else?
Again, thank you for being here. We have obviously got
something that needs to be addressed. We very much appreciate
your appearing before the Committee. You are excused, and we
are going to call the second panel up.
The Committee is now going to hear testimony from our
second panel including Mr. John Love, the Vice President of
Pasha Hawaii Transport Lines; Mr. Matthew Paxton, the President
of the Shipbuilders Council of America; and Mr. Michael
Roberts, a partner on behalf of Crowley Maritime Corporation.
TESTIMONY OF JOHN P. LOVE, VICE PRESIDENT, PASHA HAWAII
TRANSPORT LINES LLC; MATTHEW PAXTON, PRESIDENT, SHIPBUILDERS
COUNCIL OF AMERICA; AND MICHAEL G. ROBERTS, PARTNER, VENABLE
LLP, ON BEHALF OF CROWLEY MARITIME CORPORATION
Mr. Taylor. Mr. Love, we will take your testimony first,
please.
Mr. Love. Mr. Chairman and Members of the Committee, my
name is John love. I am a Vice President of Pasha Hawaii
Transport Lines, and I appreciate the opportunity to testify
before the Subcommittee on Coast Guard and Maritime
Transportation.
PHTL is a U.S. Flag carrier that operates the JEAN ANNE, a
U.S.-built vessel carrying roll-on/roll-off cargoes in the west
coast and Hawaiian Islands trades. The JEAN ANNE is a state-of-
the-art pure car and truck carrier delivered by VT Halter
Marine in Mississippi in 2005. She meets all the requirements
of the Jones Act.
As you know, the Jones Act requires that U.S. Flag vessels
be built and rebuilt in the United States in order to retain
domestic trading privileges. If a major component is added to a
vessel in a foreign shipyard, it is rebuilt foreign per se. We
knew this when we decided to build the JEAN ANNE at VT Halter
and have no doubt that our competitors knew this as well. We
also assumed that the Jones Act would be vigorously enforced.
Yet the JEAN ANNE is now competing with at least two vessels
rebuilt in Chinese shipyards.
The root of the problem begins with the fact that the
decision-making process employed by the Coast Guard is a secret
proceeding closed to the public. A typical application for a
rebuild determination, contrary to the testimony that you heard
here this morning, consists of a lawyer's letter with a vague
general description of the project, even though the Coast
Guard's regulations mandate submission of detailed information
along with accurate sketches and blueprints.
In the Mokihana case, none of this happened. What was
described here this morning by Admiral Watson and by Ms.
William is a process as it should have been but not what
actually happened.
To make things more difficult, the only way to obtain a
copy of the Coast Guard ruling is to file a request under the
Freedom of Information Act. Even when the ruling is finally
obtained, it is difficult to ascertain just exactly what it is
the Coast Guard has approved. There is no meaningful appeal
process to headquarters, and disadvantaged shipowners have
found that the only relief available is to file a complaint in
Federal court.
I am going to digress a moment from my written comments
here to address some comments by Admiral Watson and Ms.
Williams.
On October 26 of 2006, we wrote a detailed letter to the
Coast Guard describing the process and the project that Matson
was undertaking at Nantong, China, on the Mokihana. Unbeknownst
to us, the day before we submitted our letter the general
counsel and senior vice president of Matson had submitted a
letter to the Coast Guard telling the Coast Guard that the
project was over 7-1/2 percent, not as originally presented to
the Coast Guard, and confirming to the Coast Guard that now
that they had detailed plans and had entered into their
shipyard contracts, the steel percentage was now accurately
known.
What happened next is really incredible, and I am just
going to turn to the administrative record from the Coast
Guard.
Because as soon as Matson Navigation and the National
Vessel Documentation Center became aware of our protest, Matson
withdrew the letter admitting that the project was over 7-1/2
percent; and we received a one-sentence letter from Thomas L.
Willis, Director of the National Vessel Documentation Center,
saying, "I refer to your letter of October 27, 2006, requesting
reconsideration of the preliminary rebuild determination dated
June 23, 2004, concerning Matson Navigation C-9 class vessels.
In accordance with the provisions of 46 CFR, subpart 1.03, that
action is no longer subject to review or consideration."
So we were told to take a walk. That is the transparent
process.
Not only is the procedural process flawed, but the
decision-making process is flawed as well. While the rebuild
determinations are inconsistent, there is one discernable
trend. The Coast Guard's enforcement of the Jones Act has
gotten increasingly lenient or nonexistent.
The Coast Guard's regulations purportedly use two tests to
determine if a vessel is rebuilt, a major component test and a
steel weight test. In recent rulings, the Coast Guard has
written the requirement that major components be constructed in
the United States completely out of the Jones Act. Rather than
look at what is being added to the vessel overall, the Coast
Guard has argued that it should look only at the weight of the
largest piece of the major component. This approach has been
soundly rejected by the Federal court in a recent case.
In another ruling, the Coast Guard held that a 265.5 ton
deck added in China is not a major component because the
heaviest piece lifted by the Chinese shipyard's crane was only
26.9 tons. This is obviously not what Congress intended.
The Coast Guard's implementation of the percentage steel
weight test also shows an increased willingness to sanction
foreign rebuilding. As further described in my written
testimony, for example, the Coast Guard typically does not
count outfitting when counting steel work, as outfitting has
been historically defined as inventory, equipment, furnishing,
and stores. Yet recently the Coast Guard has expanded this
definition to include vehicle decks as outfitting on the ground
that they are nonstructural steel work, although this
distinction, the distinction between structural and
nonstructural, was rejected by another United States District
Court judge almost 20 years ago.
According to the Coast Guard and confirmed by the courts,
preliminary rebuild determinations convey no legal rights.
Applicants seeking a rebuild ruling have been aware for years
of the increasingly lax enforcement of the Coast Guard. They
have asked for rebuild rulings that they know would never be
approved by an agency that is dedicated to enforcing the Jones
Act.
Applicants who have obtained these rulings and who pushed
the envelope took a calculated risk that it would be business
as usual. Now that the courts are responding, these companies
should not be bailed out by Congress. This would not be fair to
those of us who followed the rules and invested tens of
millions of dollars and trust in U.S. Shipyards.
The problems at the Coast Guard are having ripple effects.
Although we disagree with this approach, the Maritime
Administration is following the Coast Guard in determining what
constitutes a foreign rebuilding for purposes of the capital
construction fund. This has resulted in sizable tax benefits
for vessels rebuilt oversees in Chinese shipyards when the
benefits were designed to encourage work in U.S. shipyards.
In addition, while some of these projects are clearly major
conversions requiring environmental and safety upgrades, the
Marine Safety Center, part of the Coast Guard, also appears to
be following the rest of the Coast Guard and by doing so may be
creating issues concerning U.S. compliance with international
treaties. So the Mokihana, which was gutted in China, was found
by the Marine Safety Center not to be a major conversion for
safety purposes.
All of this adds up to putting us at a significant
competitive disadvantage because we chose to play by the rules.
The Jones Act was intended to create a level playing field. We
ask that Congress take steps to encourage the Coast Guard to
enforce the Jones Act by, amongst other things, making the
rebuild application process completely transparent with input
from all concerned, requiring the applicant to submit
sufficiently detailed information in support of its application
and conducting meaningful investigations.
In the case of the Mokihana, you have a 3-page letter from
the general counsel and senior vice president of Matson with
three paragraphs that comprise half a page that describes the
project. You have a couple of crude renderings of the profile
of the ship and 1 page of calculations that a U.S. Federal
judge has characterized as the work of a 5th grader. That was
the application to the Coast Guard that was approved.
Mr. Taylor. Mr. Love, we have been pretty generous. We gave
you 10 minutes on your 5.
Mr. Love. Thank you, sir.
Mr. Taylor. Thank you very much.
The Chair recognizes Mr. Paxton.
Mr. Paxton. Thank you, Chairman Taylor and Members of the
Subcommittee for the opportunity for the Shipbuilders Council
of America to testify at this important hearing. I am Matthew
Paxton, President of the Shipbuilders Council of America, the
largest trade association representing U.S. shipyards.
The SCA represents 31 companies that own and operate over
100 shipyards. They are located along the eastern seaboard, the
gulf coast, the Great Lakes, the west coast, and Hawaii. SCA's
members build, repair and maintain America's fleet of
commercial vessels.
A core value of the SCA is to promote and protect the Jones
Act, which requires vessels that operate the domestic trade to
be built in U.S. shipyards and owned and crewed by U.S.
citizens.
From the shipyard perspective, the Jones Act ensures that
the U.S. maintains critical shipyard infrastructure and a
skilled workforce that can build and repair the domestic Jones
Act fleet that consists of over 38,000 vessels. These vessels
were built in U.S. shipyards and represent an aggregate $48
billion investment.
However, over the last decade, the U.S. Ship repair
industry has experienced a substantial decline in the amount of
maintenance and rebuilding work on the Jones Act fleet.
Increasingly, more Jones Act vessels are going overseas to
perform major rebuild work. This work previously sustained the
U.S. ship repair industry. The result has been significant
downsizing of major ship repair facilities, loss of critical
ship repair assets, closure of shipyards, and the outsourcing
of skilled labor needed to maintain the domestic fleet.
This is not the first time the U.S. Shipyards have been
faced with the loss of work on Jones Act vessels. In 1956, the
Congress introduced a bill to add the Second Proviso to the
Jones Act.
At that time, this Committee provided in its House report
accompanying the passage of the Second Proviso bill the quote:
"With major developments in technology in recent years there
have been instances of American-owned, American-built vessels
which have been substantially rebuilt in foreign shipyards.
This appears to be a gap in the law, which is clearly
inconsistent with traditional policy."
The "gap in the law which is clearly inconsistent with
traditional policy" that exists today is the inconsistent
application and enforcement of the foreign rebuild regulations
by the Coast Guard. Simply put, the Coast Guard has failed to
enforce the major component test of its own regulations in a
core element in the Second Proviso.
In addition, the Coast Guard has never exercised its
discretion to determine that a vessel has been rebuilt when
foreign work projects involve between point 7.5 percent and 10
percent of a vessel's steelweight. Instead, with no analysis,
the Coast Guard has simply implemented a de facto 10 percent
steel work threshold test to determine whether a vessel has
been rebuilt foreign. It is important to note to the Committee
that a 10 percent total steelweight rebuilding is a large job,
and U.S. shipyards can do it and very much want to do this
work.
Further complicating the Coast Guard's regulations is the
fact that the standards and tests for what counts in a foreign
rebuild project are constantly changing. The Coast Guard once
counted the total steel added and steel removed from a vessel.
Now it only counts the greater of either the steel removed or
added in calculating the 10 percent threshold test.
The agency determined that adding an entire hull to a
single-hull vessel was not considered a rebuild. We have heard
a lot about this today. The work, they concluded, was
"intrinsic to the hull itself" and not a component; and they
went on to further define this as saying this wouldn't be
"similar to the addition of decks added to the superstructure."
However, in a subsequent ruling which involved the addition
of several decks to the superstructure of a Jones Act vessel in
China, the Coast Guard disregarded its previous analysis that
decks are considered separable components and instead applied a
new test that looked at whether or not any crane in the Chinese
shipyard can lift a single component weighing at least 1.5
percent of the steelweight of the vessel. Upon determining the
Chinese shipyard did not have cranes that could lift a
component of this size, the Coast Guard determined no
rebuilding took place.
The lift capacity of cranes in a foreign shipyard has
nothing to with the Second Proviso. It serves only to frustrate
congressional purpose, intent, and to prohibit the foreign
rebuilding of Jones Act vessels.
The lack of enforcement of the Second Proviso by the Coast
Guard has resulted in confusion and uncertainty not just for
U.S. shipyards but across the maritime industry. Jones Act
operators no longer have faith in what the capital construction
costs are to operate in domestic trade. Is it rebuilding a new
vessel in a U.S. shipyard, or is it rebuilding your Jones Act
vessel in a Chinese shipyard?
The Shipbuilders Council of America supports the Jones Act
and the consistent application of the Second Proviso. I
recommend this Committee consider legislation to clarify the
Coast Guard regulations to provide a transparent and
predictable process so everyone in the maritime industry
understands the standards for rebuilding Jones Act vessels.
This clarification should take a common-sense approach to the
identification of components of the hull and superstructure. A
component should be looked at in its entirety, irrespective of
its manner of installation.
The U.S. District Court for the Eastern District of
Virginia recently remanded and revoked the Coast Guard's
endorsement of a Jones Act vessel rebuilt in China because
"However the manner in which the component is added to the
vessel, piece by piece or wholesale, is irrelevant to whether
the component is major. Although a deck or a component of the
hull can be added to a vessel as one discrete preconstructed
structure, it surely can be added piece by piece, beam by beam,
rivet by rivet. Shipowners could easily frustrate the entire
operation of the Second Proviso."
The SCA agrees with this assessment and believes the Second
Proviso has effectively been written out of the Jones Act.
Thank you again, Mr. Chairman, for the opportunity to
testify here today.
Mr. Taylor. The Chair now recognizes Mr. Roberts.
Mr. Roberts. Mr. Chairman and Members of the Committee,
good morning. I am Michael Roberts with the law firm Venable,
and I appear this morning on behalf of Crowley Maritime
Corporation.
Crowley is a leading American shipping company based in
Jacksonville, Florida. I have represented Crowley on maritime
regulatory and policy issues since 1991 and have spent a large
part of that time involved in Jones Act issues.
I want to compliment you for holding this hearing. It is a
very important subject, and I feel a little bit like a member
of the choir singing to the preacher here, but we have a Jones
Act because we need an American maritime industry for reasons
of national security.
Could we have cheaper ships and cheaper transportation if
we left it up to the Chinese to take care of that? Of course.
But Congress has said very clearly that you can't do that in
American domestic markets, and to a large extent that is a
reason that is how we maintain an American maritime industry.
The issue today concerns what it means to rebuild a vessel,
what kind of work can be done on a Jones Act vessel in a
foreign shipyard without disqualifying that vessel from
domestic trades. It is very important to the industry that we
get this right.
American shipping companies have been told essentially
this: Build ships in the United States for domestic trade.
Don't worry that those ships are much more expensive than ships
built overseas. They will compete on a level playing field in
our domestic trades. That is a risky proposition unless there
is real confidence that foreign-built ships or foreign-rebuilt
ships are in fact excluded from domestic trades; and,
unfortunately, some recent decisions by the Coast Guard have
undermined that confidence by letting foreign-rebuilt vessels
into domestic trades.
I will quickly go over how this issue has come up in the
tanker business.
When Congress passed the Oil Pollution Act of 1990
requiring the phaseout of all single-hold tankers, Crowley and
other company OSG and other tanker owners had a tough decision
to make. Do they start replacing tankers, building them in the
United States or not?
Keep in mind that if they build the ships in the United
States, the cost is going to be much higher. They are not going
to be competitive in international trade from a capital cost
perspective.
But Crowley did its analysis, lots of analysis on lots of
different options, including retrofitting older U.S. tankers in
U.S. shipyards, and decided that the economics worked out for
building a series of new tank vessels in the United States.
Crowley and OSG are in the middle of building programs that
will run about a billion dollars for each company to build new
tankers in the United States, about 29 of them altogether at
this point for use in domestic trades.
In taking that step, these companies are not only complying
with the Jones Act but they are making a very large financial
contribution to American security interests by helping to keep
U.S. shipyards active and modernizing. This is precisely what
Congress asked the industry to do.
The other company in this scenario, Seabulk, didn't want to
take the risk of building U.S. ships in the United States and
felt it was just too expensive to retrofit older tankers in
U.S. Shipyards, although other companies have done exactly
that. So Seabulk asked its lawyers to send a letter to the
Coast Guard. The letter described a basic double-hole retrofit
project and argued that if Seabulk were to go ahead with the
project in China, this vessel would nevertheless keep its Jones
Act privileges.
Nobody knew anything about this letter except Seabulk and
the Coast Guard. From what we can tell, the Coast Guard didn't
dig into it very much, didn't ask the hard questions, and went
on and issued a private letter ruling as Seabulk requested.
While these rulings are not published, eventually it all came
out not only that Seabulk had obtained permission for two
retrofit vessels but that two other companies had obtained
similar authority, for a total of 10 vessels that would be
retrofitted in China with double holes. Those decisions, if
implemented, would destroy the markets that Crowley and others
had planned on when they made their investment decisions.
So, at that point, in April of 2007, Crowley filed a 25-
page appeal to the Coast Guard Commandant giving the Coast
Guard a chance to clean up this mess, and we still haven't
heard anything on that appeal.
When Seabulk----
Mr. Taylor. Excuse me, Mr. Roberts. For clarification, when
did that happen?
Mr. Roberts. We filed an appeal in April of 2007.
Mr. Taylor. So 14 months.
Mr. Roberts. Correct.
Mr. Taylor. Would you be so kind as to send a copy of that
to my office?
Mr. Roberts. I would be happy to do that.
Mr. Taylor. Sorry to interrupt.
Mr. Roberts. That is fine.
When Seabulk completed work on the first ship, the Coast
Guard issued a coast-wise endorsement within 24 hours of the
request and without looking further into it. This was finally
the final agency action that we needed to take the matter to
court. Crowley was joined by OSG and the Shipbuilders Council
and the lawsuit against the Coast Guard.
You know the results of that lawsuit at this point. A
conservative court in the Eastern District of Virginia reversed
the Coast Guard's ruling on three different grounds. Seabulk
has appealed that decision to the Fourth Circuit, and that is
where things stand at this point.
And I would like to make two brief observations, if I may.
First, the practical effect of the Coast Guard's letter
ruling dealt with one issue only, where the work could be done.
By letting Seabulk do the retrofit work project in China
instead of the United States, the ruling was like a discount
coupon with two-thirds off the regular price. Crowley, OSG and
others have been paying full retail price and contributing
hundreds of millions of dollars to U.S. security by complying
with the Jones Act; and yet the Coast Guard has rewarded
Seabulk with a two-thirds off coupon for taking its ship to
China. And that Chinese-American ship has put Crowley's vessels
at a tremendous competitive disadvantage since its return.
My second point quickly gets to the procedures, and I can
talk further about that during the Q&A, if you would like. But
I genuinely believe that the issue is bad procedure and not bad
faith on the part of the Coast Guard. And I think it has been
echoed across the board here, and I will say that we have as an
industry worked out at least to some level a set of procedures
that I think would improve considerably on the process. And I
would be happy to go over those if that would be helpful.
Mr. Taylor. Thank you.
Before I recognize Mr. Larson, I would like to at least get
you three gentlemen's opinion on something.
I think the Admiral at some point said, we don't make the
request to do work public because it contains proprietary
information. I serve on the Armed Services Committee, and I can
see where the plans to a nuclear submarine we probably don't
want on the Internet. Plans for a rail launch to an aircraft
carrier, we spent a lot of money to develop that, we probably
don't want that on the Internet either. Would there be anything
of a proprietary nature to a modification of the hull of any of
the vessels of the companies you represent that would trouble
you being made available to the public? I have trouble
believing that.
So, Mr. Love, I will start with you.
Mr. Love. The claims of confidentiality are completely
spurious, Mr. Chairman.
Mr. Taylor. I am sorry. Could you speak up, sir?
Mr. Love. The claims of confidentiality are completely
spurious, Mr. Chairman.
First of all, if you take the Mokihana as an example, it is
a rebuilding of a C-9. To my knowledge, there are two other C-
9s, both of them owned by Matson Navigation. So the plans for
the conversion of the C-9 would not be very helpful to anybody
else that I can think of in the industry.
Also, the concept and the process of building a vehicle
carrier are well-known to everybody in the industry.
Mr. Taylor. Mr. Paxton, since you represent the
shipbuilders, and I guess I am asking you on behalf of the
shipbuilders, would you have a problem with Congress mandating
that these proposed changes become public information? Because,
again, with my limited knowledge, I can't see a modification to
a hatch, adding a bulbous bow, adding a midbody section, I
really can't see anything about that that would fall into the
category of the requiring it be classified information.
Mr. Paxton. Absolutely not, Chairman. We would support a
great deal of process and transparency.
In case in point, we have bid on these projects. Our
shipyards have bid on the double hulling. So information was
made available to the extent that yards got to bid on these
projects.
There may be some confidential aspects of it, but the fact
of the matter is information is made available such that we
could bid on these projects and we were told were too expensive
before they headed off to China. So, absolutely not. We would
support greater process, greater transparency, and very much so
have worked with Mr. Roberts on the process of using the
Federal registry as a way to put out comments on proposals to
do extensive work on Jones Act vessels overseas.
Mr. Taylor. Mr. Roberts.
Mr. Roberts. Yes. I think the confidentiality has been used
in a way that allows, potentially, manipulation of the process
right now. And to take it a step further, not only do we not
know that an application is filed, not only do we not see what
an application says at any point in the process, but even when
we go to court, the court reviews the decision under the
Administrative Procedures Act which says that the agency record
is the only thing you are supposed to look at. The agency
record is what the applicant put in, so we have been through
litigation now for over a year in the Seabulk case. We were
extraordinarily fortunate in getting some information, but we
have taken no depositions. We have gone no further than that.
So the confidentiality works very much to the benefit of the
applicant; and, as a consequence, naturally it tends to erode
the Jones Act.
I would only say this. There may be engineering issues that
are involved in a proposed project that a company has spent
money on the architecture and wants to keep that confidential.
That is not unusual. That happens all the time. There are
mechanisms, confidentiality agreements, protective orders, and
so on so that the information can be disclosed to a limited
extent as necessary to evaluate it but not broadcast to the
world.
Mr. Taylor. Thank you very much.
The Chair recognizes Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Mr. Roberts, in your testimony on page 4 I think you lay
out five steps, if I am not mistaken, five possible changes to
the procedures. I would like to ask a few questions
specifically about those steps and then ask a question of their
impact on something else.
First one is public notice that an application has been
filed. By that do you mean a public notice that a preliminary
rebuild determination has been requested from the Coast Guard?
Mr. Roberts. Yes. I think that would be appropriate. The
preliminary rebuild application. Notice that it has been filed.
Mr. Larsen. Notice it has been filed.
And then the opportunity for interested third parties to
participate fully in the proceedings. How would then that
manifest itself?
Mr. Roberts. That could be handled on the basis of a 30-day
comment period, simply submit comments. If there is information
that is submitted with the application, an interested party
could obtain that information and then submit comments within
30 days.
Mr. Larsen. Now getting this set for judicial review under
the APA, is that something that would be a necessary step or is
that--would that be an appeal step?
Mr. Roberts. The current process, virtually any agency
action is subject to review under the Administrative Procedures
Act, so that would continue to apply to these decisions.
Mr. Larsen. All right. And then publishing and indexing of
the decisions on these issues I think would be fairly
important, given the fact that there is lots of talk of
consistency, but I am not gathering that there is--there has
been consistent application, it seems.
Mr. Roberts. No, Congressman. I think the fact that you
can't even obtain the decisions without submitting a Freedom of
Information Act request just tells you how untransparent the
current process is.
Mr. Larsen. The Coast Guard testified earlier about the--in
response to my question about the triggers that exist to send
something over to the Naval architect's office if there are
questions. It seems to me that seems to be a fairly informal
process, a--"loosey-goosey" would be another term--loosey-
goosey process. Are there triggers that would send something
over to the Naval architect's office and do you have
suggestions for what those ought to be?
Mr. Roberts. I am sure my colleagues may want to comment on
that issue.
Mr. Larsen. Sure.
Mr. Roberts. I would say that if you allowed public
participation, participation of competitors and others who
might have an interest in this, in a particular application,
you will take care of a lot of those issues. I don't think very
often--I don't believe very often that the information at the
Naval Architecture Branch is going to necessarily decide the
case or not. So I think the core is getting the public
involved. But I will defer to my colleagues on that.
Mr. Larsen. Yeah. Mr. Paxton?
Mr. Paxton. I think primarily it is one of maintaining some
standards that are consistent. I think where the problem has
evolved over time is--and I have a letter ruling here where the
Coast Guard said we counted the total steel in and we counted
the total steel out and you are below the 7.5 percent threshold
so you are not rebuilt. And then 4 years later they said, well,
now our test is that we have the greater of.
So I think process, a healthy amount of process, is
absolutely necessary, is absolutely needed. But before we even
get to that process we have got to know what the rules of the
game are and that we are not constantly moving the goalpost for
what counts. Separable versus nonseparable, that was cast aside
when the court decided structural versus nonstructural wasn't
something we could look at.
So I just think the Coast Guard--and I agree with Mike that
the Coast Guard isn't trying to undermine this process. I think
the Coast Guard has followed poor precedent after poor
precedent that has got them to a point now where they are
looking at crane-lift capacity to determine whether or not a
vessel has been rebuilt.
So I would also recommend that we need to get the standards
down first before we can have a healthy public process.
Mr. Larsen. I need to ask a question before my time is up,
and it has to do with the WTO and the GATT. Because there are
concerns that have been expressed about making any major
changes to the actual provision, the actual language of the law
would trigger a WTO review. Because, as it exists, it is
grandfathered in, but if you make changes you would have a
problem moving forward.
So two questions. Is it your belief that if we made changes
to the process as you are suggesting, would that trigger a
review? And, second, if we were somehow able to get the Coast
Guard to actually enforce the Second Proviso as we see it,
which would apparently be different than it is being seen
today, so the law wouldn't change, it would just enforce it as
we see it, would that--do you believe that would trigger a
review?
Mr. Roberts. I will answer that.
I think the answer to the first question is, no, that the
WTO and the GATT grandfather provision applies to substantive
rules. If we become more restrictive, then we run the risk of
violating that grandfather provision. It has nothing to do with
the procedures that are followed in making a determination
whether or not this particular project complies or doesn't
comply. So I think there is no risk at all from a GATT
perspective to improve these procedures.
I think if the Coast Guard tightens its enforcement
activities and makes determinations that are more consistent
with, as you say, what Congress intended in the Second Proviso,
again, I don't think that that would create a GATT problem. We
are really clarifying and enforcing the law as it was written
and it was meant to be enforced. And that is not becoming more
restrictive, that is not legislating a more restrictive regime.
So I think in both cases we should not have a problem on that.
Mr. Paxton. And I would just add one part to that. The
court case--the recent court case in the Seabulk matter threw
into question all of this. Because the court clearly said there
has been no analysis for any of these tests. There may be a
test called counting the greater of either the steel removed or
steel added, but you haven't done the analysis.
So I would pose that any clarification of the regs--and,
again, just enforcement of the regs, the clear--what the Coast
Guard has said. The Coast Guard has said through its letter
rulings 1.5 percent is a major component. It said it in the
Mokihana ruling, in that letter ruling. We just asked that they
actually implement that and not try to skirt around it. So I
don't think there would be any GATT violation, because we are
actually trying to argue implement what you say.
And we are not putting in or amending the Second Proviso.
The Second Proviso speaks to major components. So we would say
enforce the law.
Mr. Larsen. Mr. Love?
Mr. Love. We believe that the regulations are clear and
that the statutory language is clear, and it is strictly a
matter of enforcement.
Ms. Williams said that the Coast Guard gets very detailed
information. But the administrative record in the case that I
am involved in, for example, shows that there is no detailed
information at all. And, in fact, even though the matter was
eventually referred to the architectural division, there was no
analysis done by the architectural division as was described
here. So I think that the only issue is an enforcement issue.
Mr. Larsen. Thank you.
Thank you, Mr. Chairman.
Mr. Taylor. Mr. Love, I would like to follow up on that
last comment, because I think you have noticed that you are
going to have a very favorable response, my gut tells me, from
this Subcommittee. I can't speak for the Full Committee, can't
speak for the full House, and I certainly can't speak for the
other body. But I would think the skeptics would come back and
say, well, it is just a temporary thing. This administration
has chosen not to enforce the law.
So my question to you is, is that accurate? Is it something
that is just unique to this administration or in your years
have you seen a degradation on the part of the Coast Guard over
time to enforce these laws?
Mr. Love. Firstly, I would like to note that over the last
10 years there has been, rough number, only 40 rebuild
determinations, so an average of four a year.
My own personal opinion is that Mr. Willis, in charge of
the Vessel Documentation Center and responsible for making
these rulings, really acted on his own. And now the Coast Guard
is defending the indefensible. There have been very intelligent
determinations by the National Vessel Documentation Center over
the years, but in recent years there was just a, let's say, a
cultural predisposition by the single person who really could
influence this whole process in finding some way in every case
to justify avoiding the application of the Second Proviso. So
this is a process I think that could be easily fixed and would
not involve the trade issues.
Mr. Taylor. Okay. Would anyone else like to comment on--
again, is this something unique to the Bush administration that
gets changed next January, or has there been a degradation over
time that you have noticed regardless of who is in the White
House?
Mr. Roberts. Mr. Chairman, my sense is that it is not a--it
is too far down into the weeds to be something that the
administration would likely have an involvement in. I really
think that it is very technical, it is very complex, it is
isolated, physically isolated in West Virginia from the main
Coast Guard activity here in DC.
And I think, you know, I hate to be sort of Johnny One Note
here, but I really do believe that the procedures are such that
they inherently favor decisions that erode the Jones Act. The
only people who go ask for these decisions are people who want
to do work in foreign shipyards. Nobody else knows about those
requests, and nobody knows about the decision. So the natural
tendency, human nature, I believe is for the people to try and
satisfy the people in front of you, who in these cases happen
to be people who want to do work in foreign shipyards.
Mr. Taylor. This is coming from one of the staff. If you
were allowed to comment, what would your reaction be to a
notice that a shipbuilder proposed to--and I am quoting--
install a double hull in a tanker in a foreign shipyard?
Mr. Roberts. Say it again? I am sorry.
Mr. Taylor. What would your reaction be to a notice, if
such a thing was required, that a ship owner proposed to
install a double hull in a tanker in a foreign shipyard?
Mr. Roberts. We wouldn't hesitate to say you can't do that.
I mean, it is very--in our opinion, if you add a second hull to
a vessel, a second hull is a major component of the hull. And
so we would have no doubt----
Mr. Taylor. Let me turn that around.
Mr. Roberts. Okay.
Mr. Taylor. What is the penalty that you pay for living by
the law? Has anyone calculated the cost advantage to lying on
your application?
Mr. Paxton. Lying on your application is the forfeiture of
that vessel.
Mr. Taylor. If you are caught.
Mr. Paxton. If you are caught.
Mr. Taylor. But, again, you have to, in effect, tell the
Coast Guard that you lied on your application. Because no one
is going to check you, unlike that Snapper boat captain today,
who they are going to look in his ice chest and break out the
tape measure over a fish. You could do millions of dollars
worth of work in a foreign shipyard, and if you tell the Coast
Guard we lived by the rules that is pretty well it, right? No
one is going to check you. Even when you ask them to check on
something that you think is suspicious, in effect they did not
check, did they? It took a Federal court to get you some
relief. Is that correct?
Mr. Roberts. That is correct.
Mr. Love. Mr. Chairman, if you take the case of the vessel
that was gutted in China, for example, the gutting process, the
removal process is very, very expensive. It is especially
expensive if it is done in an environmentally responsible
manner.
Mr. Taylor. Great point.
Mr. Love. All of the work on the hull on that particular
vessel and the superstructure of the vessel, was done in China.
You mentioned the curved welds, the heavy decks, all the heavy
lifting was done in China.
What the U.S. shipyard was allowed to do was the straight
welds, as you mentioned. They built a box. And the foundation
for that box was all the work that was done in China. The
access to that box was all of the work that was done in China.
So if you were to take the example of that container ship
that was converted to a combination Ro-Ro container ship, I
would say that a very high percentage of the expense of doing
the hull job in the United States was the work that was done in
China.
Mr. Taylor. Between environmental compliance, overhead
welds, skilled welds, et cetera.
Mr. Love. What Mobile got as their part of the job was
essentially steel modules that were lifted aboard the
foundation, the lower garage that was built in China. So what
you had was you had the demolition, so you took out the
transverse bulkheads, you took out the holds, you took out the
weather deck, the combings, the hatch covers, you took it right
down to the frames, very, very expensive work. And now you are
in that curved portion of the ship, and you are also doing the
work that is the foundation for the upper garage. All heavy
vehicles are supported on work that was done in China. The work
that was done in the United States was solely concerned with
the carriage of automobiles.
So the lion's share--if you look at it from a square
footage basis, for example, they added over 200,000 square feet
of vehicle storage on the vessel between the work that was done
in the United States and the work that was done in China. More
than 50 percent of that square footage was done in the United
States. But that 50 percent--or over 50 percent--was much less
expensive work than the work that was done in China.
Mr. Taylor. I would be curious to hear your reaction, and I
realize that the easiest thing that could happen is for the
folks in the bureaucracy to change their interpretation. I
guess the most difficult would be congressionally mandated
change to the rules. But what would your reaction be to a
congressionally mandated change that did away with the 10
percent rule?
Because when you bring up environmental factors, when you
bring up the skill of the work, all the other things that are
involved, I personally believe that the 10 percent rule just
doesn't work in today's society. But I am curious, on behalf of
the shipbuilders, on behalf of at least one of the operators
and a spokesman for another operator, what would be your
reaction to the removal of the 10 percent rule?
Mr. Paxton. The question is to just abolish the upper limit
test and--the shipbuilders want a strict test, a test that
looks at major rebuild projects. We understand that repair work
goes overseas. But what we have a difficult time with is when
large, big projects are continually going overseas. So the 1.5
percent, that major component analysis that never is taken into
place would prohibit a lot of work going overseas.
It is not just about ship repair. Crowley made a calculated
guess--not a guess, a calculated decision based on the law that
they are going to build new. So that helped the new build
yards. But the rebuild yards could still do a lot of this work,
the repair yards. So enforcement of the Second Proviso helps
new construction and repair.
So I guess my question, for clarification, we want strong
tests that enforce what the Second Proviso stands for. Maybe 10
percent is too high. I don't know. But clearly enforcing that
first test, the 1.5, whatever it may be, major component test
would prohibit a lot of work instead of getting into the
vagaries of a 10 percent, what we are counting and not
counting.
Mr. Roberts. I will give you my candid reaction when you
offered that, and that is that I would be concerned about the
impact under the WTO rules and whether that would violate the
standstill provision if we eliminated the 10 percent test. And
I am not sure how we would replace it. I guess it depends on
what happens at that point.
But if we took the 10 percent test down to a 2 percent test
or a 1.5 percent test, I would be very concerned about how that
might be perceived under the GATT rules. But we are certainly
sympathetic with the objectives.
Mr. Love. Mr. Chairman, the test is 7.5. There is just a
discretionary allocation to the Coast Guard between 7.5 and 10.
What the Coast Guard has done is they have moved the 7.5 to 10.
They have become the legislators as far----
Mr. Taylor. I guess, Mr. Love, what I am looking for
clarification is it takes--you know, Congress is asked by the
American people to try to clean up the environment. Reacting to
that request, they passed some fairly stringent rules on things
like PCBs, like on sandblasting, what do you do with lead, what
type of copper paints can you use on a hull that will cause the
least harm to the environment, et cetera, et cetera. There is a
cost associated with each of these things, whether it is the
individual breathing apparatus for someone working around that
or disposing of it properly. There is a cost associated with
all that. And the people who live by the rules pay those costs.
I doubt any of those rules are followed in some of these
foreign shipyards we are talking about, without naming names.
So what I am getting at is, in addition to not only just the
line of a weld but the difficulty of that weld, I am convinced
that just weighing a portion of the hull is not a true
reflection of the total cost of a change to a hull. It is
nowhere near a true reflection.
And I guess what I am asking is we are looking for
something more appropriate than this interpretation, and we
would welcome your comments on that, whether you are
comfortable doing it now or later.
Mr. Love. Yes, sir. I think, Mr. Chairman, just to define
the scale of the issue, the Mokihana went to China to do the
rebuilding, but since it was in China it also did its dry
docking, it also did its sandblasting and coating of the hull,
it also did numerous repair projects around the vessel, all of
which was lost to the U.S. shipyards because of the failure to
enforce the Second Proviso.
Mr. Taylor. Thank you.
Mr. Cummings. [presiding.] Mr. Love, you said something
that was quite intriguing when I was coming in the door--and,
again, I am sorry, we have got an Amtrak bill on the floor of
the House, and it has some major provisions in with regard to
my district in Baltimore. But you said something that really
intrigued me when you were talking about Mr. Willis. What is
his position?
Mr. Love. He was in charge of the National Vessel
Documentation Center until Ms. Williams took over recently.
Mr. Cummings. And that person has a lot of responsibility,
huh?
Mr. Love. Yes, sir.
Mr. Cummings. And they basically, based on what you said,
you used the words "acting on his own", but they basically make
a decision as to whether somebody meets the standard or not,
work done on a ship meets the standard of the Jones Act or not.
Is that right?
Mr. Love. That is correct.
Mr. Cummings. Is it your understanding that is the way it
is supposed to be, that a single person, civilian, is supposed
to do that? Any of you. Any of you.
Mr. Love. I would think that that is the major issue that
the Coast Guard should be addressing, which is oversight of
these decisions.
Mr. Cummings. Me, too. And I just think that when you have
a situation--and this is not knocking Mr. Willis. It is not
beating up on Ms. Williams. But, to me, if I have got one
person making decisions that could determine whether a company
makes millions of dollars, that is something that I wouldn't
want. In other words, I wouldn't want it if I were the person
making the decision, because I would want always to have
somebody with me trying to help make those decisions and
somebody to give some balance to what I am deciding.
But the other thing I wouldn't like is the invitation--not
invitation, but the climate that is ripe with possibilities,
not probabilities but possibilities of some wrongdoing. Not
accusing anybody of anything. Just saying what I would prefer.
And, again, when you are talking about millions upon
millions of dollars, and I take it that some of these decisions
are kind of discretionary, are they not? Hello?
Mr. Roberts. Yes, they are.
Mr. Cummings. Anybody. And so it seems to me that if you
have a decision that does not favor, say, the losing party, and
you have a lot of discretion in there, it seems like it would
be almost impossible to have any type of true appeal. I guess
you could have an appeal in a court, but it would be very
difficult to prove. Is that a fair statement?
Mr. Paxton. Yes, sir.
Mr. Cummings. Speak up, please. Anybody.
Mr. Paxton, you look like you want to say something.
Mr. Paxton. Absolutely, sir. I think you put your finger on
it. I think the process is entirely one-sided, with no
transparency. Not to defend the National Vessel Documentation
Center, but they are out there in West Virginia. They are
supposed to look at these documents and then decide on those--
on the materials in front of them, whether or not this vessel
can go overseas and do major work. Well, all the information
given to that person is entirely geared from the standpoint of
the person who in fact wants to go overseas and do the work and
not build in the U.S. So the process is very dark and very one-
sided. So I think this is where a lot of the problems exist.
And, of course, the standards change over time to allow more
and bigger jobs to be permitted overseas.
Mr. Cummings. Now, Mr. Love, in your testimony, you state
that you are competing against two vessels that operate at
substantial cost savings after having been rebuilt in Chinese
shipyards. Can you give us an estimate of the economic
advantage these vessels have over yours?
Mr. Love. Yes, sir.
Firstly, we are talking about C9 vessels that were built 25
years ago with government subsidy. If my recollection is
correct, the U.S. Government subsidized the building of these
vessels to the tune of about $48 million each. They were not
eligible to be in the Jones Act until they were in service for
25 years.
The vessels were designed to carry only containers. So we
built a pure car-truck carrier on the analysis that there was
no real Ro/Ro capacity to the Hawaiian Islands.
Now the C9 is taken to China. It is converted to a
combination container-Ro/Ro ship, and it is now a formidable
competitor of our vessel. And the price advantage, because of
the nature of the work, which is something that Mr. Taylor was
putting his finger on, and that is all of the demolition work
that had to be done on this old ship, which is very costly in
the United States for environmental reasons, safety reasons and
the like and all of the work that had to be done in a very,
very difficult area, with curved plate--visualize that the
weather deck was removed from the vessel, the transverse
bulkheads were removed from the vessel, the cargo holds, the
combings, the hatch covers, everything. This is extremely
expensive work. And then six decks were added in China.
And the length of the project is the length of a Coast
Guard cutter. We talk about it being aft of the engine room
casing, but we are talking about a garage that is 270 feet
long. It was a monumental project, and it was done in the most
inexpensive yard in the world. So we are very much
disadvantaged by it.
Mr. Cummings. And what does that yield with regard--I mean,
if you just take--I know it is hard, but give me an estimate.
How many jobs are you talking about and over what period? Jobs
lost, American jobs lost.
Mr. Paxton. Chairman, the loss in shipyard jobs is always
hard to tell.
Mr. Cummings. Yeah.
Mr. Paxton. The fact of the matter is, over the 1990s, we
saw a significant decline in our ship repair facilities. And a
case in point is the west coast. If we look to the west coast,
our ship repair and our ship build facilities have been harmed;
and they are harmed because there are cycles in the
shipbuilding industry. But what we see is the ship repair
industry benefits from this work. This is work they can do.
This is work they want to do.
Case in point, we used to have a dry dock that could dry
dock the Alaska class tankers. We no longer have that dry dock.
It was sold off to Barbados. That was on the west coast. These
assets we lose.
These assets are protected, supposedly, by the Jones Act so
we have the skill sets and we have the infrastructure to do
this type work. But over time this eroding of the Second
Proviso has led to more and more work that would go into those
yards to go overseas. I couldn't put an exact number on the
amount of lost jobs, sir, but I could tell you there is
significant job losses and infrastructure loss.
Mr. Cummings. Yes, sir. Mr. Roberts?
Mr. Roberts. I would just mention, Mr. Chairman, in the
case of the double hull retrofit projects, Seabulk went to U.S.
shipyards, got bids for that work. It came out in an article in
2006 and basically said it is just too expensive. We are not
going to do it in the United States. And the figure they gave
at that time is it would be three times more expensive to do
the work in the United States than in China. And that--and in
the case of these projects, $10 million spent in China, so you
figure 30, $40 million in the United States to do each one of
these ships. And that is the kind of capital cost advantage
that they have over U.S. operators who comply with the law and
build their ships in the United States.
Mr. Cummings. And the main reason is labor costs? Of the
difference?
Mr. Roberts. I think Matt can speak to that, but it is
labor, it is environmental.
Mr. Cummings. Right.
Mr. Roberts. It is Occupational Safety and Health Act, all
those things, and standard of living, also.
Mr. Paxton. Absolutely. Those are the cost points. And the
U.S. shipyards aren't upset about paying those cost points. We
want to pay those cost points. We are proud of our skilled
labor force, and we point to them as being the best in the
world. But the fact is in China they use bamboo scaffolding.
They don't have any of the environmental or health standards
that we are proud to meet and want to meet, and that is a cost
point we don't want to ever give up. And we won't.
Mr. Cummings. Okay. What I would like, and Mr. Taylor I
think had said that he wanted you all to provide us with I
guess, what, recommendations, Mr. Taylor?
Mr. Taylor. Mr. Chairman, I am convinced now that the 10
percent interpretation under the CFR is just not adequate in
light of the environmental rules, the difficulty of the type of
work. I mean, a one-foot weld, for example, on a straight line
versus a one-foot weld in a circle, they are both one-foot of
welding, but one is a heck of a lot more difficult from the
other. One is a heck of a lot more expensive than the other.
One done overhead is a whole lot more difficult than one done
on deck. There is so many factors that the 10 percent rule does
not take into account.
And, again, the more labor intensive, the more
environmentally sensitive, the more expensive. And none of that
is taken into account. And, obviously, the more labor
intensive, the more environmentally sensitive, it actually
becomes an incentive for someone to take their ship overseas.
It circumvents the intent of American law.
And so, for a lot of reasons, I think we need to revisit
it. But I would hope we would revisit it in a way that makes
sense to the shipyards and to the operators. So that is why I
was asking for their guidance.
Mr. Cummings. We would really appreciate you all getting
back to us, say, within the next 30 days, considering all of
the--I mean, your recommendations. It is a very complicated
situation; and I realize that when you are dealing with
complicated situations, trying to set strict rules is not easy.
However, I think that if we are going to have standards those
standards ought to be as clear as we can make them, and they
should lend themselves to being able to be applied
consistently. And so I would ask that you get to us and let us
take a look at what you might present.
As you probably know, this Committee--Subcommittee and
Committee looked into the administrative law judge system; and
one of our concerns in that system was whether, when people
walked in the door, did they feel that they had a fair shot.
Period. Didn't want any advantage but didn't want disadvantages
either. Everybody, fair shot.
And that is what I want to make sure happens here, that
those who come before--and in a sense this is a decision-making
body, although it is apparently one person--that they have a
fair opportunity to present their case and be rendered a fair
opinion.
And at this juncture I must tell you that I think you can
have a situation where things are so confusing that you don't
know whether you got a fair opinion or not. I think you can be
in a situation where there is so much discretion that you are
not sure whether you got a fair opinion. And there is so much
discretion that it is almost impossible to appeal successfully
something that--where the standards are not as clear as they
should be.
Now, the question is whether we can actually create those
standards. And as I have said many times, I believe if we can
send a man to the moon we ought to be able to do some of these
things on earth. That is, put these kinds of things in place.
But it does concern me, I got to tell you, when you have
one person making these kind of decisions. I just think it just
opens the door for things that I don't think anybody in the
decision-making position would want to be in, particularly
here. But be that as it may.
Mr. Taylor, did you have anything else?
Mr. Taylor. No, sir.
Mr. Love. May I make one comment to what you just said, Mr.
Chairman?
Mr. Cummings. Yes, Mr. Love.
Mr. Love. On the fairness of the process, on the Mokihana,
when the preliminary rebuild determination was obtained from
documentation center, the allegation was that the project was
under 7.5 percent.
Mr. Cummings. Was what?
Mr. Love. Under 7.5 percent of the discounted steelweight.
When we filed our protest, contemporaneously with our filing of
the protest there was a letter from the general counsel of
Matson that I mentioned earlier where he admitted that now that
they had a more precise definition of the job that the
discounted steelweight was over 7.5 percent. That letter was
withdrawn by the owner of Mokihana when they became aware of
our protest. And a year later, when the final rebuild
determination was granted, theallegation was that the project
was under 7.5 percent.
And I would like to make two points. One is that the letter
written by the general counsel and senior vice president of the
owner of the vessel that was withdrawn disappeared from the
administrative record, and we only found out about it in a
hearing before Judge Ellis in district court. And Judge Ellis
ordered the Coast Guard to produce the letter. The Coast Guard
produced the letter without the exhibit, and the exhibit was
the smoking gun of it being over 7.5 percent.
The Department of Justice refused to give us the exhibit,
and only when our attorneys were standing on the courthouse
steps over in the Eastern District of Virginia did the Coast
Guard finally produce the exhibit. And between the time of the
original application for the preliminary rebuild determination
and the granting of the final rebuild determination the job
that was done in China grew dramatically. It was a much bigger
job than was originally presented to the Coast Guard. Yet the
steel percentage upon which the final rebuild determination was
given went down. So there is just some inexplicable issues
here.
Mr. Taylor. Mr. Chairman?
Mr. Cummings. Yes, sir.
Mr. Taylor. Mr. Chairman, I would request that the
Subcommittee request from the Coast Guard that letter. Because
I think it goes very much to the heart of your concerns,
everyone's concerns.
Obviously, somebody inside the Coast Guard not only
apparently cut a sweetheart deal for somebody, then realized
they got caught doing a sweetheart deal and they just tried to
hide all the evidence. And it goes straight to your point this
should not be happening, and we need an explanation from the
Commandant of the Coast Guard how this was allowed to happen,
what is being done to keep it from happening again.
Mr. Cummings. Very well. We will take care of that. It is a
wonderful suggestion, and we will take care of that.
Mr. Larsen, did you have anything?
Mr. Larsen. I don't have any more questions, but I have a
suggestion that we on the Committee contact the USTR's office,
U.S. Trade Representative's office, to talk through some of
these issues regarding the Jones Act and the Second Proviso and
hear from them. And as well maybe the Ways and Means Committee
folks, hear from them specifically, you know, what changes may
cause us problems or what directions, more appropriately, may
cause us problems and which directions won't.
Mr. Cummings. Okay. Sounds good. Understand what we are
trying to do as we move through here is trying to make sure
that this process is fair and that the law is obeyed. It is
nothing more, nothing less. And we want to do whatever is
necessary to accomplish those goals.
I want to thank you all very much for your testimony. It
has been extremely helpful.
Our Subcommittee tries to take the information we get and
do something with it, not just let it sit on the shelf
somewhere for another Committee to take it up 7 years from now.
This is under our watch, and we are going to do the best we can
to correct it. Because if it waited another 7 years, that means
a whole lot of American jobs possibly, possibly have gone down
the tubes, a lot of American companies are not getting what
they are due. And that is a problem. That is a major problem.
So thank you, and this hearing is now called to a close.
[Whereupon, at 12:42 p.m., the Subcommittee was adjourned.]
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