[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]



 
  CARGO PREFERENCE: COMPLIANCE WITH AND ENFORCEMENT OF MARITIME'S BUY 
                             AMERICAN LAWS

=======================================================================

                                (117-57)

                             REMOTE HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 14, 2022

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure



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                             transportation



                                 ______

                 U.S. GOVERNMENT PUBLISHING OFFICE

50-066 PDF                WASHINGTON : 2023






             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                  PETER A. DeFAZIO, Oregon, Chair

SAM GRAVES, Missouri                 ELEANOR HOLMES NORTON,
ERIC A. ``RICK'' CRAWFORD, Arkansas    District of Columbia
BOB GIBBS, Ohio                      EDDIE BERNICE JOHNSON, Texas
DANIEL WEBSTER, Florida              RICK LARSEN, Washington
THOMAS MASSIE, Kentucky              GRACE F. NAPOLITANO, California
SCOTT PERRY, Pennsylvania            STEVE COHEN, Tennessee
RODNEY DAVIS, Illinois               ALBIO SIRES, New Jersey
JOHN KATKO, New York                 JOHN GARAMENDI, California
BRIAN BABIN, Texas                   HENRY C. ``HANK'' JOHNSON, Jr., 
GARRET GRAVES, Louisiana             Georgia
DAVID ROUZER, North Carolina         ANDRE CARSON, Indiana
MIKE BOST, Illinois                  DINA TITUS, Nevada
RANDY K. WEBER, Sr., Texas           SEAN PATRICK MALONEY, New York
DOUG LaMALFA, California             JARED HUFFMAN, California
BRUCE WESTERMAN, Arkansas            JULIA BROWNLEY, California
BRIAN J. MAST, Florida               FREDERICA S. WILSON, Florida
MIKE GALLAGHER, Wisconsin            DONALD M. PAYNE, Jr., New Jersey
BRIAN K. FITZPATRICK, Pennsylvania   ALAN S. LOWENTHAL, California
JENNIFFER GONZALEZ-COLON,            MARK DeSAULNIER, California
  Puerto Rico                        STEPHEN F. LYNCH, Massachusetts
TROY BALDERSON, Ohio                 SALUD O. CARBAJAL, California
PETE STAUBER, Minnesota              ANTHONY G. BROWN, Maryland
TIM BURCHETT, Tennessee              TOM MALINOWSKI, New Jersey
DUSTY JOHNSON, South Dakota          GREG STANTON, Arizona
JEFFERSON VAN DREW, New Jersey       COLIN Z. ALLRED, Texas
MICHAEL GUEST, Mississippi           SHARICE DAVIDS, Kansas, Vice Chair
TROY E. NEHLS, Texas                 JESUS G. ``CHUY'' GARCIA, Illinois
NANCY MACE, South Carolina           CHRIS PAPPAS, New Hampshire
NICOLE MALLIOTAKIS, New York         CONOR LAMB, Pennsylvania
BETH VAN DUYNE, Texas                SETH MOULTON, Massachusetts
CARLOS A. GIMENEZ, Florida           JAKE AUCHINCLOSS, Massachusetts
MICHELLE STEEL, California           CAROLYN BOURDEAUX, Georgia
Vacancy                              KAIALI`I KAHELE, Hawaii
                                     MARILYN STRICKLAND, Washington
                                     NIKEMA WILLIAMS, Georgia
                                     MARIE NEWMAN, Illinois
                                     TROY A. CARTER, Louisiana
                                     SHEILA CHERFILUS-McCORMICK, 
                                     Florida

                                ------                                7

        Subcommittee on Coast Guard and Maritime Transportation

                  SALUD O. CARBAJAL, California, Chair

RICK LARSEN, Washington              BOB GIBBS, Ohio
JAKE AUCHINCLOSS, Massachusetts,     RANDY K. WEBER, Sr., Texas
  Vice Chair                         MIKE GALLAGHER, Wisconsin
SEAN PATRICK MALONEY, New York       JEFFERSON VAN DREW, New Jersey
ALAN S. LOWENTHAL, California        NICOLE MALLIOTAKIS, New York
ANTHONY G. BROWN, Maryland           Vacancy
CHRIS PAPPAS, New Hampshire          SAM GRAVES, Missouri (Ex Officio)
PETER A. DeFAZIO, Oregon (Ex 
    Officio)







                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................     v

                 STATEMENTS OF MEMBERS OF THE COMMITTEE

Hon. Salud O. Carbajal, a Representative in Congress from the 
  State of California, and Chair, Subcommittee on Coast Guard and 
  Maritime Transportation, opening statement.....................     1
    Prepared statement...........................................     3
Hon. Bob Gibbs, a Representative in Congress from the State of 
  Ohio, and Ranking Member, Subcommittee on Coast Guard and 
  Maritime Transportation, opening statement.....................     4
    Prepared statement...........................................     4
Hon. Peter A. DeFazio, a Representative in Congress from the 
  State of Oregon, and Chair, Committee on Transportation and 
  Infrastructure, prepared statement.............................    55
Hon. Sam Graves, a Representative in Congress from the State of 
  Missouri, and Ranking Member, Committee on Transportation and 
  Infrastructure, prepared statement.............................    56

                               WITNESSES
                                Panel 1

Ann C. Phillips, Rear Admiral, U.S. Navy (Ret.), and 
  Administrator, Maritime Administration, oral statement.........     5
    Prepared statement...........................................     7
Andrew Von Ah, Director, Physical Infrastructure, U.S. Government 
  Accountability Office, oral statement..........................     8
    Prepared statement...........................................    10

                                Panel 2

Captain Donald J. Marcus, President, International Organization 
  of Masters, Mates & Pilots, AFL-CIO, oral statement............    29
    Prepared statement...........................................    31
Eric P. Ebeling, President and Chief Executive Officer, American 
  Roll-On Roll-Off Carrier Group, on behalf of USA Maritime, oral 
  statement......................................................    34
    Prepared statement...........................................    36
Bryan Clark, Senior Fellow and Director of the Center for Defense 
  Concepts and Technology, Hudson Institute, oral statement......    41
    Prepared statement...........................................    43

                       SUBMISSIONS FOR THE RECORD

U.S. Government Accountability Office, ``Maritime Administration: 
  Actions Needed To Enhance Cargo Preference Oversight,'' GAO-22-
  105160, Sept. 12, 2022, Submitted for the Record by Hon. Salud 
  O. Carbajal....................................................    56

                                APPENDIX

Question from Hon. Bob Gibbs to Bryan Clark, Senior Fellow and 
  Director of the Center for Defense Concepts and Technology, 
  Hudson Institute...............................................    57



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                           September 12, 2022

    SUMMARY OF SUBJECT MATTER

    TO:      LMembers, Subcommittee on Coast Guard and Maritime 
Transportation
    FROM:  LStaff, Subcommittee on Coast Guard and Maritime 
Transportation
    RE:      LHearing on ``Cargo Preference: Compliance with 
and Enforcement of Maritime's Buy American Laws''
_______________________________________________________________________


                                PURPOSE

    The Subcommittee on Coast Guard and Maritime Transportation 
will hold a hearing on Wednesday, September 14, 2022, at 10:00 
a.m. ET in 2167 Rayburn House Office Building and via Zoom to 
examine the current state of cargo preference compliance and 
enforcement. The Subcommittee will hear testimony from the U.S. 
Maritime Administration (MARAD), the Government Accountability 
Office (GAO), the Hudson Institute, USA Maritime, and the 
International Organization of Masters, Mates & Pilots.

                               BACKGROUND

    Cargo preference is the general term used to describe the 
U.S. laws, regulations and policies that require the use of 
U.S. flag vessels in the movement of cargo that is owned, 
procured, furnished, or financed by the U.S. government.\1\ It 
also includes cargo that is being shipped under an agreement of 
the U.S. government, or as part of a government program.
---------------------------------------------------------------------------
    \1\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
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    Cargo preference has been an effective shipping strategy in 
maintaining the U.S. presence and economic viability in the 
international shipping market.\2\ U.S. law requires that 
certain percentages of cargo be carried on vessels registered 
in the United States when the cargo is supported by U.S. 
federal funding.\3\ Such cargo is commonly referred to as 
``government-impelled'' and typically moves:
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    \2\ Id.
    \3\ Id.
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     Las a direct result of federal government 
involvement, such as military transportation of supplies by 
sea;
     Lindirectly through financial sponsorship of a 
federal program, such as food aid supported by the U.S. Agency 
for International Development (USAID); or
     Lin connection with a loan, grant, loan guarantee, 
or other financing provided by the federal government.\4\
---------------------------------------------------------------------------
    \4\ Id.

    Any department, agency, contractor, or sub-contractor of 
the federal government administering a program that directly or 
indirectly involves the transportation of cargoes on ocean 
vessels is subject to cargo preference requirements. 
Additionally, all members of the supply chain of said cargoes 
must comply with cargo preference.\5\
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    \5\ Id.
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    The U.S. uses federal laws and regulations to regulate and 
protect its own cargo interests. Three primary pieces of 
legislation guide Cargo Preference requirements in the United 
States: Section 2631 of title 10, United States Code, popularly 
known as the Cargo Preference Act of 1904; Section 55305 of 
title 46, United State code, popularly known as the Cargo 
Preference Act of 1954; and Section 55304 of title 46, United 
States Code, popularly known as Public Resolution 17 (PR-17).
    The Cargo Preference Act of 1904 requires 100 percent of 
military cargo carried by sea by the Department of Defense to 
be shipped via a U.S.-flagged vessel.\6\
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    \6\ 10 U.S.C. Sec.  2631
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    The Cargo Preference Act of 1954 currently requires that at 
least 50 percent of the gross tonnage of civilian agencies 
cargo and agricultural cargo be transported on privately owned 
U.S.-flag commercial vessels.\7\ This can include cargo from 
the Department of Agriculture (USDA), USAID, and the 
transportation of all U.S. government personnel and their 
personal effects (household goods) and all private vehicles 
transported at the U.S. government's expense.\8\ At first 
passage, this act set civilian and agricultural requirements at 
50 percent.\9\ These were increased to 75 percent by the Food 
Security Act of 1985 (P.L. 99-198, subtitle C) but were 
subsequently lowered back to 50 percent when subtitle C was 
repealed by the Moving Ahead for Progress in the 21st Century 
Act in 2012.
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    \7\ 46 U.S.C. Sec.  55305
    \8\ Id.
    \9\ Congressional Research Service. Cargo Preferences for U.S.-Flag 
Shipping. October 29, 2015.
---------------------------------------------------------------------------
    PR-17 was enacted in 1934 to address U.S.-flag shipping 
requirements for the U.S. Export-Import (EXIM) Bank of the 
United States and requires shipping on U.S.-flag vessels for 
the following EXIM Bank transactions: Direct loans regardless 
of term or amount, and Guarantees valued over $20,000,000 USD 
(excluding EXIM Bank exposure fees) or with repayment terms 
greater than seven years, unless the export qualifies for a 
longer repayment term under EXIM's Medical Equipment 
Initiative, Environmental Exports Program, or Transportation 
Security Program. Furthermore, foreign countries that are 
recipients of U.S. assistance through foreign military financed 
programs are also required by law to use U.S.-flag vessels.\10\
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    \10\ 46 U.S.C. Sec.  55304
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    MARAD holds the responsibility of monitoring federal 
agencies' cargo volumes to ensure compliance with cargo 
preference laws and regulations.\11\ MARAD's Office of Cargo 
and Commercial Sealift manages all MARAD Cargo Preference 
activities.\12\ Data regarding compliance by agencies was 
previously published by MARAD and publicly available up until 
2013, when MARAD stopped publishing this information because 
they were no longer required to do so by Congress.\13\ Section 
3502(b) of H.R. 7900, the National Defense Authorization Act 
for Fiscal Year 2023 which passed the House on July 14, 2022, 
reinstates the reporting requirement.
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    \11\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
    \12\ Id.
    \13\ Government Accountability Office. Maritime Administration: 
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160. 
September 12, 2022.
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    Current regulations make one entity, the prime contractor, 
the responsible party for ensuring that U.S.-flag vessels are 
used throughout the supply chain. The prime contractor is 
deemed to have violated its U.S.-flag requirements if any 
person or entity in its supply chain--including sub-
contractors, vendors, suppliers, freight forwarders, and 
shipping companies--does not meet the requirements. The Federal 
Contracting Officer is the official enforcement authority and 
can impose financial assessments against the prime contractor 
if the U.S.-flag vessel use requirements are not met by any 
member of the supply chain.\14\
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    \14\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
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I. THE PURPOSE OF CARGO PREFERENCE

    Cargo preference, the reservation of certain cargoes to 
U.S.-flag ships, is necessary for our national defense and a 
key driver of domestic and foreign commerce. This helps 
maintain a U.S.-flag commercial merchant marine that can be 
called upon in times of war or national emergencies.\15\ 
Section 50101 of title 46, U.S.C., dictates that the United 
States must have a merchant marine--
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    \15\ Id.
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     Lsufficient to carry the waterborne domestic 
commerce and a substantial part of the waterborne export and 
import foreign commerce of the United States,
     Lcapable of serving as a naval and military 
auxiliary in times of war or national emergency;
     Lowned and operated as vessels of the United 
States by citizens of the United States;
     Lcomposed of the best-equipped, safest, and most 
suitable types of vessels constructed in the United States and 
manned with a trained and efficient citizen personnel; and
     Lsupplemented by efficient facilities for building 
and repairing vessels.

    It is the United States' policy to encourage and aid in the 
development of a merchant marine satisfying the above 
objectives.\16\ Cargo preference coupled with other programs 
such as the Maritime Security Program \17\ (MSP) and Voluntary 
Intermodal Sealift Agreement \18\ (VISA), are intended to 
support the U.S.-flag shipping industry so that the United 
States has a fleet capable of supplementing the capacity of the 
U.S. military with U.S.-flagged vessels and trained mariners 
during times of war or national emergency, while also providing 
transportation for the nation's maritime commerce.\19\ Despite 
this objective, the number of oceangoing vessels in the U.S.-
flag fleet has fallen over time.\20\ According to MARAD data, 
the fleet of U.S.-flagged vessels engaged in international 
trade has declined from approximately 199 vessels at the end of 
1990 to 84 vessels in 2021.\21\ This is in part due to the 
increased costs associated with operating a U.S.-flagged vessel 
in comparison to foreign-flagged vessels and the continued 
practice of using flags of convenience.\22\ Cargo preference 
requirements ensure a baseline of cargo for vessel operators 
which guarantees at least a portion of the defense capability 
needed for United States national sealift capability.\23\ The 
figure below demonstrates the decline of the number of vessels 
in the U.S.-flag fleet since 1990.
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    \16\ 46 U.S.C. Sec.  550101
    \17\ The Maritime Security Program (MSP) maintains a fleet of 
commercially viable, militarily useful merchant ships active in 
international trade. The MSP fleet is available to support U.S. 
Department of Defense (DoD) sustainment sealift requirements during 
times of conflict or in other national emergencies. The program also 
provides DoD access to MSP participants' global intermodal 
transportation network of terminals, facilities, logistic management 
services, and U.S. citizen merchant mariners. In return, vessel 
operators receive a federal stipend. Maritime Administration. https://
www.maritime.dot.gov/national-security/strategic-sealift/maritime-
security-program-msp
    \18\ MARAD's Voluntary Intermodal Sealift Agreement (VISA) program 
is a partnership between the U.S. Government and the maritime industry 
to provide the Department of Defense (DoD) with assured access to 
state-of-the-art commercial sealift and intermodal equipment when DoD 
deploys military forces during a national emergency or wartime 
operations. Maritime Administration. https://www.maritime.dot.gov/
national-security/strategic-sealift/voluntary-intermodal-sealift-
agreement-visa
    \19\ Government Accountability Office. Maritime Administration: 
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160. 
September 12, 2022.
    \20\ Maritime Administration. U.S. Department of Transportation. 
U.S. Flag Vessels. https://www.maritime.dot.gov/national-security/us-
flag-vessels.
    \21\ Id.
    \22\ Maritime Administration. U.S. Department of Transportation. 
Comparison of U.S. and Foreign-Flag Operating Costs. September 2011. 
https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/resources/
3651/comparisonofusandforeignflagoperatingcosts.pdf
    \23\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
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FIGURE 1: NUMBER OF INTERNATIONALLY TRADING U.S.-FLAG VESSELS, 1990 TO 
                    2021

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                    
Figure 1: Number of Internationally Trading U.S.-Flag Vessels from 1990 
  to 2021. Government Accountability Office. Maritime Administration: 
 Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160. 
                          September 12, 2022.

    In testimony to the subcommittee earlier this year, MARAD 
Deputy Administrator Lucinda Lessley stated that:

        ``Critical to the operation of both Government-owned and 
        commercial U.S.-flag vessels is an adequate supply of qualified 
        U.S. mariners to crew them. Access to a pool of qualified 
        mariners from a robust, commercial maritime fleet is essential 
        to maintaining sufficient sealift readiness capacity for 
        contingencies. Due to the declining number of ships in the 
        U.S.-flag oceangoing fleet, MARAD is concerned about our 
        ability to quickly assemble an adequate number of qualified 
        mariners to operate large ships for surge and sustainment 
        sealift operations if an extended mobilization were to occur.'' 
        \24\
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    \24\ U.S. House of Representatives Committee on Transportation and 
Infrastructure. Statement of Lucinda Lessley, Acting Administrator, 
Maritime Administration, U.S. Department of Transportation, Before the 
Committee on Transportation and Infrastructure, Subcommittee on Coast 
Guard and Maritime Transportation, U.S. House of Representatives, 
Hearing on ``Review of Fiscal Year 2023 Budget Request for the Coast 
Guard and Maritime Transportation Programs.'' April 27, 2022. https://
transportation.house.gov/imo/media/doc/Lessley%20Testimony1.pdf

    A 2020 report by the Center for Strategic and Budgetary 
Assessments emphasized the importance of not only 
recapitalizing the U.S.-flagged fleet but also the need for 
cargo preference and enforcement of cargo preference laws.\25\
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    \25\ Clark, Bryan; Walton, Tim; Lemon, Adam. Center for Strategic 
and Budgetary Assessments. Page 55 https://csbaonline.org/uploads/
documents/CSBA8199_Maritime_Industrial_FINAL.pdf
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II. RECENT LEGISLATIVE CHANGES

A. THE DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 
                    2009

    In 2008, MARAD was granted new authorities to take certain 
cargo preference-related enforcement actions through amendments 
made by the Duncan Hunter National Defense Authorization Act 
for Fiscal Year 2009 (P.L. 110-417) (2009 NDAA) to section 
55305(d) of title 46. Those authorities include assessing civil 
penalties ``against any person'' for noncompliance with cargo 
preference requirements. The Secretary of Transportation was 
also given discretion to prescribe rules if deemed necessary to 
carry out the authorities granted. To date, MARAD has not 
issued any regulations implementing those authorities nor has 
MARAD taken any enforcement action.\26\ Section 3502(a) of the 
National Defense Authorization Act for Fiscal Year 2023 which 
passed the House on July 14, 2022, directed MARAD to issue such 
rules within 90 days of enactment.
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    \26\ Government Accountability Office. Maritime Administration: 
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160. 
September 12, 2022.
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B. MOVING AHEAD FOR PROGRESS IN THE 21ST CENTURY ACT

    Cargo preference laws were further amended by the Moving 
Ahead for Progress in the 21st Century Act (P.L. 112-141) (also 
known as MAP-21). As mentioned above, MAP-21 repealed the Food 
Security Act of 1985 (P.L. 99-198, subtitle C), which had 
increased the cargo preference requirement from 50 percent to 
75 percent of food aid tonnage. Section 100124 of MAP-21 
reduced the percentage of U.S. food aid that must be shipped on 
U.S.-flagged ships (which must be owned and crewed by U.S. 
citizens) from 75 percent to 50 percent and repealed the 
requirement that 25 percent of bagged or processed food aid be 
shipped through Great Lakes ports.\27\ These repeals weakened 
current cargo preference laws by lowering cargo levels and 
reducing government impelled cargo set aside for carriage on 
U.S.-flagged ships.
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    \27\ Congressional Research Service. Surface Transportation Funding 
and Programs Under MAP-21: Moving Ahead for Progress in the 21st 
Century Act (P.L. 112-141). https://sgp.fas.org/crs/misc/R42762.pdf
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    In a 2015 joint hearing before the Subcommittee on 
Livestock and Foreign Agriculture, Committee on Agriculture, 
and the Subcommittee on Coast Guard and Maritime 
Transportation, Committee on Transportation and Infrastructure, 
testimony was provided by Brian Shoeneman, with the Seafarers 
International Union, highlighting the impacts MAP-21 has had on 
the U.S.-flag fleet including a reduction of the overall size 
and cargo volumes.\28\ He stated:
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    \28\ Joint hearing before the Subcommittee on Livestock and Foreign 
Agriculture Committee on Agriculture and the Subcommittee on Coast 
Guard and Maritime Transportation Committee on Transportation and 
Infrastructure, U.S. House of Representatives. ``U.S. International 
Food Aid Programs: Transportation Perspectives'' November 17, 2015. 
https://www.govinfo.gov/content/pkg/CHRG-114hhrg97713/pdf/CHRG-
114hhrg97713.pdf

        ``There is no denying that the loss of food aid cargo resulting 
        from reductions in appropriations, and the cuts to cargo 
        preference in MAP-21, has cost this industry ships and jobs. 
        Over the last 10 years food aid has made up a considerable 
        portion of the preference cargo carried by American carriers, 
        if not the majority. From 2000 to 2013 cargo volumes in the 
        food aid program have dropped 77 percent. In 1999 there were 
        106 American ships carrying approximately 6 million tons of 
        food aid. In 2013 the fleet had dropped in size to 75 ships, 
        carrying slightly more than 1 million tons of food aid. 
        According to MARAD, since 2010 the size of the U.S.-flag fleet 
        has dropped 23 percent, from 99 ships to the 78 ships mentioned 
        today. And that has resulted in the loss of nearly 1,000 
        mariner jobs.'' \29\
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    \29\ Id.

C. WILLIAM M. (MAC) THORNBERRY NATIONAL DEFENSE AUTHORIZATION ACT FOR 
                    FISCAL YEAR 2021

    Included in the William M. (Mac) Thornberry National 
Defense Authorization Act for Fiscal Year 2021 was an amendment 
to section 2631 of title 10, United States Code which aimed to 
increase DOD compliance with military cargo preference 
requirements.\30\ Another part of the bill required a GAO study 
regarding federal compliance with existing civilian and 
military cargo preference rules.\31\
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    \30\ William M. (Mac) Thornberry National Defense Authorization Act 
for Fiscal Year 2021. Public Law 116-283.
    \31\ Id.
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III. AGENCY COMPLIANCE WITH CARGO PREFERENCE LAWS

    Despite the enhanced enforcement capabilities provided to 
MARAD by the 2009 NDAA, the degree to which agencies comply 
remains unclear due to a lack of transparency from MARAD and 
obligated agencies. Government cargoes have decreased in volume 
by more than half since 2004, which has placed downward 
pressure on the profitability and viability of the U.S.-flagged 
international trading fleet and, by extension, contributed to a 
decline in its size, raising national security concerns.\32\ As 
mentioned above, Section 8404 of the William M. (Mac) 
Thornberry National Defense Authorization Act for Fiscal Year 
2021 included a provision for GAO to examine federal agencies' 
actions to monitor and ensure compliance with cargo preference 
requirements and to review MARAD's enforcement activities.\33\ 
In the report released September 12, 2022, GAO looked at seven 
agencies covered under cargo preference requirements: DOD, 
USAID, USDA, EXIM Bank, the Department of Energy, Department of 
Transportation, and the Department of State.\34\
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    \32\ Government Accountability Office. Maritime Administration: 
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160. 
September 12, 2022.
    \33\ William M. (Mac) Thornberry National Defense Authorization Act 
for Fiscal Year 2021. Public Law 116-283.
    \34\ Id.
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    Data received from most agencies is typically through the 
review of bills of lading that agencies' ocean transportation 
contractors are required to submit to MARAD following 
completion of transportation services. DOD typically provides 
additional data beyond the bills of lading on cargo shipments. 
As mentioned previously, prior to 2013, data on cargo 
preference compliance had been publicly reported by MARAD.\35\ 
This practice ceased following the 2012 removal of said 
reporting requirement by MAP-21.\36\ GAO was able to obtain 
compliance data from MARAD for years after 2013 and found that 
U.S.-flagged cargo volumes decreased 36 percent from fiscal 
year 2012 through 2020.\37\ The lack of published data 
obstructs outside oversight by industry or Congress on 
compliance with cargo preference laws. Without public 
reporting, federal agencies lack the incentive to demonstrate 
to the public that they are meeting cargo preference 
requirements.\38\
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    \35\ Id.
    \36\ Government Accountability Office. Maritime Administration: 
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160. 
September 12, 2022.
    \37\ Id.
    \38\ Id.
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    MARAD also has the authority to issue waivers for 
situations where U.S.-flagged vessels are not readily available 
for use. DOD has statutory authority to make its own 
determination about the real-time availability of eligible 
U.S.-flagged vessels.\39\ DOD shares this information with 
MARAD, but is not required to do so.\40\ Other agencies vary on 
their procedures for determining availability and compliance. 
While some agencies make these determinations on their own or 
leave it to their contractors, others go to MARAD for guidance. 
A lack of guidance from MARAD on how to determine the 
availability of U.S.-flagged vessels and calculate the 
percentage of cargo shipped on U.S.-flagged ships has led to 
varying interpretations of cargo preference laws and 
calculations of compliance.\41\ Without conducting a rulemaking 
and issuing these regulations, MARAD is unable to consistently 
assess cargo preference compliance rates across agencies and 
utilize enforcement capabilities that were provided in the 2009 
NDAA, despite MARAD-identified instances of noncompliance.\42\
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    \39\ Id.
    \40\ Id.
    \41\ Id.
    \42\ Id.
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    GAO's findings resulted in two recommendations:
    1. LThe Administrator of MARAD should publicly report, on 
an annual basis, the cargo preference data it receives to 
provide information on total cargo volumes and amounts shipped 
on U.S.- and foreign-flag vessels for each federal agency.
    2. LThe Administrator of MARAD should take steps to develop 
regulations to oversee and enforce compliance with cargo 
preference requirements. These steps should include evaluating 
options for overcoming challenges to develop such regulations, 
such as (1) using a negotiated rulemaking to address challenges 
achieving consensus on how to implement cargo preference 
requirements and (2) developing and communicating a legislative 
proposal to address statutory challenges MARAD has 
identified.\43\
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    \43\ Id.

    MARAD has identified barriers to completing a rulemaking 
outlined in recommendation two. Due to varying stances, 
agencies have failed to reach a consensus with MARAD on a final 
rule. Without an agreement, MARAD cannot proceed forward with 
regulations and enforcement.\44\ MARAD has also identified 
three barriers in statutory language that prevent full 
implementation of cargo preference laws.\45\ These barriers 
include a failure to acknowledge containerized shipping, which 
became popular after the passage of the 1954 Act; a lack of 
definition for ``geographic areas'' in determining compliance, 
and a three-year waiting period that limits the entrance of new 
foreign-flagged bulk vessels from entering the U.S.-flagged 
fleet.\46\ Section 3524 (a) of the National Defense 
Authorization Act for Fiscal Year 2023 passed by the House on 
July 14, 2022, waives the three-year waiting period. Despite 
these barriers, MARAD has concurred with the recommendations 
from GAO's report.\47\ This hearing will closely examine the 
results of this report by GAO and provide insight from both 
MARAD and maritime industry representatives.
---------------------------------------------------------------------------
    \44\ Id.
    \45\ Id.
    \46\ Id.
    \47\ Id.
---------------------------------------------------------------------------

                              WITNESS LIST

PANEL 1

     LRear Admiral Ann C. Phillips, Administrator, 
Maritime Administration
     LMr. Andrew Von Ah, Director, Physical 
Infrastructure, Government Accountability Office

PANEL 2

     LMr. Bryan Clark, Senior Fellow and Director of 
the Center for Defense Concepts and Technology, Hudson 
Institute
     LMr. Eric Ebeling, President and Chief Executive 
Officer, American Roll-On Roll-Off Carrier, on behalf of USA 
Maritime
     LCaptain Don Marcus, President, International 
Organization of Masters, Mates & Pilots


  CARGO PREFERENCE: COMPLIANCE WITH AND ENFORCEMENT OF MARITIME'S BUY 
                             AMERICAN LAWS

                              ----------                              


                     WEDNESDAY, SEPTEMBER 14, 2022

                  House of Representatives,
                    Subcommittee on Coast Guard and
                           Maritime Transportation,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10 a.m. in room 
2167 Rayburn House Office Building and via Zoom, Hon. Salud O. 
Carbajal (Chair of the subcommittee) presiding.
    Members present in person: Mr. Carbajal, Mr. Larsen of 
Washington, Mr. Auchincloss, Mr. Gibbs, Mr. Weber of Texas, and 
Mr. Garamendi.
    Members present remotely: Mr. Sean Patrick Maloney of New 
York, Mr. Lowenthal, and Dr. Van Drew.
    Mr. Carbajal. The subcommittee will come to order. I ask 
unanimous consent that the chair be authorized to declare a 
recess at any time during today's hearing.
    Without objection, so ordered.
    I also ask unanimous consent that Members not on the 
subcommittee be permitted to sit with the subcommittee at 
today's hearing and ask questions.
    Without objection, so ordered.
    As a reminder, please keep your microphones muted unless 
speaking. Should I hear any inadvertent background noise, I 
will request that the Member please mute their microphone.
    To insert a document into the record, please have your 
staff email it to [email protected].
    With that, I will go into my opening statement.
    Good morning and welcome to today's hearing entitled, 
``Cargo Preference: Compliance With and Enforcement of 
Maritime's Buy American Laws.'' Today, we will hear testimony 
from five witnesses.
    The first testimony will be from Rear Admiral Ann Phillips, 
who is appearing before Congress for the first time in her role 
as the new Administrator of the Maritime Administration. 
Welcome and congratulations on your confirmation, Admiral. I am 
glad that you have come on board to lead MARAD at this 
important time with all the challenges that are before us.
    Admiral Phillips will be joined on today's first panel by 
Mr. Andrew Von Ah, Director of the Physical Infrastructure team 
at the Government Accountability Office.
    Two days ago, the GAO publicly released his team's report 
on actions needed to enhance cargo preference oversight. After 
months of interviews, research, and discussion with Federal 
agencies, maritime labor, and cargo carriers, among others, the 
GAO has found evidence of lack of oversight--let me repeat 
that--lack of oversight, inconsistent application, and 
noncompliance among Government agencies and contractors.
    As a result, GAO has recommended that cargo preference be 
reported to the public on an annual basis and that the 
Department of Transportation take steps to fully enforce cargo 
preference requirements.
    I would also like to emphasize the fact that we will be 
discussing a longstanding public law that has never been 
adequately enforced--not a new proposal.
    Today's second panel will feature a military sealift 
expert, Mr. Bryan Clark, director of the Center for Defense 
Concepts and Technology at the Hudson Institute, and two 
representatives from the commercial maritime industry: Mr. Eric 
Ebeling, speaking on behalf of USA Maritime, and Captain Don 
Marcus, president of the International Organization of Masters, 
Mates, and Pilots, representing maritime labor.
    As I expect our witnesses will make clear, compliance with 
cargo preference law is closely tied to the sustainment of 
American jobs and national security. It requires that 
Government-impelled cargo be shipped overseas using U.S.-
flagged vessels--in other words, vessels crewed by U.S. 
mariners, owned by Americans, and abiding by U.S. laws. 
Guaranteeing a steady supply of cargo through cargo preference 
programs equates to job security for these hard-working 
citizens. Along with the Maritime Security Program and the 
Jones Act, cargo preference ensures that the U.S. seagoing 
maritime industry does not disappear completely, as it has 
dwindled over the years.
    With cargo backlogs and rising inflation as pressing 
concerns, we know better than ever that maintaining a vibrant 
U.S.-flagged fleet is the foundation of a healthy economy. We 
cannot rely on foreign ships and foreign mariners to carry out 
our commerce any longer.
    Finally, we must not forget the impact of cargo preference 
on our Nation's defense. The law mandates that 100 percent of 
Department of Defense cargo and 50 percent of nonmilitary, 
Government-impelled cargo be shipped on U.S.-flagged vessels 
when those vessels are available at a fair and reasonable rate. 
Cleaning up the way, quote, ``availability,'' unquote, is 
decided and communicated will increase the amount of cargo 
available to U.S. carriers, bolstering the maritime industry 
while accomplishing DoD's sealift capacity needs.
    Today, I expect to hear actionable next steps out of MARAD. 
Entrusting ill-suited agencies to make determinations has led 
to the poor compliance rates we are currently seeing. 
Enforcement power was provided to MARAD in 2009 NDAA and action 
is long overdue; we need a completed rulemaking. It is a stated 
priority of President Biden, and it needs to be a priority of 
every agency.
    We have a lot of ground to cover today with the help of our 
witnesses. I thank each of them for their gracious attendance, 
and I am excited to begin.
    [Mr. Carbajal's prepared statement follows:]

                                 
   Prepared Statement of Hon. Salud O. Carbajal, a Representative in 
Congress from the State of California, and Chair, Subcommittee on Coast 
                   Guard and Maritime Transportation
    Good morning, and welcome to today's hearing titled, ``Cargo 
Preference: Compliance with and Enforcement of Maritime's Buy American 
Laws.'' Today, we will hear testimony from five witnesses.
    The first testimony will be from Rear Admiral Ann Phillips, who is 
appearing before Congress for the first time in her role as 
Administrator of the Maritime Administration. Welcome and 
congratulations on your confirmation Admiral. I am glad that you have 
come on board to lead MARAD at this important time.
    Admiral Phillips will be joined on today's first panel by Mr. 
Andrew Von Ah, Director of the Physical Infrastructure Team at the 
Government Accountability Office.
    Two days ago, the GAO publicly released his team's report on 
``Actions needed to enhance cargo preference oversight.'' After months 
of interviews, research, and discussion with federal agencies, maritime 
labor, and cargo carriers among others, the GAO has found evidence of a 
lack of oversight, inconsistent application, and non-compliance among 
government agencies and contractors. As a result, GAO has recommended 
that cargo preference be reported to the public on an annual basis, and 
that the DOT take steps to fully enforce cargo preference requirements.
    I'd like to emphasize the fact that we will be discussing a long-
standing public law that has never been adequately enforced--not a new 
proposal.
    Today's second panel will feature a military sealift expert, Mr. 
Bryan Clark, Director of the Center for Defense Concepts and Technology 
at the Hudson Institute; and two representatives from the commercial 
maritime industry, Mr. Eric Ebeling, speaking on behalf of USA 
Maritime, and Captain Don Marcus, President of the International 
Organization of Masters, Mates and Pilots representing maritime labor.
    As I expect our witnesses will make clear, compliance with cargo 
preference law is closely tied to the sustainment of American jobs and 
national security. It requires that government-impelled cargo be 
shipped overseas using U.S. flagged vessels--in other words, vessels 
crewed by U.S. mariners, owned by Americans, and abiding by U.S. laws. 
Guaranteeing a steady supply of cargo through Cargo Preference programs 
equates to job security for these hardworking citizens. Along with the 
Maritime Security Program and the Jones Act, Cargo Preference ensures 
that the U.S. seagoing maritime industry does not disappear completely.
    With cargo backlogs and rising inflation as pressing concerns, we 
know better than ever, that maintaining a vibrant U.S.-flagged fleet is 
the foundation of a healthy economy. We cannot rely on foreign ships 
and foreign mariners to carry out our commerce any longer.
    Finally, we must not forget the impact of cargo preference on our 
nation's defense. The law mandates that 100 percent of DOD cargo and 50 
percent of non-military government-impelled cargo be shipped on U.S.-
flagged vessels--when those vessels are available at a fair and 
reasonable rate. Cleaning up the way ``availability'' is decided and 
communicated will increase the amount of cargo available to U.S. 
carriers, bolstering the maritime industry while accomplishing DOD's 
sealift capacity needs.
    Today, I expect to hear actionable next steps out of MARAD. 
Entrusting ill-suited agencies to make determinations has led to the 
poor compliance rates we're currently seeing. Enforcement power was 
provided to MARAD in the 2009 NDAA and action is long overdue; we need 
a completed rulemaking. It is a stated priority of President Biden and 
it needs to be a priority of every agency.
    We have a lot of ground to cover today with the help of our 
witnesses. I thank each of them for their gracious attendance and am 
excited to begin.

    Mr. Carbajal. With that, I will now call on the ranking 
member of the subcommittee, Mr. Gibbs, for an opening 
statement.
    Mr. Gibbs. Thank you, Mr. Chairman, and also 
congratulations to Admiral Phillips on your confirmation.
    The United States uses several Federal assistance programs 
to hedge against its inability to compete in international 
ship-operating market against vessels which operate under flags 
of convenience which use low-paid, Third World crews.
    These programs include requiring internal domestic 
shipments be shipped on a U.S. flagged, crewed, manned, and 
built vessels; loan guaranties for ship construction; the 
Maritime Security Program, which subsidizes the operation of 
certain militarily useful cargo vessels; and the cargo 
reservation programs we are looking at today.
    Today, we are going to look at the implementation of U.S. 
cargo reservation, or cargo preference, programs. And 
especially at the failure to write, much less implement, the 
cargo preference enforcement regulations Congress mandated in 
2009.
    All Department of Defense generated cargoes and 50 percent 
of other Federal agency generated cargoes must be carried on 
U.S.-flag vessels with U.S. crews. In conjunction with the 
Maritime Security Program, this provides the U.S. with an 
international commercial fleet of 84 vessels. These vessels and 
the U.S. mariners that crew them provide the crucial capacity 
to meet future U.S. national defense sealift needs.
    Unfortunately, agencies which generate cargo shipments take 
a shortsighted view and have tangled up MARAD efforts to write 
cargo preference enforcement regulations in the interagency 
regulatory review process. In essence, killing these regs 
before they are even implemented.
    I look forward to hearing witness testimony today, and 
especially how they believe the regulatory hurdles that have 
prevented MARAD from writing and implementing cargo preference 
enforcement regulations can be overcome.
    Thank you, Chairman Carbajal. I look forward to the 
testimony, and I yield back.
    [Mr. Gibbs' prepared statement follows:]

                                 
Prepared Statement of Hon. Bob Gibbs, a Representative in Congress from 
the State of Ohio, and Ranking Member, Subcommittee on Coast Guard and 
                        Maritime Transportation
    Thank you, Mr. Chairman.
    The United States uses several Federal assistance programs to hedge 
against its inability to compete in the international ship operating 
market against vessels which operate under flags of convenience which 
use low paid, third world crews.
    These programs include: requiring internal domestic shipments be 
shipped on U.S. flagged, crewed, manned, and built vessels; loan 
guarantees for ship construction; the Maritime Security Program which 
subsidizes the operation of certain militarily useful cargo vessels; 
and the cargo reservation programs we are looking at today.
    Today we are going to look at the implementation of U.S. cargo 
reservation, or cargo preference, programs. And especially at the 
failure to write, much less implement, the cargo preference enforcement 
regulations Congress mandated in 2009.
    All Department of Defense generated cargoes, and 50 percent of 
other Federal agency generated cargoes must be carried on U.S-flag 
vessels with U.S. crews. In conjunction with the Maritime Security 
Program, this provides the U.S. with an international commercial fleet 
of 84 vessels. These vessels and the U.S. mariners that crew them 
provide the crucial capacity to meet future U.S. national defense 
sealift needs.
    Unfortunately, the agencies which generate cargo shipments take a 
short-sighted view and have tangled up MARAD efforts to write cargo 
preference enforcement regulations in the interagency regulatory review 
process. In essence killing those regs before they are even 
implemented.
    I look forward to hearing witness testimony today, and especially 
how they believe the regulatory hurdles that have prevented MARAD from 
writing and implementing cargo preference enforcement regulations can 
be overcome.
    Thank you, Chair Carbajal. I look forward to the testimony and 
yield back.

    Mr. Carbajal. Thank you, Mr. Gibbs. I would now like to 
welcome our first witnesses for the first panel, Rear Admiral 
Ann Phillips, Administrator of the Maritime Administration, and 
Mr. Andrew Von Ah, Director of Physical Infrastructure at the 
Government Accountability Office.
    Thank you both for being here today, and I look forward to 
your testimony.
    Without objection, our witnesses' full statements will be 
included in the record.
    Since your written testimony has been made part of the 
record, the subcommittee requests that you limit your oral 
testimony to 5 minutes. With that, Rear Admiral Phillips, you 
may proceed.

 TESTIMONY OF ANN C. PHILLIPS, REAR ADMIRAL, U.S. NAVY (RET.), 
AND ADMINISTRATOR, MARITIME ADMINISTRATION; AND ANDREW VON AH, 
      DIRECTOR, PHYSICAL INFRASTRUCTURE, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Admiral Phillips. Thank you, Chairman Carbajal, Ranking 
Member Gibbs, and, of course, Chairman DeFazio and Ranking 
Member Graves. I am honored to appear today to discuss cargo 
preference programs.
    As a retired U.S. Navy rear admiral with more than 30 years 
of service, I know the American merchant marine is critical to 
our national defense as well as to our economy.
    In June, General Jacqueline Van Ovost, commander, 
Transportation Command, spoke at the graduation of the U.S. 
Merchant Marine Academy, and in addressing our graduates, 
General Van Ovost made the same critical point, saying that, 
quote, ``as a maritime Nation, our national security depends on 
the merchant marine.''
    However, she also warned the graduates that they, quote, 
``are about to face challenges our country has not encountered 
since World War II.'' Further, she said, and I quote again, 
``contested waters will stress our logistics lines all the way 
from home port.''
    Cargoes paid for by American taxpayers belong on American 
ships. Cargo preference requirements are not just Buy America 
requirements. They are requirements that also help strengthen 
America.
    In 2012, there were 106 ships in the foreign-flag trade 
flying the U.S. flag. Four years later, there were just 77 
vessels. Today, from that low point, we have grown back to 87 
foreign trading ships under the U.S. flag.
    However, without cargoes, ships will leave the U.S. flag. 
Without cargoes, our modest fleet will continue to dwindle. 
Without cargoes, we risk our ability to move military cargoes 
on American vessels whenever and wherever needed.
    I appreciate the thoughtful new report issued by the 
Government Accountability Office and know this is an important 
opportunity to further strengthen Federal compliance with cargo 
preference, statutes, and regulations.
    Given the critical importance of compliance with cargo 
preference requirements, MARAD continuously and directly 
engages with Federal acquisition officials and contractors over 
project life cycles to advise them on the practical application 
of cargo preference, including how to organize supply chains to 
maximize the use of U.S.-flagged vessels.
    I am also in the process of writing to all Federal 
departments and agencies, reminding them of their obligations 
and requesting that they each identify a senior accountable 
official, consistent with OMB's implementing guidance on 
Executive Order 14005, who can be a single point of contact 
with whom MARAD can work to implement cargo preference 
requirements.
    MARAD also works to ensure that agencies make up for 
cargoes transported on foreign vessels by employing U.S.-flag 
vessels to carry equal or greater volumes. Facilitating makeup 
cargoes produces revenue opportunities for the U.S.-flag fleet. 
It gets cargo on ships.
    MARAD has been evaluating options to advance a cargo 
preference rulemaking. We recognize this effort will be a 
complex undertaking. Success will entail addressing multiple 
priorities, including the critical importance of supporting our 
U.S.-flagged fleet, while also ensuring that urgent aid is 
transported with expediency consistent with America's 
commitment to those in need and our many foreign policy 
objectives.
    To lay the foundation for a rulemaking effort that 
navigates this intersection, MARAD plans to issue a Request for 
Information to seek input from all stakeholders.
    Under the Biden-Harris administration, MARAD is also 
committed to growing our U.S.-flag fleet. The administration 
has proposed that Congress eliminate the 3-year period that 
vessels entering the U.S. flag must currently wait before they 
are eligible to carry preferenced cargoes.
    Moreover, in the 2023 Presidential budget proposal, the 
administration requested that Congress fully fund the new 
Tanker Security Program at $60 million, which would support 10 
U.S.-flag vessels.
    Growing our fleet is also critical to ensuring we have 
enough mariners with current, unlimited tonnage licenses and 
ratings to meet our sealift needs in a worst-case scenario.
    Vessel operators report that mariner availability is still 
a challenging issue, and on September 23rd, I am convening a 
summit with industry and labor to discuss recruitment and 
retention challenges.
    In closing, I would highlight that these remaining 
challenges times. COVID has made hard jobs harder and has 
created new stresses that are clearly affecting mariners' well-
being and willingness to continue sailing.
    I appreciate this committee's commitment to our U.S.-
flagged fleet and your leadership in support of our cargo 
preference programs. I am pleased to answer your questions 
today. Thank you.
    [Admiral Phillips' prepared statement follows:]

                                 
Prepared Statement of Ann C. Phillips, Rear Admiral, U.S. Navy (Ret.), 
               and Administrator, Maritime Administration
    Thank you, Chairman Carbajal and Ranking Member Gibbs, and of 
course Chairman DeFazio and Ranking Member Graves, for the opportunity 
to testify today.
    I was confirmed to serve as the Maritime Administrator four months 
ago. In this position, my duty is to promote and strengthen our U.S. 
merchant marine, which is essential both to our economic and our 
national security.
    As a retired U.S. Navy Rear Admiral with more than 30 years of 
service, I know the critical importance of our merchant marine to our 
national defense as well as to our economy. Particularly in a contested 
environment, it is American mariners who will answer the call--as they 
always have--to move the supplies we need to defeat any adversary.
    I appreciate that my first opportunity to testify as the Maritime 
Administrator is on the subject of cargo preference. Together with the 
Jones Act and our Maritime Security Program, our cargo preference 
programs are essential to the success of our merchant marine.
    A few months ago, in the Capitol, MARAD helped unveil the 
Congressional Gold Medal for the Merchant Mariners of World War II. I 
thank the many Members of Congress who worked to authorize the medal--
including particularly Congressman John Garamendi--for your leadership.
    The medal honors the more than 240,000 merchant mariners who sailed 
the American convoys that President Roosevelt called ``the arsenal of 
democracy.'' American merchant mariners and American ships delivered 
the supplies we needed to defeat tyranny during World War II.
    It is important to note, however, that this American fleet was 
dwindling at the onset of World War II and had to be rebuilt at great 
urgency to meet our war needs.
    In June, we were honored to have the Commander of the U.S. 
Transportation Command, General Jacqueline Van Ovost, speak at the 
graduation of the U.S. Merchant Marine Academy. Addressing our 
graduates--our nation's newest merchant mariners--she said that ``as a 
maritime nation, our national security depends on the Merchant 
Marine.''
    However, General Van Ovost also warned the graduates that they 
``are about to face challenges our country has not encountered since 
WWII.'' She also warned that, ``Contested waters will stress our 
logistics lines all the way from home port.''
    Cargoes paid for by American taxpayers belong on American ships. 
Cargo preference requirements are not just ``Buy America'' 
requirements, they are requirements that also help to strengthen 
America.
    In 2012, there were 106 ships in the foreign trade flying the U.S. 
flag. Four years later, there were just 77 vessels in international 
trade sailing under our flag. Today, from that low point, we have grown 
back to 87 foreign trading ships under the U.S. flag.
    However, without cargoes, ships will leave the U.S. flag. Without 
cargoes, our modest fleet will continue to dwindle. Without cargoes, we 
risk our ability to move military cargoes on American vessels wherever 
and whenever needed.
    MARAD continuously and directly engages with acquisition officials 
and contractors throughout the federal sector to assist agencies in 
complying with cargo preference mandates. Over the entire course of 
project lifecycles, MARAD actively advises agencies on the practical 
application of cargo preference, including how to organize supply 
chains to maximize use of U.S.-flagged vessels.
    We are also working with the Biden-Harris Administration's Made In 
America Office to help agencies understand cargo preference 
requirements.
    In addition, I am in the process of writing to all federal 
departments and agencies reminding them of their obligations under 
cargo preference laws and regulations. In my letter, I explain how 
MARAD can assist them in complying with cargo preference requirements. 
I also request that they each identify a Senior Accountable Official--
consistent with OMB's implementing guidance on Executive Order 14005--
who can be a single point of contact with whom MARAD can work to 
implement cargo preference requirements.
    MARAD also works to ensure that agencies make up for cargoes 
transported on foreign vessels by employing U.S.-flag vessels to carry 
equal or greater volumes. Requiring make-up cargoes produces revenue 
opportunities for the U.S.-flagged fleet.
    MARAD has been evaluating options for a cargo preference 
rulemaking. We recognize that a cargo preference rulemaking will be a 
complex undertaking. We also understand that success will entail 
addressing multiple priorities, including the critical importance of 
supporting our U.S.-flagged fleet while also ensuring that urgent aid 
and supplies are transported with expediency, consistent with America's 
commitment to those in need and our many foreign policy objectives.
    To lay the foundation for a rulemaking effort that navigates this 
intersection, MARAD plans to issue a Request for Information (RFI) 
shortly to seek input from all stakeholders.
    Under the Biden-Harris Administration, MARAD is also committed to 
growing our U.S.-flagged fleet. As you know, one of the current 
challenges with meeting preference requirements is ensuring we have 
both enough vessels and the wide mix of vessel types to carry the many 
types of cargoes that the government impels.
    To help attract additional vessels to our flag, the Biden-Harris 
Administration has proposed that Congress eliminate the 3-year period 
that vessels entering the U.S. flag must currently wait before they are 
eligible to carry preference cargoes.
    Moreover, in the 2023 Presidential Budget Proposal, the 
Administration requested that Congress fully fund the new Tanker 
Security Program (TSP) at $60 million, which would support up to 10 
U.S. flagged vessels.
    A study required by the 2020 National Defense Authorization Act 
found a substantial risk to the nation associated with heavy reliance 
on foreign-flagged tankers, particularly in a contested environment. 
The TSP, which will be modeled on the highly successful Maritime 
Security Program, will provide assured access to up to 10 U.S.-flagged 
tankers available to support the Department of Defense's global 
operations.
    Growing our fleet is also critical to ensuring we have enough 
mariners with current unlimited tonnage licenses and ratings to meet 
our sealift needs in a worst-case scenario. In fact, MARAD's most 
recent study assessing mariner availability--completed in 2017 at the 
request of Congress--estimated a shortfall of just over 1,800 mariners.
    Vessel operators report that mariner availability is still a 
challenging issue. For that reason, on September 23, I am convening a 
summit with industry and labor to discuss recruitment and retention 
challenges.
    In closing, I would highlight that these remain challenging times 
for the entire maritime industry. COVID has made hard jobs harder and 
has created new stresses that are clearly affecting mariners' well-
being and willingness to continue sailing. These new challenges 
confront us even as world events demonstrate yet again the critical 
importance of both the U.S.-flagged fleet and American mariners to our 
national security.
    I appreciate this Committee's commitment to our U.S.-flagged fleet 
and your leadership in support of our cargo preference programs. I also 
appreciate your support for our merchant mariners, and look forward to 
working closely with you to continue to meet the requirements of laws 
reserving government-impelled cargoes for U.S.-flagged vessels.

    Mr. Carbajal. Thank you, Admiral Phillips.
    With that, we will move to hear from Mr. Von Ah. You may 
proceed.
    Mr. Von Ah. Chairman Carbajal, Ranking Member Gibbs, and 
members of the subcommittee, thank you for the opportunity to 
discuss MARAD's oversight of cargo preference requirements.
    The Federal Government ships many types of cargo 
internationally, such as military supplies, food aid for 
nations experiencing famine, and Government employees' 
household goods and personal vehicles.
    Cargo preference laws, regulations, and policies require 
that when cargo owned or financed by the Federal Government is 
shipped internationally, certain percentages of that cargo be 
carried on U.S.-flag vessels.
    The requirements are designed to ensure the U.S.-flag 
shipping industry has sufficient vessels and trained mariners 
to supplement the cargo-carrying capacity of military ships 
during times of war and national emergency, among other things.
    My statement today discusses the key findings and 
recommendations in our report issued earlier this week. The 
statement addresses the extent to which MARAD has monitored and 
reported on Federal agencies' compliance with cargo preference 
requirements and the extent to which MARAD has provided 
direction to Federal agencies on how to meet cargo preference 
requirements and has enforced those requirements.
    MARAD relies on bills of lading submitted by contractors or 
agencies to monitor agencies' cargo volumes. However, MARAD 
does not determine whether agencies are in compliance with 
cargo preference requirements for two reasons.
    First, it is not obligated to make compliance 
determinations under existing laws. Nonetheless, the National 
Defense Authorization Act for fiscal year 2009 granted MARAD 
authorities to take certain cargo preference-related 
enforcement actions, and MARAD would need to issue regulations 
and make compliance determinations to implement those 
authorities.
    Second, MARAD is unable to validate if it is getting all 
the bills of lading for cargoes funded or financed by the 
Government to make comprehensive compliance determinations.
    In some cases, carriers have notified MARAD of Government 
cargoes sent on foreign-flag vessels that were not subsequently 
reported to MARAD. So, it is likely that there is some amount 
of cargo not accounted for in MARAD's data.
    Nonetheless, the data that MARAD does receive is the best 
available source of information for Government shipping and can 
be useful to assess whether agencies are making progress toward 
their cargo preference requirements.
    Furthermore, MARAD has not publicly reported cargo 
preference data since 2013. For a number of years, MARAD 
reported agencies' cargo preference data in publicly available 
annual reports to Congress, but stopped, in part, because 
Congress eliminated the statutory reporting requirement in 
2008.
    With respect to MARAD's direction to Federal agencies on 
how to meet and enforce the requirements, MARAD works 
collaboratively with agencies and their contractors to make 
them aware of the requirements, help them to locate U.S.-flag 
vessels, and provide training where needed.
    In cases where MARAD has identified potential instances of 
noncompliance, MARAD has referred those cases to the relevant 
agencies and worked with the agencies and contractors to 
identify additional cargo to be shipped on U.S.-flag vessels to 
compensate for prior cargo volumes sent on foreign-flag 
vessels.
    However, MARAD has not clarified how agencies should 
implement two key procedures that we identified: determining 
the nonavailability of U.S.-flagged vessels and calculating 
agencies' percentages of cargo volume shipped on U.S.-flag 
vessels.
    Without clarification from MARAD on how to implement these 
procedures, several agencies included in our review developed 
their own policies for making nonavailability determinations 
and for calculating compliance that MARAD officials may not 
always agree with.
    Further, MARAD has not taken any enforcement actions as 
granted by the 2009 NDAA because it has not issued regulations 
to carry out those enforcement authorities.
    The agency began developing regulations in 2009, but 
terminated the effort in 2017, due to challenges in reaching 
sought-after consensus with other Federal agencies.
    To address these issues, we made two recommendations which 
MARAD has concurred with. First, we recommended that MARAD 
publicly report cargo preference data, and second, we 
recommended that MARAD pursue options for overcoming the 
challenges to developing cargo preference regulations.
    These actions could include such things as using a 
negotiated rulemaking as a means to help achieve consensus on 
how to implement cargo preference requirements and also to 
develop a legislative proposal to address other statutory 
challenges MARAD has identified.
    Absent these steps, MARAD will continue to lack tools that 
can help it meet its maritime goals and objectives.
    Mr. Chairman, this concludes my statement. I would be happy 
to address any questions you or members of the subcommittee may 
have. Thank you.
    [Mr. Von Ah's prepared statement follows:]

                                 
Prepared Statement of Andrew Von Ah, Director, Physical Infrastructure, 
                 U.S. Government Accountability Office
    Chairman Carbajal, Ranking Member Gibbs, and Members of the 
Subcommittee:
    I am pleased to be here today to discuss our work on the U.S. 
Maritime Administration's (MARAD) oversight of federal cargo preference 
requirements. The federal government ships many types of cargo 
internationally across the ocean, such as military supplies, food aid 
for nations experiencing famine, and government employees' household 
goods and personal vehicles. Two ``cargo preference'' laws, enacted 
respectively in 1904 and 1954, as well as associated regulations, and 
policies require that when cargo owned or financed by the federal 
government is shipped internationally, certain percentages of that 
cargo be carried on vessels registered in the United States (U.S.-flag 
vessels).\1\ Cargo preference requirements are intended to support the 
U.S.-flag shipping industry. The requirements are designed to ensure 
the industry has sufficient vessels and trained mariners to supplement 
the cargo-carrying capacity of military ships during times of war or 
national emergency, among other things.\2\
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    \1\ Pub. L. No. 58-198, 33 Stat. 518 (1904) (codified as amended at 
10 U.S.C. Sec.  2631); Pub. L. No. 83-664, 68 Stat. 832 (1954) 
(codified as amended at 46 U.S.C. Sec.  55305).
    \2\ GAO has found, however, that the application of cargo 
preference in the delivery of international food assistance does not 
clearly contribute to sealift capacity. GAO, International Food 
Assistance: Cargo Preference Increases Food Aid Shipping Costs, and 
Benefits Are Unclear, GAO-15-666 (Washington, D.C.: Aug. 26, 2015).
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    The Secretary of Transportation, through MARAD, supports the U.S.-
flag fleet, in part, by collecting data on federal agencies' cargo 
shipments and monitoring U.S.-flag cargo volumes. MARAD--as part of the 
Department of Transportation (DOT)--was granted authorities to take 
certain cargo preference-related enforcement actions through amendments 
to the 1954 act made by the Duncan Hunter National Defense 
Authorization Act for Fiscal Year 2009 (NDAA for 2009).\3\ Those 
authorities include assessing civil penalties for noncompliance with 
cargo preference requirements. To date, MARAD has not issued 
regulations implementing those authorities.
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    \3\ Pub. L. No. 110-417, Sec.  3511(b), 122 Stat. 4356, 4769-70 
(2008) (codified as amended at 46 U.S.C. Sec.  55305(d)(2)).
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    My statement today discusses the key findings and recommendations 
in our report issued on September 12, 2022 entitled Maritime 
Administration: Actions Needed to Enhance Cargo Preference 
Oversight.\4\ This statement addresses:
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    \4\ GAO, Maritime Administration: Actions Needed to Enhance Cargo 
Preference Oversight, GAO-22-105160, (Washington, D.C.: Sept. 12, 
2022).
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      the extent to which MARAD has monitored and reported on 
federal agencies' compliance with cargo preference requirements;
      the extent to which MARAD has provided direction to 
federal agencies on how to meet cargo preference requirements; and
      MARAD's efforts to enforce cargo preference requirements.

    In our report we made two recommendations to MARAD, which MARAD 
agreed to implement. These recommendations are intended to (1) increase 
transparency into federal agencies' use of U.S.-flag vessels in 
relation to their cargo preference requirements; and (2) help MARAD and 
federal agencies move toward establishing regulations to improve the 
implementation and oversight of federal cargo preference requirements. 
Both recommendations and MARAD's response are described at the end of 
this testimony.
    In preparing our report, we reviewed relevant cargo preference 
laws, regulations, and policies. We collected and reviewed cargo 
preference data received by MARAD for fiscal years 2012 through 2020. 
We selected seven federal agencies and reviewed the policies and 
procedures these agencies identified for implementing cargo preference 
requirements.\5\ We interviewed officials from these agencies and 
MARAD, as well as selected maritime industry stakeholders. We compared 
MARAD's cargo preference oversight efforts to MARAD's 2020 National 
Maritime Strategy, federal internal control standards, and our prior 
work on enterprise risk management practices.\6\ More detailed 
information on our objectives, scope, and methodology can be found in 
the issued report.
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    \5\ These federal agencies included the five largest volume 
shippers in fiscal year 2019: the Department of Defense; the U.S. 
Agency for International Development; the U.S. Department of 
Agriculture, the Export-Import Bank, and the Department of State. We 
also included two lower-volume shippers: the Department of 
Transportation and the Department of Energy.
    \6\ GAO, Standards for Internal Control in the Federal Government, 
GAO-14-704G (Washington, D.C.: Sept. 10, 2014). GAO, Enterprise Risk 
Management: Selected Agencies' Experiences Illustrate Good Practices in 
Managing Risk, GAO-17-63 (Washington, D.C.: Dec. 1, 2016).
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    We conducted the work on which this statement is based in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives.
 MARAD Monitors Agencies' Cargo Volumes But Does Not Assess Compliance 
               with Requirements or Publicly Report Data
    The mission of MARAD's Office of Cargo and Commercial Sealift is to 
promote and monitor the use of U.S.-flag vessels in the movement of 
cargo, and to oversee the administration of and compliance with U.S. 
cargo preference laws and regulations. We found that MARAD monitors 
federal agencies' cargo volumes to calculate the percentage of U.S.-
flag shipments and to obtain insight into each federal agency's overall 
activity. However, MARAD does not use this data to determine an 
agency's compliance with cargo preference requirements, and MARAD does 
not publicly report the data it receives. Such reporting would provide 
an important accountability measure to monitor federal agencies' 
shipping activities in relation to their cargo preference requirements.
    Specifically, MARAD monitors agencies' cargo volumes on U.S.-flag 
vessels, which generally declined over the time period we reviewed. 
Federal agency contractors are to submit documentation--in the form of 
bills of lading--to MARAD for government-impelled cargo,\7\ as required 
by federal acquisition regulations.\8\ MARAD compiles data on U.S.- and 
foreign-flag cargo volumes and on the commodities shipped by each 
federal agency. According to data received by MARAD and provided to us, 
total government-wide cargo volumes in fiscal year 2020 were 27 percent 
lower than fiscal year 2012, and U.S.-flag volumes were 36 percent 
lower (see figure).
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    \7\ According to MARAD, cargo preference requirements apply to 
``government-impelled'' cargo--any cargo supported by U.S. government 
funding, including cargo moving as a direct result of federal 
government involvement, such as military transportation of supplies by 
sea; indirectly through financial sponsorship of a federal program, 
such as USAID supported food aid; or in connection with a loan, grant, 
loan guarantee, or other financing provided by the federal government.
    \8\ In general, a bill of lading is a document issued by a carrier 
to acknowledge receipt of cargo for shipment. For contracts that may 
involve ocean transportation of supplies, Federal Acquisition 
Regulation (FAR) and Defense Acquisition Regulation Supplement (DFARS) 
provisions require that copies of ocean bills of lading containing a 
range of information, including the sponsoring U.S. government agency, 
vessel name and flag of registry, date of loading, description of the 
commodity, port of discharge, and the gross weight of the shipment be 
filed with MARAD. See, FAR provisions at 48 C.F.R. Sec. Sec.  
47.507(a), 52.247-64(c); DFARS provisions at 48 C.F.R. Sec. Sec.  
247.574, 252.247-7023. See also, FAR provisions relating to USAID ocean 
transportation contracts at 48 C.F.R. Sec. Sec.  747.507, 752.247-70.
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   Figure: Data Received by MARAD on Federal Agencies' Cargo Volumes 
 Shipped Internationally, Including Tonnage on U.S.- and Foreign-Flag 
                Vessels, Fiscal Years 2012 through 2020

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Notes: Data received by MARAD includes the bills of lading that MARAD 
receives for all federal agencies; data are maintained in MARAD's Cargo 
  Preference Overview System, as well as additional data on military 
   shipments provided by the Department of Defense to MARAD annually.

    The declines in cargos carried by U.S.-flag vessels over this time 
period were largely due to changes in cargo shipments within the 
Department of Defense (DOD) and in the delivery of food aid for 
international assistance, according to data received by MARAD. For 
example, DOD volumes on U.S.-flag vessels declined from 82 percent of 
DOD's total volume in 2012 to 62 percent in 2015. According to DOD 
officials, this decline was due, largely, to the limited availability 
of U.S.-flag tanker vessels during those years. Similarly, the use of 
U.S.-flag vessels by the U.S. Agency for International Development 
(USAID) and the U.S. Department of Agriculture (USDA) decreased for 
both agencies by approximately 46 percent from 2012 through 2020, based 
data received by MARAD. This decline was due, in part, to a statutory 
reduction in the minimum percentage of food aid required to be carried 
on U.S.-flag vessels from 75 percent to 50 percent, beginning in fiscal 
year 2013.
    In addition, USAID and USDA officials told us that the majority of 
the food aid cargo--bulk commodities such as grain--must be shipped on 
dry-bulk vessels and that the existing fleet was not sufficient to meet 
the transportation needs of the two agencies. At the time of our 
review, there were a total of three U.S.-flag dry-bulk vessels in 
service.
    MARAD officials provided several reasons why MARAD does not 
determine an agency's compliance with cargo preference requirements or 
publicly report the data.
      Determining agency compliance. MARAD officials told us 
they do not determine an agency's compliance with cargo preference 
requirements because (1) MARAD is not obligated to make compliance 
determinations under existing laws, and (2) MARAD cannot validate 
whether it has received all bills of lading for an agency's government-
impelled cargo to make such determinations. MARAD officials said they 
do not know how much data on agencies' shipments they may be missing. 
Occasionally, carriers will notify MARAD about instances in which cargo 
was shipped on a foreign-flag vessel, but MARAD did not receive a 
record of those shipments on a bill of lading, according to MARAD. 
However, the data that MARAD does receive could provide useful 
information toward assessing whether federal agencies are making 
progress toward their cargo preference requirements. MARAD officials 
also acknowledged that MARAD would first need to make compliance 
determinations in order to take enforcement actions under the 
authorities it received in the NDAA for 2009. However, MARAD officials 
stated that MARAD is not in a position to use those authorities because 
it has not issued regulations to implement them, as discussed in 
greater detail below.

      Publicly reporting data. MARAD has not publicly reported 
cargo preference data since 2013. For a number of years, MARAD reported 
agencies' cargo preference data in publicly available annual reports to 
Congress. These reports contained data on federal agencies' annual 
cargo volumes, including metric tons shipped on U.S.-flag vessels. As 
previously mentioned, MARAD officials told us MARAD no longer reports 
the data it receives, in part because amendments in the NDAA for 2009 
eliminated the statutory reporting requirement. But, the elimination of 
the reporting requirement does not preclude MARAD from reporting this 
data, and MARAD continued to issue annual reports that covered 
shipments through fiscal year 2013. In addition, the NDAA for 2009 
amendments require DOT to perform an annual review of agencies' 
programs subject to cargo preference requirements. MARAD officials told 
us that MARAD has not completed agency-level annual reviews due to a 
lack of implementing regulations. However, these required annual 
reviews could facilitate MARAD's mission of overseeing cargo preference 
compliance and provide a useful venue for MARAD to publicly communicate 
the data it receives about federal agencies' cargo volumes. Without 
public reporting by MARAD, Congress and others lack visibility into 
federal agencies' cargo shipments, including the amounts shipped on 
U.S.-flag vessels.
 MARAD Has Offered Agencies Some Direction on Requirements but Has Not 
         Clarified How Agencies Should Implement Key Procedures
    We found that MARAD has offered some direction on cargo preference 
requirements to federal agencies by providing information on applicable 
requirements, answering questions related to cargo preference, and 
sharing available training resources. However, MARAD has not clarified 
how agencies should implement two key procedures that we identified:
      determining the non-availability of U.S.-flag vessels and 
sharing related information with MARAD; and
      calculating agencies' percentages of cargo volume shipped 
on U.S.-flag vessels.

    As discussed in greater detail in our report, we found that without 
clarification from MARAD on how to implement these procedures, several 
agencies included in our review have developed their own policies for 
making non-availability determinations and calculating compliance. In 
addition, we found that MARAD officials do not always agree with those 
policies.
    MARAD has not clarified for agencies how to implement these 
procedures, in part, because it has not been successful in completing a 
rulemaking to establish them. A federal statutory cargo preference 
requirement directs agencies to implement their programs in accordance 
with MARAD regulations and guidance.\9\ MARAD officials told us that 
the agency began developing regulations to clarify how agencies should 
implement cargo preference requirements in 2009. The officials further 
said that in 2017 MARAD terminated the effort, due in part to 
challenges reaching consensus with other federal agencies on how to 
implement cargo preference requirements.
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    \9\ Specifically, the NDAA for 2009 amendments to the 1954 Act 
require each department or agency responsible for a program subject to 
the 1954 Act cargo preference requirements to administer such programs 
in accordance with the 1954 Act and regulations and guidance issued by 
the Secretary of Transportation, as delegated to MARAD.
---------------------------------------------------------------------------
    Although MARAD has faced challenges in reaching consensus with 
agencies, MARAD officials stated that MARAD has not abandoned a cargo 
preference rulemaking and has held internal discussions about advancing 
a rulemaking. However, we found that MARAD has not fully considered 
options to reach the interagency consensus sought to complete a 
rulemaking or otherwise provide direction to agencies on how to 
implement cargo preference procedures. For example, agencies can 
supplement the typical informal rulemaking process through a 
``negotiated rulemaking'' as a way of reaching a consensus in the 
development of a proposed rule. Through this process, an agency 
considering drafting a rule convenes a negotiated rulemaking committee 
for negotiations, consistent with the Negotiated Rulemaking Act of 
1990.\10\
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    \10\ Rulemaking at most regulatory agencies follows the 
Administrative Procedure Act's informal rulemaking process, also known 
as ``notice and comment'' rulemaking, which generally requires agencies 
to publish a notice of proposed rulemaking in the Federal Register, 
provide interested persons an opportunity to comment on the proposed 
regulation, and publish the final regulation, among other things. See 5 
U.S.C. Sec.  553: Pub. L. No. 101-648, 104 Stat. 4969 (codified as 
amended at 5 U.S.C. Sec. Sec.  561-570a). If the committee comes to a 
unanimous consensus on the content of a potential regulation, the 
agency may use it as the basis of a proposed rule. In passing the 
Negotiated Rulemaking Act of 1990, Congress made several findings, 
including that (1) negotiated rulemaking, in which the parties who will 
be significantly affected by a rule participate in the development of 
the rule, can provide significant advantages over adversarial 
rulemaking, and (2) negotiated rulemaking can increase the 
acceptability and improve the substance of rules, making it less likely 
that the affected parties will resist enforcement or challenge such 
rules in court.
---------------------------------------------------------------------------
    MARAD officials also identified issues related to statutory 
language in the Cargo Preference Act of 1954 (1954 Act) \11\ that 
create challenges for MARAD in overseeing agencies' compliance with 
cargo preference requirements. Specifically, the officials stated that 
language in the 1954 Act related to the calculation of compliance by 
``vessel type'' and ``geographic areas'' presents challenges for 
MARAD.\12\ In addition, MARAD officials stated that a provision in the 
1954 Act, known as the ``3-year waiting period,'' in effect, limits the 
supply of U.S.-flag vessels to deliver bulk food aid.\13\ According to 
MARAD officials, this provision presents a further challenge to MARAD's 
efforts to ensure that federal agencies that deliver such aid have 
sufficient U.S.-flag vessels to meet cargo preference requirements.
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    \11\ Cargo Preference Act of 1954, Pub. L. No. 83-664, 68 Stat. 832 
(codified as amended at 46 U.S.C. Sec.  55305.
    \12\ The 1954 Act's requirement to ship a minimum of 50 percent of 
cargo volumes on privately owned commercial U.S.-flag vessels, is to be 
computed separately for certain ``vessel types.'' However, MARAD 
officials noted that the vessel types specified in the 1954 Act do not 
include container vessels, which became common after the 1954 Act. 
MARAD officials stated that undefined language related to ``geographic 
areas'' in the Act complicates how cargo preference compliance should 
be calculated, such as by country, region, or otherwise. In 2015, GAO 
made a matter for congressional consideration addressing the definition 
of geographic areas. Specifically, GAO stated that Congress should 
consider clarifying cargo preference legislation regarding the 
definition of ``geographic area'' to ensure that agencies can fully 
utilize the flexibility Congress granted to them when it lowered the 
cargo preference for food aid requirement. GAO-15-666. To date, 
legislation to address this matter has not been enacted.
    \13\ More specifically, MARAD officials also noted that this 
provision limits the supply of U.S.-flag vessels by requiring foreign-
built or foreign-documented vessels that reflag into the U.S. registry 
to wait 3 years before they are able to participate in the 
transportation of preference cargo as a U.S.-flag vessel.
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    In May 2022, MARAD submitted a legislative proposal to Congress to 
address the 3-year waiting period challenge.\14\ This proposal was 
included in a bill to authorize MARAD programs for fiscal year 
2023.\15\ However, MARAD has not developed legislative proposals to 
clarify the challenges it has identified regarding the definitions of 
``vessel types'' and ``geographic areas,'' largely because it has 
prioritized developing the current proposal to address the 3-year 
waiting period challenge.
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    \14\ In 2011, we made a Matter for Congress to consider amending 
the Cargo Preference Act of 1954 to eliminate the 3-year waiting period 
imposed on foreign vessels that acquire U.S.-flag registry before they 
are eligible for carriage of preference food-aid cargos. To date, 
legislation to address this matter has not been enacted. GAO, 
International Food Assistance: Funding Development Projects through the 
Purchase, Shipment, and Sale of U.S. Commodities Is Inefficient and Can 
Cause Adverse Market Impacts, GAO-11-636 (Washington, D.C.: June 23, 
2011).
    \15\ See Maritime Administration Authorization Act for Fiscal Year 
2023, S. 4357, 117th Cong. Sec.  103 (2022).
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    Without taking steps to evaluate options for developing regulations 
that could achieve the sought-after consensus with agencies, such as a 
negotiated rulemaking, MARAD will continue to lack the tools necessary 
to provide federal agencies with direction on key cargo preference 
requirements. In addition, action by MARAD to develop a legislative 
proposal to address the statutory challenges it has identified would 
help Congress determine whether statutory changes are necessary to 
enable MARAD to ensure compliance with U.S. cargo preference laws and 
regulations.
MARAD Has Identified Potential Instances of Noncompliance but Not Taken 
                  Cargo Preference Enforcement Actions
    We found that MARAD has taken steps to identify potential instances 
of noncompliance with cargo preference requirements but has not taken 
enforcement actions. For example, MARAD has notified federal agencies 
and contractors about potential contract violations. MARAD has also 
worked with federal agencies and contractors to identify additional 
cargo to be shipped on U.S.-flag vessels to compensate for prior cargo 
volumes sent on foreign-flag vessels. However, according to MARAD 
officials, MARAD has not taken any enforcement actions, in part, 
because it has not issued regulations to carry out the enforcement 
authorities granted by the NDAA for 2009. The NDAA for 2009 amendments 
to the 1954 Act authorized MARAD to take certain enforcement actions, 
including: (1) assessing civil penalties ``against any person'' for 
violations of cargo preference requirements, (2) requiring ``make up'' 
cargoes if federal agencies fall short of the percentage of cargo 
required to be shipped on U.S.-flag vessels, and (3) taking other 
measures under the Federal Acquisition Regulation.
    According to MARAD officials, regulations are required for MARAD to 
impose civil penalties and could facilitate MARAD's use of other 
enforcement actions. Specifically, DOT policy requires certain 
procedural requirements governing enforcement actions initiated by DOT, 
including civil penalties, to be set forth in procedural regulations to 
satisfy the principles of due process.\16\ The officials said 
regulations would allow MARAD to address issues such as what 
constitutes a violation for which a civil penalty may be imposed. MARAD 
officials also noted that for MARAD to assess civil penalties, MARAD 
would need to make defensible compliance determinations based on 
regulations.
---------------------------------------------------------------------------
    \16\ Department of Transportation, Procedural Requirements for DOT 
Enforcement Actions, Memorandum for Secretarial Officers and Heads of 
Operating Administrations (Feb. 15, 2019).
---------------------------------------------------------------------------
    MARAD's maritime goals and objectives establish the importance of 
enforcing cargo preference requirements. More specifically, MARAD's 
2020 National Maritime Strategy established the objective of improving 
the capability of U.S.-flag vessels through a combination of efforts 
including enforcement of cargo preference requirements.\17\ Without 
additional efforts by MARAD to develop regulations to assist with its 
oversight and to enforce compliance with cargo preference requirements, 
MARAD will continue to lack the tools necessary to meet its maritime 
goals and objectives.
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    \17\ The Howard Coble Coast Guard and Maritime Transportation Act 
of 2014 directed DOT in consultation with the Secretary of the 
department in which the U.S. Coast Guard is operating to submit to 
Congress a national maritime strategy that included the identification 
of federal regulations and policies that reduce the competitiveness of 
U.S.-flag vessels in international transportation as well as 
recommendations to make U.S.-flag vessels more competitive and to 
ensure compliance by federal agencies with cargo preference laws. Pub. 
L. No. 113-281, Sec.  603, 128 Stat. 3022, 3061 (2014).
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                GAO Recommendations and MARAD's Response
    In our report, we made two recommendations to MARAD:
      The Administrator of MARAD should publicly report, on an 
annual basis, the cargo preference data it receives to provide 
information on the total cargo volumes and amounts shipped on U.S.- and 
foreign-flag vessels for each federal agency.

      The Administrator of MARAD should take steps to develop 
regulations to oversee and enforce compliance with cargo preference 
requirements. These steps should include evaluating options for 
overcoming challenges to developing such regulations, such as: (1) 
using a negotiated rulemaking as a means to address challenges 
achieving consensus on how to implement cargo preference requirements, 
and (2) developing and communicating a legislative proposal to address 
statutory challenges MARAD has identified.

    In its written response to our report, MARAD concurred with our two 
recommendations. MARAD noted that it recognizes the critical importance 
of federal laws requiring that government-impelled cargoes be carried 
on U.S.-flagged vessels to support and sustain an economically viable 
and militarily useful U.S.-flagged fleet in international trade. MARAD 
added that it has started evaluating options to advance a rulemaking 
related to cargo preference. MARAD stated that it intends to discuss 
the ideas that result from that effort with other federal agencies and 
the Office of Information and Regulatory Affairs, the office within OMB 
that reviews Executive Branch regulations. We are encouraged by this 
response and will monitor MARAD's progress implementing our 
recommendations.
    Chairman Carbajal, Ranking Member Gibbs, and Members of the 
Subcommittee, this completes my prepared statement. I would be pleased 
to respond to any questions that you may have at this time.

    Mr. Carbajal. Thank you, Mr. Von Ah. With that, I am going 
to move into questions. I will recognize myself first.
    In 2020, former TRANSCOM Commander Lyons called for 100 
percent cargo preference on all Government-impelled cargoes. 
Given that cargo preference is subject to the availability of 
vessels at fair and reasonable rates and that Department of 
Defense cargo already has the requirement, how would an 
increase to 100 percent in civilian cargo preference affect the 
U.S.-flagged fleet?
    Rear Admiral Phillips, the U.S.-flagged fleet is 
responsible for carrying less than 2 percent of America's 
foreign cargo. After witnessing supply chain issues over the 
past 2 years, what are the risks associated with that dynamic? 
How important is cargo preference, which helps maintain a U.S.-
flagged fleet, to addressing that concern?
    Admiral Phillips. Mr. Chairman, thank you for that 
question. I can summarize the impacts, I think, in a rather 
succinct way, which would be that additional cargo, more cargo, 
will drive more ships into the U.S.-flag fleet, and more ships 
to carry more cargo will work to expand mariners and certainly 
drive a need for additional mariners into the U.S.-flag fleet 
and provide them with paying jobs.
    So, in the context of, should Congress decide to make any 
decisions in that context which we are not asking for, but 
certainly more cargo will drive the need for more vessels which 
will drive the need for more mariners.
    In the context of how a strong and vital U.S.-flag fleet 
could influence and might have had an influence, I would say, 
an additional influence, on the challenges we faced during the 
past several years with COVID and our supply chain challenges, 
I can say that Buy America and Ship America is a way to think 
about it.
    We would have much more control with a larger and more 
vibrant U.S.-flag fleet on our exports in particular and also 
on our imports. In fact, we would have much more control over 
our supply chain, which is so vital to our economy.
    So, you can make that tie, that U.S.-flag vessels and our 
U.S. merchant marine provide vital economic and national 
security support for this country, and that is the vital nature 
of why having a merchant marine is so important, and why having 
U.S.-flag vessels is so important to this country. Thank you, 
sir.
    Mr. Carbajal. Thank you. Mr. Von Ah, if you can answer the 
first question. I will just reiterate the last part of it. How 
would an increase to 100 percent in civilian cargo preference 
affect the U.S.-flag fleet?
    Mr. Von Ah. Yes, thank you for that question, Chairman 
Carbajal. So, all cargoes, as the admiral mentioned, help 
sustain the fleet. I think it is a little bit unclear as to the 
extent to which it would drive additional vessels into the U.S. 
flag for a couple of reasons.
    First, just setting aside food aid cargo, the amount of 
cargo shipped by civil agencies is typically a fairly small 
percentage of the overall Government cargoes shipped. We are 
talking, like, between 1 and 5 percent typically.
    So, I am not sure that if that were 100 percent that would 
provide enough incentive to bring additional vessels into the 
U.S.-flag fleet, but it would be speculation on my part.
    If you talk about food aid, we are talking about a much 
larger amount of cargo that would be available for U.S.-flag 
vessels. However, there are only three current dry bulk cargo 
vessels in the fleet.
    So, here is where the 3-year waiting period becomes a bit 
of a barrier, right? That would provide an incentive for 
carriers to bring those vessels into the fleet, but they have a 
3-year waiting period where they would have to be willing to 
hold on to those vessels for 3 years.
    So, for at least those 3 years, you wouldn't see any 
additional vessels. But at that time, I would just point out 
that at that point, you would be bringing dry bulk cargo 
vessels into the fleet. Those are vessels that DoD has, sort 
of, determined to be perhaps the least militarily useful for 
their purposes.
    And you would also be starting to raise costs to ship food 
aid, so, those food aid agencies would certainly have some 
concerns about the amount of food that they would be able to 
ship to those countries in need.
    Mr. Carbajal. Thank you. Mr. Von Ah, after President Biden 
took office, he signed Executive Order 14005, which, among 
other things, strengthened oversight and enforcement over cargo 
preference laws in order to maximize the utilization of U.S.-
flagged vessels and encouraged shipper agencies to go above the 
statutory minimum.
    The Executive order further created a Made in America 
Office to help ensure that the policies were being followed.
    Given the current level of compliance and enforcement, has 
this Executive order been successful? If not, who is to blame?
    Mr. Von Ah. So, our review didn't review the Made in 
America Office specifically, but I would say that during the 
course of our review, we didn't hear from any agencies that 
desire to increase their use of U.S.-flagged vessels. Put it 
that way.
    Early on in our engagement, we did talk to the Made in 
America Office. Their plan was to partner with MARAD to work 
with agencies to designate points of contact, as the admiral 
mentioned in her opening statement, that the MARAD and the Made 
in America Office could work together to understand, sort of, 
where cargo preference stood within the agencies.
    And so, that is as much as we know at this point. I am sure 
there is a status update that we could provide to you at a 
later date.
    Mr. Carbajal. Thank you. It sounds like the President needs 
to have his Made in America Office do a little bit more work. 
Thank you very much.
    With that, I will recognize Representative Gibbs.
    Mr. Gibbs. Thank you, Chairman.
    Rear Admiral, in 2009, Congress, as you know, enacted 
legislation led by then subcommittee chairman Elijah Cummings, 
to assure that MARAD had the final say on which Government-
impelled cargo shipments were subject to Federal cargo 
preference requirements.
    Unfortunately, MARAD has had difficulties in implementing 
that.
    And then the GAO report released this week recommends that 
MARAD look at innovative ways to complete the rulemaking, 
including possibly a negotiated rulemaking process.
    What actions does MARAD plan to take to find a way through 
the regulatory thicket that is the interagency review process, 
and then also, is a negotiated rulemaking a possibility, or 
does it threaten MARAD's decisionmaking role as provided in 
statute?
    Admiral Phillips. Ranking Member Gibbs, thank you for that 
question, sir. As I have stated in my opening statement, MARAD 
has and is in the process of sending a letter to agencies and 
departments that outlines our current regulatory processes, 
requesting agencies' assistance in complying with and 
fulfilling their responsibilities under those current 
processes.
    In addition to that, in the context of rulemaking, we 
intend to issue, very soon, a Request for Information to 
stakeholders so that we can understand what their particular 
challenges are with the regulation as it exists, with the law 
as it exists, so that we can then begin to move forward 
ultimately into a rulemaking process.
    So, our first step is the letter requesting their 
compliance and also requesting they designate a senior 
accountable official under the auspices of--as has also been 
requested by the Made in America Office under Executive Order 
14005, a Request for Information from our stakeholders so that 
we can gather their information and move forward, and then from 
there, move into a rulemaking process ultimately.
    Mr. Gibbs. OK. Director Von Ah, has GAO found other 
circumstances in which negotiated rulemaking helped break loose 
interagency regulatory logjams on complex issues? Have you had 
that experience with other agencies?
    Mr. Von Ah. Yes, thank you for that question, Ranking 
Member Gibbs. Yes, it has worked in a number of instances: with 
EPA, with OSHA, with the Nuclear Regulatory Commission, with 
FAA. Actually, I think FAA was one of the first to use 
negotiated rulemaking for pilots and pilot issues that were 
being worked through.
    So, it is a useful tool. Particularly when, in a regular 
rulemaking process, it can be adversarial when there are some 
difficult issues to work through. Usually you have got parties 
taking extreme viewpoints on either side, usually in 
anticipation of some kind of litigation down the road.
    So, a negotiated rulemaking allows those parties to come 
around the table with a mediator, work through some difficult 
issues, and come up with some innovative solutions to avoid 
those kinds of things down the line.
    Mr. Gibbs. Yes, it makes sense.
    Admiral, in H.R. 7900, the National Defense Authorization 
Act of 2023, as passed by the House, requires the Maritime 
Administration to issue a final rule where having a statutory 
deadline for completion of these rules to assist MARAD in 
including the rules. Is that going to be helpful, that passage 
of the law, and that statutory deadline?
    Admiral Phillips. Ranking Member Gibbs, can you repeat your 
question, sir? I can't quite hear you.
    Mr. Gibbs. OK. The NDAA bill, 2023, that passed the House, 
requires a final deadline, a statutory deadline for completion 
of these rules [audio malfunction].
    Admiral Phillips. Thank you for that question, sir, 
regarding a deadline. Deadlines are always helpful, provided 
they are realistic, sir. So, I think the challenge there would 
be, what exactly is the deadline being considered, and in this 
context, as you are well aware, this is a very complex 
challenge.
    Rulemakings have been attempted in the past, they have 
failed, and so, in the context of how we would move forward 
with a rulemaking, and even in the initial Request for 
Information from agencies, that will take some time and review 
to ensure----
    Mr. Gibbs [interrupting]. I think the point, Congress just 
wants to get it done, and I think that is part of the deadline 
in my opinion.
    Admiral Phillips. Yes, sir, thank you. I understand that.
    Mr. Gibbs. Director, in our next panel, Dr. Clark is 
proposing that DoD ship oil from U.S. depots rather than 
foreign depots, and, as was mentioned, there has been a drop in 
shipments from U.S.-flagged vessels, mainly oil tankers.
    Would his proposal--do you think it would claw much of it 
back, his recommendation to claw back to U.S. ships, and in the 
case of having to ship out of U.S. depots, would there be 
additional costs that would be significant or not?
    Mr. Von Ah. Thanks for that question, Ranking Member. If I 
understand it correctly, I am not sure I would be able to 
comment on whether or not that would get more cargo onto U.S. 
vessels.
    It is always going to be a question of the availability of 
vessels at the given time and place that they are looking to 
ship those cargoes. And so, I believe that would help, but it 
is hard for me to say not knowing the specifics of the 
situation.
    Mr. Gibbs. Well, I guess one of the questions I might have 
for him is, you know, having to go back to U.S. depots versus 
more accessibility, what that might do to the cost. I don't 
know if that would be a question, but----
    Mr. Von Ah [interposing]. Sure.
    Mr. Gibbs. I yield back. Thank you for being here.
    Mr. Carbajal. Thank you, Mr. Gibbs. I will now move on to 
the rest of the Members, recognizing them for 5 minutes. First, 
I will move to Representative Larsen.
    Mr. Larsen of Washington. Thank you, Mr. Chair.
    Administrator Phillips, with regards to the hurdles that 
GAO outlined in this report to get to regulations, are there 
any other reasons that MARAD has not developed regulations and 
began issuing civil penalties to enforce cargo preference?
    Admiral Phillips. Thank you for that question, Congressman 
Larsen. As you are well aware, the cargo preference 
requirements are quite challenging, they are quite complicated, 
and within them, pivotal language is not defined.
    They also, in some instances, predate existing, current 
types of ships. We do a lot of container shipping now. Look at 
the 1954 act, there were no containerships at that point in 
time. So, there are things that have changed over time that 
make this a complicated situation.
    Within the context of our authority under the law to issue 
citations or to issue any particular enforcement actions, the 
agencies are charged with compliance, 50 percent or more, and 
this is for civilian agencies, but the law specifically applies 
or describes fines against persons. And so, part of the 
challenge in that context is, OK, which persons, how might we 
find them, what is the requirement, what is the statutory level 
of violation.
    The law refers to, for example, a willful and knowing 
violation. That is a very high level of culpability, my counsel 
tells me, so, how might we enforce that, how would we determine 
it.
    All of these things are reasons for a regulatory process so 
that we can determine how we might enforce such regulations in 
the future. Again, getting back to the complexity of the 
regulations as they currently exist. Thank you, sir.
    Mr. Larsen of Washington. You noted in your testimony, and 
I think it answered a question here about the timing of the RFI 
and you said soon. Is there a more specific date than soon?
    Admiral Phillips. There is not yet a defined date, sir, and 
I appreciate your interest in that and understand it. In order 
to issue an RFI, we will have to review carefully the nature of 
the questions that we ask, so that we don't wander into 
rulemaking territory yet, and that will require legal review 
and regulatory review.
    But we are certainly interested in expediting the process, 
and I will commit to doing so. Thank you.
    Mr. Larsen of Washington. Do you feel or believe or have a 
view on whether or not MARAD has strong enough singular 
authority over other agencies on cargo preference?
    It seems that looking back at the failure of establishing 
the rulemaking in the past, it reads as if the agencies walked 
away, and MARAD didn't have the ability to keep them at the 
table.
    Admiral Phillips. Thank you for that question, sir. MARAD 
has the authority of the law behind it, and the law has been in 
place since 1954. It has been reinvigorated in 2009 and in 
subsequent additional actions, but we do have the power of the 
law behind us.
    I can't speak, and there certainly were challenges 
addressed by previous agencies and under previous 
circumstances, but at this point in time, we believe the 
authority of the law is what we have and what we need to be 
able to move forward in this context, to move a regulatory 
process.
    Mr. Larsen of Washington. The Infrastructure Investment and 
Jobs Act invested $450 million in MARAD this year. Are you 
using any of those dollars to enforce cargo preference laws and 
regulations?
    Admiral Phillips. Thank you for that question, sir. The 
Bipartisan Infrastructure Law did indeed provide $450 million 
to the Maritime Administration under the Port Infrastructure 
Development Program, for port infrastructure development in 
particular. And so, those funds are very specifically targeted 
at port infrastructure development.
    Mr. Larsen of Washington. Director Von Ah, your testimony 
states that MARAD monitors Federal agencies' cargo volumes to 
calculate a percentage of U.S.-flag shipments but does not use 
this data to determine agencies' compliance.
    As these compliance determinations are necessary for even 
contemplating civil penalties for lack of compliance, can MARAD 
use the data more effectively in your view?
    Mr. Von Ah. Thank you for that question, Congressman 
Larsen. So, there are a couple of difficulties in determining 
compliance, and it stems from some ambiguities in the original 
law that make it, sort of, more difficult, and those things are 
things that GAO has talked about in prior reports and 
recommended that Congress address.
    One of them is to deal with, sort of, ambiguities about 
what is meant by a geographic area, because compliance is also 
supposed to be determined by geographic area. And another is by 
vessel type, supposed to be determined by vessel type as well.
    But as the admiral mentioned, some of the vessel types 
don't exist, or didn't exist at the time when the law was 
originally written. So, those would need to be clarified, first 
and foremost, for MARAD to start to make compliance 
determinations.
    The other issue is that there is a difficulty in knowing 
whether or not MARAD has all of the bills of lading for all of 
the shipments that agencies have made. And so, that is a little 
bit more of a difficult problem there's, sort of, a ``we don't 
know what we don't know'' there.
    There is a certain amount that may not be being reported to 
MARAD, and there are ways that MARAD is considering looking at 
certain kinds of customs data and other databases to 
investigate whether there are shipments out there that are not 
being reported to them. But that is another one of the 
challenges in terms of determining whether the agency is in 
compliance or not.
    Mr. Larsen of Washington. Thank you.
    Thank you, Mr. Chairman.
    Mr. Carbajal. Thank you, Mr. Larsen, and next I will 
recognize Mr. Weber for 5 minutes.
    Mr. Weber of Texas. Thank you, Mr. Chairman.
    Rear Admiral Phillips, a couple questions for you. I am 
from the gulf coast of Texas, starting at Louisiana, and border 
that other foreign country. And I have got the Port of Beaumont 
and Sabine-Neches Waterway in my district, and so, MARAD has 
some facilities out there. Are you familiar with those 
facilities?
    Admiral Phillips. Yes, sir, I am familiar with them in that 
we do have a regional office in that area. I have not yet had 
the opportunity to visit, and I hope to do so very soon.
    Mr. Weber of Texas. Well, we do want you to come out there 
and spend lots of money in my district just so you know. Are 
you aware that Beaumont moves more military personnel and 
equipment than any other port in the United States?
    Admiral Phillips. I am aware that it is an extremely busy 
port in the context of moving military requirements, yes, sir. 
Thank you.
    Mr. Weber of Texas. OK. We want to make sure that that is 
on our radar. In your opinion, Admiral, what is the best thing 
that MARAD could do--we are talking about getting more flagged 
vessels--with the supply chains already stretched to the max? 
What is the best thing that MARAD could do to facilitate that? 
Money is no object.
    Admiral Phillips. Thank you, sir. If only that were true. I 
appreciate your interest in that question, and I think some 
things that we are already doing, that are already underway, 
pending certainly in legislation for the Biden administration, 
would be eliminating the 3-year wait which we described earlier 
in the testimony today. That will give more options for more 
vessels to join the U.S.-flag fleet, particularly in cases 
where we have only a few of a certain type, bulk carriers being 
one of them, which would then provide additional options for 
agencies who are shipping food aid in particular, and perhaps 
give them more opportunities to more easily comply with the 
requirement.
    Certainly, that is a way to expand the U.S.-flag fleet, and 
then in addition, under the Tanker Security Program, we have an 
appropriation for that. We requested that again in 2023. That 
will bring 10 tank vessels, petroleum product carriers, into 
the U.S.-flag fleet as well. So, those are two ways, near term, 
that we can, and hope to expect, that we will see growth----
    Mr. Weber of Texas [interrupting]. Well, let me break in if 
I may. You mentioned earlier I think in getting the rulemaking 
actually going off of dead center, for lack of a better term, 
you had counsel looking at it. Do I remember that correctly? Or 
you will have legal counsel looking at it? You didn't want to 
get into the rulemaking process--what were your comments? I 
came in a little late.
    Admiral Phillips. Right. Certainly I think the discussion 
actually, sir, was in the context of how soon an RFI could be 
issued. We would certainly want counsel to review that.
    Mr. Weber of Texas. Got you.
    Admiral Phillips. And then the next step would be a 
rulemaking process.
    Mr. Weber of Texas. How many people, would you say, in that 
office are working on that?
    Admiral Phillips. Sir, are you asking how many people are 
in the Office of Cargo and Commercial Sealift?
    Mr. Weber of Texas. Yes, ma'am, that would help move this 
process along.
    Admiral Phillips. Well, I would say that the administration 
more broadly is going to be involved in moving this process 
along. So, I probably have between 20 and 25 in the Office of 
Commercial Sealift----
    Mr. Weber of Texas [interrupting]. But how many in your 
office are interacting with the administration--that is really 
the heart of my question--about that process?
    Admiral Phillips. Well, I would----
    Mr. Weber of Texas [interrupting]. Do you have 1 person, 2 
people, 3 people, 7 people?
    Admiral Phillips. I have a full legal staff. My counsel is 
here with me today. She and her staff would be supporting this. 
The Office of Cargo and Commercial Sealift is here. The 
administrator of that is here as well. So, we are talking, I 
don't know, 20, 30 people at times involved in this.
    Mr. Weber of Texas. OK. I am just trying to get a handle on 
what kind of attention, what kind of manpower is available to 
actually follow this through.
    And we talked about the lack of rules hurting you because 
you have more American-flag vehicles, so, it is important to 
us, especially important to our ports--I also have seven ports 
in my district, more than any other Member of Congress. Some 
have four, we have seven.
    The Sabine-Neches Waterway is the second longest waterway 
in the Gulf of Mexico, second only to the Mississippi River. 
So, a lot--and by the way, the Port of Houston is not one of my 
seven ports. It comes through Galveston Bay up into the Houston 
Ship Channel.
    We have a lot of traffic that moves in and out, so, we are 
only wanting to make sure that we can get as much of this done 
as quickly as we can, to facilitate America staying on top and 
in getting back on top of the supply chain crisis and--and--
being ready should a military excursion be necessary.
    And with that, Mr. Chairman, I will yield back.
    Mr. Garamendi [presiding]. Thank you, Mr. Weber.
    The gavel was passed. I will do my best to follow on here 
from the chairman who had to go to another classified meeting.
    Our next questioner is Mr. Lowenthal.
    Mr. Lowenthal. Thank you, Mr. Chair. You are doing already 
an excellent job there.
    My question first is to Mr. Von Ah. Your report and your 
testimony clearly show a disturbing trend, and I was 
particularly surprised to see your finding on page 19 of your 
report, that USAID seeks a blanket waiver for dry bulk cargo 
vessels because it believes these vessels do not have military 
use.
    I think this really--and I know--this really fails to 
understand the value of the U.S.-flag fleet.
    Vladimir Putin has made Ukrainian grain exports into a 
weapon to coerce the world during his war of aggression. The 
lesson is clear: Losing control over critical global supply 
chain can be dangerous.
    A U.S.-flag fleet gives us options in the event of 
contingencies like a future global commodity crisis.
    So, I want to switch now to Admiral Phillips. I am very 
concerned that USAID's mistaken rationale reflects the absence 
of clear guidance, let alone regulations, from MARAD on the 
importance of these Federal laws.
    I want to join my colleagues in urging you to consider 
implementing the GAO recommendation to consider a negotiated 
rulemaking. We have already discussed that. I just want to join 
in supporting the negotiated rulemaking.
    I want to ask you, Admiral Phillips, do you believe that 
the existing laws are strong enough to enable you to overcome 
resistance from agencies like I just mentioned--USAID--to 
uphold congressional intent?
    Admiral Phillips. Thank you, Congressman Lowenthal, for 
that question. I believe that existing law is strong enough to 
allow us to execute a rulemaking and move through this process, 
working with our sister and our fellow agencies, as described.
    With the force of the law behind us, we have the authority 
to do this and to work with our fellow agencies to move forward 
and also to ensure that they understand the force of the law 
that is behind this.
    That said, I am a realist, I understand this is a 
challenging process, and it has been tried before and has 
failed. However, I believe that with the interest in global 
shipping and U.S.-flag shipping that we have certainly seen in 
the last 2 years under the COVID crisis and the supply chain 
challenges we have had, that we are in a different position 
now, and we may have more attention to this need than we might 
have had in the past.
    So, yes, sir, I think we have sufficient authority under 
the law, and we will put that to the test as we move forward 
with this process. Thank you.
    Mr. Lowenthal. Well, thank you for that answer, and I am 
going to yield back. Thank you, Mr. Chair.
    Mr. Garamendi. Thank you, Mr. Lowenthal. We now turn to Mr. 
Van Drew for 5 minutes.
    Mr. Van Drew, are you somewhere around?
    [Pause.]
    Mr. Van Drew, you are about to lose your place.
    [No response.]
    Mr. Auchincloss, you have 5 minutes.
    Mr. Auchincloss. Thank you, Chair.
    This question is about MARAD's mandate to support the 
military and how the Marines' force readiness plans will 
streamline MARAD's support capability, and it is for you, Rear 
Admiral.
    Cargo preference, coupled with other programs, such as the 
Maritime Security Program and Voluntary Intermodal Sealift 
Agreement, are intended to support the U.S.-flag shipping 
industry so that the United States is a fleet capable of 
supplementing the capacity of the U.S. military with U.S.-flag 
vessels and trained mariners during times of war and national 
emergency, while also providing transportation for the Nation's 
maritime commerce.
    The Commandant of the Marine Corps 2030 Force Design 
includes significant ground force reductions, and the Marines' 
plan includes pursuing new capabilities to increase littoral 
maritime ability and resilience.
    With this recalibration, it would follow that this would 
lessen MARAD's requirement that it has the ship capability to 
support a national security emergency. What impact do you 
foresee the Commandant's Force Design 2030 plan having on 
MARAD's operating costs?
    Admiral Phillips. Mr. Auchincloss, thank you for that 
question. We, as you are aware, work very directly with the 
U.S. Transportation Command, who is responsible for overseeing 
military transportation broadly. In that context and in support 
of your specific question, the Marine Corps changes and 
challenges, which I am aware of, we would work with TRANSCOM to 
understand what the needs are and what they will be in the 
future.
    I would add that the Transportation Command is very 
interested in additional merchant capacity for other reasons, 
including support of product tankers, in the Pacific in 
particular, and other additional requirements.
    So, I would revert back to TRANSCOM to work with their 
fellow Services to ensure that they support the needs of the 
Marine Corps and to understand what those impacts might be more 
broadly, which then we respond to and provide the services that 
they request from us in that context.
    Mr. Auchincloss. Can you continue on that thread, Rear 
Admiral, because I think it is worth pushing on, the fact that, 
if I am correct, our merchant marine number of ships has 
actually declined since World War II.
    And yet as we are pivoting from a transatlantic 
requirement, like we had in World War II really to support our 
European Allies, towards an Indo-Pacific one, where the 
distances are much greater and the need for maritime 
transportation potentially much greater, do you feel like we 
are in a position where we can support, with the merchant 
marine, an Indo-Pacific strategy?
    Admiral Phillips. So, thank you for that question, sir. 
That is actually the point of working with Transportation 
Command to understand the need and, in particular, their 
identification of a shortfall in the--I just lost my 
microphone--in the ability to handle the needs in the context 
of product tankers and tank vessels to support scenarios that 
would be of interest in the Pacific and the Indo-Pacific 
theater.
    Mr. Auchincloss. Thank you for that. And can you talk as 
well about--and this might be more for you, Mr. Von Ah--about 
how coordinated sanction implementation on Russia, either 
global price cap in the maritime insurance regulations that we 
are putting into place in conjunction with the European Union, 
at the end of 2022, might affect the maritime industry?
    Mr. Von Ah. I am not sure our work spoke to that, 
Representative Auchincloss. I am not sure if the rear admiral 
has any points of view on that.
    Admiral Phillips. Thank you, sir, I don't in particular. I 
will say that we certainly have been asked, and have supported, 
with Ready Reserve Force vessels, and provided assistance in 
the Ukraine context, as directed by TRANSCOM, and we will 
continue----
    Mr. Auchincloss [interrupting]. Has cargo preference 
impacted our ability to send aid abroad to countries like 
Ukraine?
    Admiral Phillips. That is an interesting question. Our work 
in the context of supporting Ukraine is directed through the 
Transportation Command, to be able to move military cargo to 
this point, which is 100 percent compliance.
    Mr. Auchincloss. Chairman, I yield back.
    Mr. Garamendi. Thank you, Mr. Auchincloss.
    Mr. Van Drew, how nice of you to join us. You have 5 
minutes.
    Dr. Van Drew. Thank you. Thank you and good morning, and I 
appreciate you holding today's hearing on the enforcement of 
maritime Buy American laws.
    The supply chain crisis has shown that we need to invest in 
America [inaudible] to strengthen our economic position. This 
includes cargo handling infrastructure, like cranes, which are 
not currently made in the United States of America.
    Unfortunately, a neglected manufacturing base and 
burdensome regulations have put our country in a difficult 
position when it comes to improving our port infrastructure.
    These factors have led to a situation where the cost of 
ocean shipping actually sometimes exceed the value of the cargo 
that we are shipping out. This arrangement is economically 
unsustainable for the United States of America.
    Administrator Phillips, could you explain how current 
regulations are impeding ports' ability to use DOT grant funds 
to decrease cargo backlogs, prepare for increased trade, and 
stay competitive?
    Further, what actions can we take to align the economics of 
maritime shipping with the value of American exports?
    Admiral Phillips. Congressman, thank you for that question, 
sir. In the context of port infrastructure and support for port 
infrastructure, as you are aware, the Maritime Administration 
supports the Port Infrastructure Development Program, which, as 
discussed earlier in testimony, has received $450 million under 
the Bipartisan Infrastructure Law, this year, bringing our 
total, including appropriations in fiscal year 2022, to about 
$680 million.
    That grant program which will assist ports in improving 
their infrastructure and improving the capacity and resilience 
and their ability to move cargo, is under review now, and is 
moving forward, and we expect to announce awards later this 
fall. So, that will help ports nationwide improve their 
capacity to move cargo.
    In the context of shipping and commercial shipping and 
pricing and our ability to regulate that, we do not have an 
ability to regulate that. I would defer those questions, I 
believe, sir, to the Federal Maritime Commission in the context 
of the commercial world more broadly.
    Certainly U.S.-flag shipping with more capacity to ship on 
U.S.-flag vessels would allow us more control, in particular of 
our exports as I stated earlier, which we have been challenged 
to deal with under COVID and the many challenges to our supply 
chain infrastructure, which, of course, we are all so well 
aware of and, sir, which you are describing in your question, I 
believe. Thank you.
    Dr. Van Drew. Thank you. Just a followup. I have a couple 
minutes. So, do you think we are well on our way to getting 
this under control, or do you feel that we are still pretty 
much in the thick of it and have some pretty serious problems 
here?
    I mean, this is something that is obviously important for 
the economy, important for the future, just important in every 
aspect. So, what are we not doing that you would like to see us 
do, what are we doing that you like, and how can we do better?
    Admiral Phillips. Thank you for that question, sir. I will 
defer on the costs of foreign-flag vessel shipping, which 
certainly has been a challenge across the COVID pandemic and 
the supply chain challenges.
    I would say in the context of improving our port 
infrastructure, under the Bipartisan Infrastructure Law, and 
PIDP in particular but other grants as well administered by the 
Department of Transportation, we have a generational 
opportunity to make change, to build resilience into our ports 
and our supply chains, and to improve our capacity to move 
cargo and keep cargo moving.
    Of course, from our perspective, it is all about getting 
cargo on ships, on U.S.-flag vessels, but in the broader 
context, certainly under the Bipartisan Infrastructure Law, the 
grants that have been approved and are underway in the 
Department of Transportation, and particularly in MARAD PIDP, 
will be of significant value in improving our port 
infrastructure over the next 5 years. Thank you, sir.
    Dr. Van Drew. So, you see that, and through that bipartisan 
infrastructure bill, you see that as a positive, obviously, and 
your sense is that we are going in the right direction, and 
that this should be helpful, and we should see noticeable 
improvement in the future?
    Admiral Phillips. Yes, sir, in the context of being able to 
improve our port infrastructure, something that we have long 
needed and not done, this is a generational change and a 
generational opportunity, sir. Thank you.
    Dr. Van Drew. Thank you for your time and commitment and, 
Chairman, thank you for yours.
    Mr. Garamendi. Thank you, Mr. Van Drew. I now turn to 
myself.
    I believe, Admiral Phillips, you are the fourth 
Administrator in the last decade. I believe that to be 
accurate. And over that period of time, every Administrator has 
failed to be able to fully implement the cargo preference laws.
    Given your testimony today, your determination to achieve 
what others have not been able to do is meritorious, hopeful, 
but I don't think you are going to be able to do it. As good as 
you are, as much experience as you have--and I am familiar with 
the previous folks that held your office--the problem is the 
law itself.
    While you do have authority, I am not sure you have the 
ability to actually, under the law, force the other American 
shippers to meet the requirements of the law. A lot of 
discussion about TRANSCOM here. I am going to write a letter to 
TRANSCOM, who is responsible to my subcommittee, the Readiness 
Subcommittee, and ask her for specific information about just 
how well she is doing in carrying out the law.
    Bottom line here is, we need to change the law, and I would 
like to have your specific thoughts about several of the 
specific things that we really must do, if we are going to 
maintain our maritime industry.
    So, here we go. You have the authority, responsibility, to 
write regulations. Why have your predecessors been unable to do 
that? Can they force the negotiations? Do you have the power to 
actually force negotiations? That is, say, it is my way or the 
highway?
    Admiral Phillips. So, Mr. Chairman, thank you for that 
question, and thank you for your interest in cargo preference 
and enforcing the law.
    As I have said before, we have the power of the law behind 
us, and the law has been in place for a number of years. 
Certainly the complexities in the law and pivotal language, 
which is not clearly defined, as we have deferred to earlier in 
this hearing, the kinds of ships that we use today that weren't 
in existence when the 1954 law was put in place, all add to the 
challenge.
    In addition to that, agencies interpret the law 
differently. They argue with us, and they argue amongst 
themselves.
    But setting all that aside, we have an opportunity here, I 
think, particularly in the context of the understanding and 
incredible need for our supply chain----
    Mr. Garamendi [interrupting]. Excuse me. I understand all 
that, the committee has heard that already, so, I am going to 
interrupt you and ask you, if you had the power, in the new 
law, to be the arbitrator of the cargo preference, that the 
agencies--USDA, DoD, USAID--had to get your authority to ship 
on other-than-American ships, could you carry that out? In 
other words, you had the power.
    Admiral Phillips. So, Mr. Chairman, are you asking me if I 
have the power now to determine a nonavailability?
    Mr. Garamendi. No. We must write a new law. This simply has 
not worked. We are well into two decades of failure. And so, if 
you, MARAD, had the authority, period, and DoD had to get your 
permission to ship on other-than-American ships, USAID and 
Department of Agriculture, could you carry that out?
    Admiral Phillips. So, hypothetically speaking, sir, in the 
context of what Congress may or may not decide to do, we 
believe that we have--in the context of civilian authority now, 
the ability to make a determination as to whether or not ships 
are available, which in that case would allow agencies to ship 
U.S. flag if they are available or not if they are not. 
Anything that strengthens that authority certainly is helpful.
    However, I defer to Congress in actions they might choose 
to take in that context, sir.
    Mr. Garamendi. Of course.
    Should we increase the cargo preference back to 75 percent? 
Would that expand the merchant marine?
    Admiral Phillips. Again, I defer to Congress on their 
decisions in this context, sir. However, back to my original 
statement, more cargoes will tend to drive more ships which 
will also drive the need for more mariners.
    Mr. Garamendi. Very good. My time has expired. I will 
simply share with the committee here that I intend to introduce 
legislation, look forward to working with the committee and 
with you and the other American shippers to make it clear that 
the cargo preference laws are the laws and that the ambiguity, 
confusion, and total disregard for the law by many is 
terminated. We are going to work on that.
    I do not believe we have a second round of questions.
    Ah, Mr. Maloney. Sean Patrick, you are out there somewhere.
    [Pause.]
    Did you just quit on us again, Mr. Maloney?
    [Pause.]
    Hello, Mr. Maloney. If you would like to participate, this 
is your moment, and it is rapidly disappearing.
    [Pause.]
    Last call. Mr. Maloney?
    [No response.]
    I believe we have completed the review.
    Admiral Phillips, I look forward to working with you. Thank 
you for being here today, and congratulations on your 
appointment. You may be able to overcome the current inability 
of the past Administrators, but I think if you had the power 
clearly defined, I would have confidence you could carry it 
out.
    Mr. Von Ah, thank you very much for your continued 
investigations and the clarity of reports. Thank you. We 
appreciate your attendance here.
    We now move on to the second panel.
    The committee will come back to order.
    Our second panel is now in place. The chairman may be able 
to return, in which case I will move on.
    So, I would like to welcome the next panel of witnesses.
    Mr. Bryan Clark, senior fellow and director of the Center 
for Defense Concepts and Technology at the Hudson Institute. 
Thank you very much for joining us, Mr. Clark.
    Mr. Eric Ebeling, president and chief executive officer of 
American Roll-on Roll-off Carrier Group, on behalf of USA 
Maritime.
    And, Captain Don Marcus, president of the International 
Organization of Masters, Mates & Pilots.
    Gentlemen, thank you very much for being here today. I look 
forward to your testimony.
    Without objection, the witnesses' full statements will be 
included in the record.
    Captain Marcus, would you like to lead us? After all, you 
are the captain of mates and masters.

TESTIMONY OF CAPTAIN DONALD J. MARCUS, PRESIDENT, INTERNATIONAL 
   ORGANIZATION OF MASTERS, MATES & PILOTS, AFL-CIO; ERIC P. 
 EBELING, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN ROLL-
ON ROLL-OFF CARRIER GROUP, ON BEHALF OF USA MARITIME; AND BRYAN 
  CLARK, SENIOR FELLOW AND DIRECTOR OF THE CENTER FOR DEFENSE 
           CONCEPTS AND TECHNOLOGY, HUDSON INSTITUTE

    Mr. Marcus. Thank you very much. Mr. Chairman and members 
of the subcommittee, good morning. I am Don Marcus, president 
of the International Organization of Masters, Mates & Pilots, 
AFL-CIO. Thank you for the opportunity to be here today to 
represent America's seagoing labor and Transportation Trades 
Department and Maritime Trades Department of the AFL-CIO.
    Collectively, our unions represent the vast majority of 
American professional mariners employed aboard U.S.-flag 
vessels to carry cargo preference cargoes in foreign trade, 
civilian, and defense cargoes. The strict enforcement and 
enhancement of the U.S.-flag cargo preference shipping 
requirements are essential to provide the base of cargo 
necessary to sustain U.S.-flag vessels in foreign commerce. 
Without cargo, there are no merchant ships. Without U.S.-flag 
ships, our military and economic independence cannot be 
guaranteed.
    Men and women operate these vessels. They do so at all 
times and in all conditions, in peace and war. During the 
present pandemic and through all the daily hazards and personal 
hardships inherent in their occupation, they support their 
families through employment in good family-wage jobs, union 
jobs. An attack on cargo preference, however, is more than 
simply another attack on middle-class livelihoods.
    The consistent support of U.S.-flag shipping from you, Mr. 
Chairman, and many of your colleagues is especially important 
today. The war in Europe could escalate into direct military 
involvement at any time by the United States. It is with 
unwelcome irony that a few months ago in this building, World 
War II merchant marine veterans finally received a 
Congressional Gold Medal in recognition of their wartime 
service. And yet, at the same time, there are those in and out 
of Government who are trying to weaken, if not destroy, cargo 
preference with no regard for its impact on our fourth arm of 
defense, or our maritime workforce.
    What the opponents of cargo preference refuse to comprehend 
is that the mariners who operate U.S.-flag vessels that carry 
cargo preference cargoes are the same mariners who operate 
surge and sustainment vessels that are necessary for our 
military.
    With the European conflict raging and an aggressive China 
supporting a national-flag merchant fleet of over 4,000 
oceangoing vessels, now is not the time to withdraw Government 
cargo and undermine the commercial viability of the 80 to 85 
U.S.-flag vessels that are currently operating in foreign 
trade.
    To this end, Congress must reject the concurrent 
resolutions introduced in the House and Senate that attempt to 
leverage the war in Ukraine to justify a waiver of cargo 
preference. If these resolutions are enacted, our fleet will be 
diminished, and our sealift readiness grievously compromised.
    Secondly, Congress should reverse the arbitrary reduction 
in cargo preference for food aid that was enacted in 2012. 
Beginning in 1985 and through 2012, at least 75 percent of the 
gross tonnage of international food aid cargoes was to be 
carried aboard U.S.-flag vessels when available at fair and 
reasonable rates.
    In addition, the law stipulated that the Department of 
Transportation would reimburse the food aid programs for any 
cost premium associated with the use of U.S.-flag vessels for 
more than 50 percent of the food aid cargoes. This 75 percent 
minimum and the reimbursement mechanism should be reinstated.
    Finally, we ask that Congress provide the Maritime 
Administration with whatever additional authority it needs to 
fully administer and enforce the cargo preference statutes as 
set forth in section 3511 of the Duncan Hunter National Defense 
Authorization Act of 2009, P.L. 110-417. The full exercise of 
this authority by the Maritime Administration will help to 
minimize, if not eliminate, interagency disputes over the 
applicability and implementation of cargo preference.
    American merchant mariners have served with distinction and 
courage in every international conflict since our country 
declared independence. It has never hesitated to sail in war 
zones anywhere that U.S. troops are deployed. Too often, 
merchant mariners have sacrificed their lives in this process.
    Today's American seafarers should not be sold down the 
river while their predecessors are given Congressional Gold 
Medals some 75 years after the fact. Full compliance with cargo 
preference laws is an investment in the U.S. Government that it 
must make to strengthen our commercial sealift readiness, to 
support our national security, and protect our national 
economy.
    Thank you again for the opportunity to express the views of 
America's seafaring and transportation labor organizations. We 
stand ready to provide additional information and work with you 
and your colleagues to strengthen and grow the U.S.-flag 
merchant marine.
    [Mr. Marcus' prepared statement follows:]

                                 
      Prepared Statement of Captain Donald J. Marcus, President, 
     International Organization of Masters, Mates & Pilots, AFL-CIO
    Mr. Chairman and Members of the Subcommittee:
    Good morning. I am Captain Donald Marcus, President of the 
International Organization of Masters, Mates & Pilots, AFL-CIO. I am 
pleased to appear today and to submit this statement on behalf of the 
International Organization of Masters, Mates & Pilots as well as the 
following seafaring and transportation labor organizations: American 
Maritime Officers, American Radio Association, Marine Engineers' 
Beneficial Association, Marine Firemen's Union, Maritime Trades 
Department, AFL-CIO, Seafarers International Union, Sailors' Union of 
the Pacific, and Transportation Trades Department, AFL-CIO. The full 
enforcement and enhancement of America's U.S.-flag cargo preference 
shipping requirements are critically important to our organizations and 
to the jobs of the thousands of American mariners we represent. Our 
labor organizations are united in our vigorous support of the U.S.-flag 
cargo preference shipping requirements, and we thank this Subcommittee 
for holding this hearing and giving us the opportunity to express our 
views.
    Together, our maritime labor unions represent the vast majority of 
United States Coast Guard (USCG) licensed and unlicensed American 
maritime personnel who work aboard commercial vessels of all types and 
who are among the most highly trained and qualified mariners in the 
worldwide maritime industry. Our unions and the licensed and unlicensed 
American merchant mariners we represent have never turned away from the 
challenges that must be faced to preserve the democratic way of life at 
home and overseas. As they did at the founding of our nation, during 
World War II and in every conflict before and since, the men and women 
of the United States-flag merchant marine stand ready to sail into 
harm's way whenever and wherever needed by our country to enhance 
America's military and economic interests and to support and supply our 
armed forces deployed overseas.
    Without the U.S.-flag vessels and U.S. citizen licensed and 
unlicensed merchant mariners ready and available to provide the 
commercial sealift readiness capability needed by the Department of 
Defense, our nation would be forced to entrust the support, supply, and 
security of our forces overseas to foreign flag vessels and foreign 
crews who may not support U.S. defense operations and objectives. To do 
so would be to jeopardize the lives of American servicewomen and men 
who will no longer be guaranteed the supplies and equipment they need 
to do their job in support of our country.
    As stated by United States Transportation Command (USTRANSCOM) 
Commander General Stephen Lyons in November 2020, ``With 85 percent of 
our forces based in the continental United States, nearly 90 percent of 
our military equipment is expected to deploy via sealift in a major 
conflict. In order to deploy those forces, we require safe, reliable 
and ready U.S.-flagged vessels [and], mariners to crew those ships . . 
.''
    We thank you, Mr. Chairman, the members of this Subcommittee and 
Committee, and numerous other members of the House of Representatives 
for your strong support for the U.S.-flag maritime industry and for 
your efforts to preserve and create jobs for America's maritime 
workforce. We especially appreciate the action taken by this Committee 
to enact legislation requiring the Comptroller General to perform an 
independent audit regarding the enforcement of existing cargo 
preference shipping requirements by all Federal agencies and 
departments. We are hopeful that this audit will provide a clearer 
understanding of the degree to which Federal agencies may be, for 
whatever reason, acting contrary to the law and bypassing U.S.-flag, 
U.S.-crewed vessels in favor of foreign flag, foreign crewed vessels to 
move U.S. government cargoes. To fully achieve the goals and objectives 
of the U.S.-flag cargo preference shipping requirements, it is 
essential that the maximum amount of government generated cargoes move 
on U.S.-flag vessels consistent with the requirements of law.
    We also appreciate President Biden's recognition of the importance 
of the maritime industry, and his Administration's commitment to a 
greater adherence to America's domestic Made-in-America and Buy 
American laws and policies as reflected in his Executive Order 14005 
issued January 25, 2021. We are especially pleased that this Executive 
Order includes within its scope the domestic preference laws for 
maritime transport. This Administration has made clear that Ship 
American is a key component of our Nation's Buy American and Hire 
American policies and should be treated as such. As the President has 
stated, ``I understand that merchant ships do not sail, and U.S. 
merchant mariners do not work, unless they have cargo to carry. I 
strongly support America's cargo preference laws.''
    Significantly, Executive Order 14005 strengthened the oversight and 
enforcement over the implementation of our cargo preference 
requirements and created a Made-In-America Office (MIAO) to help ensure 
his Administration's policies were being followed.
    More specifically, the guidance issued by the White House to 
supplement the President's Executive Order states that the Made In 
America Office ``will work with relevant agencies to review how best to 
ensure agency compliance with cargo preference requirements in order to 
maximize the utilization of U.S.-flag vessels, in excess of any 
applicable statutory minimum, to the greatest extent practicable.'' The 
guidance also notes that ``cargo preference is necessary for the U.S. 
to encourage and aid the development and maintenance of an American 
merchant fleet (and mariner base) . . . to serve as a naval and 
military auxiliary in time of war or national emergency.'' We applaud 
President Biden for acting to ensure that Ship American requirements 
are implemented and enforced throughout his Administration.
    It is interesting to note that this action by President Biden is 
the most significant step taken to ensure full compliance with the 
spirit and letter of our nation's cargo preference shipping 
requirements since the April 1962 Presidential Directive issued by 
President John F. Kennedy. That Directive, a response to the 
``worldwide economic and defense burdens facing the United States,'' 
directed all executive branch agencies to comply fully ``with the 
purpose of our various cargo preference laws.''
    President Kennedy's Directive, like President Biden's Executive 
Order, reflects the fact that the cargo preference statutes were not 
being ``implemented in a manner to achieve fully their purpose,'' which 
is that ``U.S. government generated cargoes move in privately-owned 
U.S.-flag commercial vessels whenever such vessels are available at 
fair and reasonable rates.'' In response, President Kennedy's Directive 
makes clear, as does President Biden's Executive Order, that the 50 
percent requirement for U.S.-flag vessels in the law ``is a minimum, 
and it shall be the objective of each agency to ship a maximum amount 
of such cargoes on U.S.-flag vessels.''
    As this Subcommittee knows, existing U.S.-flag cargo preference 
shipping requirements mandate that a percentage of U.S. taxpayer 
financed government exports and imports be transported on privately-
owned U.S.-flag commercial vessels, to the degree such vessels are 
available at fair and reasonable rates. The Cargo Preference Act of 
1954 as amended requires that no less than 50 percent of government 
financed civilian cargoes shall move on privately-owned U.S.-flag 
commercial vessels. The Cargo Preference Act of 1904 (10 USC 2631) 
requires that all defense cargo be transported on U.S.-flag ships to 
the extent such vessels are available at fair and reasonable rates as 
does Public Resolution 17 which requires 100 percent of certain Export-
Import Bank financed cargoes be carried on U.S.-flag ships also if 
available at fair and reasonable rates.
    Reductions in cargo preference requirements and the failure by U.S. 
government agencies to fully enforce these cargo preference laws result 
in less cargo for U.S.-flag ships which means fewer U.S.-flag ships in 
operation and fewer U.S. mariners. In fact, since U.S.-flag cargo 
preference shipping requirements for food aid cargoes were arbitrarily 
slashed from 75% to 50% in 2012, the U.S.-flag fleet has plummeted by 
26% according to the Maritime Administration--more than triple the 
impact initially forecast--contributing to the current maritime 
manpower shortage which has been exacerbated by the direct and indirect 
impacts of the COVID 19 pandemic on our industry.
    The cargo preference statutes and policies, taken in conjunction 
with the Maritime Security Program and the soon-to-be-implemented 
Tanker Security Program, provide U.S.-flag vessels with a critical base 
of cargo, and thereby give U.S.-flag vessels the opportunity to stay 
active while they compete against lower-cost and oftentimes tax-free 
foreign flag vessels for the carriage of commercial cargoes in the U.S. 
foreign trades. This in turn helps to ensure that the U.S.-flag vessels 
and their American crews remain available to the Department of Defense 
in time of war or other international emergency.
    It is important to understand that every U.S.-flag oceangoing 
vessel regardless of type and regardless of whether it is enrolled in 
the Maritime Security Program, has important military utility by 
providing the employment base necessary to maintain the cadre of 
American merchant mariners needed by the Department of Defense. 
Consequently, the full implementation of all cargo preference 
requirements applicable to the carriage of all types of U.S. government 
cargoes helps guarantee that American maritime jobs will not be 
outsourced to the benefit of foreign maritime workers and that the 
dangerous decline in the number of available American merchant mariners 
will not worsen.
    To reiterate: Without the capability provided by the U.S.-flag 
international fleet and its civilian American mariner workforce, the 
Department of Defense would be forced to either dedicate its resources 
to replicate, at significant cost to the American taxpayer, the 
commercial sealift readiness capability provided by our industry or to 
entrust the security of our Nation and the safety and supply of 
American troops to foreign flag of convenience vessels crewed by 
foreign nationals who cannot be counted on to support U.S. defense 
operations. To do so would be to jeopardize the lives of American 
servicewomen and men who will no longer be guaranteed the supplies and 
equipment they need to do their job in support of our country.
    We can begin to address this shortfall in the American maritime 
manpower pool by rejecting misguided and unwarranted attempts to weaken 
or repeal existing U.S.-flag cargo preference shipping requirements and 
by ensuring that greater amounts of government-generated cargoes move 
on U.S.-flag ships, thereby increasing the size of the U.S.-flag fleet 
and the number of American merchant mariners to crew the vessels needed 
to meet Department of Defense requirements. As stated in 2015 by 
General Paul Selva, former Vice Chairman of the Joint Chiefs of Staff: 
``A strong mariner base is critical to not only crewing the merchant 
fleet in peacetime, but our DOD surge capacity in wartime . . . the 
mariner base is at the point where future reductions in U.S.-flag 
capacity puts our ability to fully activate, deploy, and sustain forces 
at increased risk.''
    Therefore, we call on Congress to forcefully reject the Concurrent 
Resolutions introduced in the House of Representatives and Senate that 
attempt to leverage the war in Ukraine to justify a waiver of cargo 
preference. These resolutions not only ignore the impact such a waiver 
would have on America's commercial sealift readiness capability, but 
totally disregard the impact it would have on the jobs of American 
merchant mariners. The reality is that if these Resolutions were 
enacted, the Federal government will relinquish all control over the 
carriage of U.S.-taxpayer financed food aid cargoes to foreign flag 
foreign crewed ships.
    Most importantly, contrary to what the sponsors of these 
Resolutions would have us believe, existing U.S.-flag cargo preference 
shipping requirements are not impeding our government's efforts to 
export food aid. If and when the United States Agency for International 
Development (USAID) begins to utilize the funding made available by 
Congress to respond to the worldwide food aid crisis and either the 
volume of food aid cargo exceeds available U.S.-flag tonnage or U.S.-
flag vessels are not available at fair and reasonable rates, existing 
law already allows for the waiver of the cargo preference Ship American 
requirements. In short, the resolutions are completely unnecessary.
    Secondly, despite the efforts of the late Congressman Elijah 
Cummings and numerous members of this Committee, Congress has failed to 
undo the damage caused our industry through the arbitrary reduction in 
cargo preference shipping requirements for food aid cargoes enacted in 
2012. Beginning in 1985, no less than 75 percent of the gross tonnage 
of international food aid cargoes was reserved for U.S.-flag vessels to 
the degree such vessels are available at fair and reasonable rates. In 
addition, the law at that time further stipulated that the Department 
of Transportation would reimburse the food aid programs for any cost 
premium associated with the use of U.S.-flag vessels for more than 50 
percent of the food aid cargoes. In this way, we would be maximizing 
the use of U.S.-flag vessels while minimizing the impact on the budget 
for the food aid programs.
    It is time to rectify this situation and restore, at a minimum, the 
requirement in place from 1985-2012 that at least 75 percent of the 
gross tonnage of international food aid cargoes be carried on U.S.-flag 
vessels in conjunction with the reinstatement of the reimbursement 
mechanism. As stated in 2018 by General Darren McDew, then-Commander, 
United States Transportation Command: ``a higher cargo preference 
requirement may incentivize increased government use of existing U.S.-
flag vessels and stem the current decline of the fleet.''
    Thirdly, we ask that Congress provide the Maritime Administration 
with whatever additional authority may be necessary to enable the 
Maritime Administration to fully administer and enforce the cargo 
preference statutes. Section 3511 of the Duncan Hunter National Defense 
Authorization Act of 2009 (P.L. 110-417) clarifies that the Department 
of Transportation through the Maritime Administration is the lead 
Federal agency responsible for the administration, interpretation, and 
enforcement of the cargo preference requirements. The primary purpose 
of this provision is to minimize if not eliminate interagency disputes 
over the applicability of cargo preference by clarifying the authority 
of the Department of Transportation/Maritime Administration to be the 
final arbiter.
    The need for such authority within the Maritime Administration is 
best illustrated by the unilateral refusal by USAID to use U.S.-flag 
vessels to carry food aid to Yemen. Since P.L. 480 cargoes are the 
single largest source of civilian agency cargoes, and the Yemen program 
now accounts for 40% of the P.L. 480 budget, this is a serious and 
pressing matter for our industry.
    Compounding the arbitrariness on the part of USAID is the lack of 
transparency in its application of waivers that exclude U.S.-flag 
carriers from participating in the Yemen program. The agency initially 
stated that it had excluded American carriers from the program because 
it believed American carriers are unreliable and then claimed that the 
carriage of cargoes to Yemen is too dangerous for American vessels and 
American crews--despite the fact that U.S.-flag vessels and their 
American crews are the only vessels that can be consistently relied 
upon by our government and that American mariners have never refused to 
sail into dangerous waters in support of a United States policy or 
objective.
    Most recently, and most disturbingly, USAID stated that it would no 
longer discuss with our industry potential avenues to restore U.S.-flag 
participation in the program and indicated that American carriers would 
be excluded from participation based on cost relative to foreign 
carriers, contrary to the fair and reasonable rate requirements in the 
law.
    In conclusion Mr. Chairman, we would again emphasize that the 
dangerous decline in the American maritime manpower pool must be 
reversed as we re-examine our critical national security supply chain. 
Congress and the Administration must focus on ways to stop the further 
loss of U.S.-flag vessels and the resultant outsourcing of American 
maritime jobs, and actively work to increase the number of vessels 
operating under the U.S.-flag to create and support more maritime job 
opportunities for Americans. It is imperative to ensure that our 
country has the U.S.-flag commercial sealift capability and trained 
American mariners needed to support the Department of Defense 
throughout its supply chain.
    The full implementation of the cargo preference requirements to 
transport U.S. government cargoes helps guarantee that American 
maritime jobs will not be outsourced and lost to foreign maritime 
workers. Congress and the Administration should expand the application 
of cargo preference for non-defense U.S. government impelled cargoes. 
Additionally, the Department of Defense should regularly and actively 
ensure compliance with current U.S. cargo preference laws by Department 
of Defense entities, including contracting officers, as well Department 
of Defense contractors and subcontractors.
    A strong, viable, privately-owned United States-flag maritime 
industry serves as a critical line of defense against the total 
domination of the world's oceans and the carriage of international 
trade by those nations that do not adhere to our commitment to fair 
trade and open seas. From the founding of our Nation to today, American 
merchant mariners have served with distinction and courage, never 
hesitating to sail into war zones to supply and support American troops 
deployed anywhere in the world, and too often sacrificing their own 
lives for our protection. We submit that full compliance with cargo 
preference laws is an investment the U.S. Government must make to 
maintain and increase the commercial sealift readiness capability 
necessary to support our national security and to protect our national 
economy.
    Thank you again for the opportunity to express the views of 
America's seafaring and transportation labor organizations on the 
importance of our nation's U.S.-flag cargo preference shipping 
requirements. We stand ready to provide whatever additional information 
you may require and to work with you and your colleagues to strengthen 
and grow our U.S.-flag merchant marine.

    Mr. Garamendi. Thank you, Captain Marcus. We stand ready to 
stand with you.
    Mr. Ebeling, if you will present your testimony.
    Mr. Ebeling. Thank you for the opportunity to appear before 
you today. My name is Eric Ebeling, and I am testifying today 
on behalf of USA Maritime, which is committed to ensuring the 
U.S. merchant marine will always be available to support our 
warfighters, enhance our economy through trade, and provide 
great jobs to thousands of Americans across the country.
    As president and CEO of American Roll-on Roll-off Carrier, 
it is my honor to lead the largest U.S.-flag Ro-Ro operator, a 
longtime participant in the Maritime Security Program, 
committed to investing in the U.S.-flag fleet and U.S. merchant 
marine.
    While we have only had a short time to digest the GAO's 
report, ``Actions Needed To Enhance Cargo Preference 
Oversight,'' the recommendations made by GAO that MARAD should 
publicly report on cargo preference data and that MARAD should 
take steps to develop regulations to oversee and enforce 
compliance with cargo preference requirements are excellent.
    The U.S.-flagged commercial fleet in international trade is 
vitally important to U.S. economic and national security, but 
that U.S.-flag fleet is at a crossroads with declining cargoes, 
resulting in a shrinking fleet and a shortage of qualified 
mariners.
    According to data received by MARAD and provided to GAO, 
U.S.-flag volumes decreased 36 percent from 2012 to 2020. This 
impacts national defense readiness but also impacts the 
Nation's ability to pursue generous overseas economic and 
agricultural assistance programs.
    As detailed in my written statement, cargo preference is 
the key incentive for U.S.-flag operators in international 
trade to remain under U.S. registry and provide the vital cargo 
base to help offset the cost advantages of operating a foreign-
flag ship, such as regulatory tax and crewing costs.
    The most enduring and effective legislation supporting the 
U.S.-flag fleet has often come in the wake of the Nation's 
wars. The lack of any significant new maritime legislation 
after Afghanistan and Iraq is telling. Not coincidentally, the 
U.S.-flag fleet has fallen from a recent high of 107 ships in 
international trade in 2011 to a recent low of 77 ships in 2016 
due to major decreases in preference cargoes before 
restabilizing primarily due to the reauthorization and 
stabilization of MSP.
    According to the GAO report, DoD compliance varied from 82 
percent in 2012, declined to 62 percent in 2015, before 
increasing again to 85 percent in 2020. The GAO report also 
stated Government-owned reserve cargo vessels are held in 
reduced operating status with minimal crew in peacetime. When 
put in full operating status, the Government can add additional 
trained and qualified mariners to operate them. That is only so 
because of the continued existence of a commercial fleet that 
provides the mariners, that crew, those reserve ships.
    As the commander of USTRANSCOM, General Jacqueline Van 
Ovost noted in a December 2021 speech, quote, ``as a seafaring 
Nation, our country has been, and is, and will continue to be 
reliant on the strength of the maritime industry and the many 
mariners,'' also pointing to the importance of the U.S.-flag 
fleet and merchant marine as, quote, ``America's economic 
lifeline during peacetime.''
    Civilian agency cargoes include such diverse cargoes as 
USDA and USAID support and food aid, Federal Transit 
Administration projects, Department of State cargoes, 
Department of Energy projects, and many other nonmilitary 
cargoes shipped or sponsored by the various departments and 
agencies of the U.S. Government.
    According to the GAO report, USAID compliance was 79 
percent in 2012 but fell to 41 percent by 2019, while USDA 
compliance fell from 86 percent in 2012 to 47 percent in 2020. 
One might reasonably ask why such gamesmanship and 
noncompliance is allowed to persist. The reason has to do with 
the combination of lax enforcement mechanisms and unclear and 
nonexistent consequences for violators, be they commercial 
entities or Government agencies.
    As has been touched on, the shortcoming was intended to be 
addressed by the fiscal year 2009 NDAA, and if there were any 
doubt of the intent of that language, it was clarified by one 
of the sponsors of that language, Senator Daniel K. Inouye, in 
a 2009 letter to President Barack Obama. In relevant excerpts, 
quote:
    ``One of the most important elements in sustaining our 
U.S.-flag fleet is its continued ability to carry certain 
Government-impelled cargo. . . . [T]his provision is intended 
to provide much needed clarity that the Department of 
Transportation is the lead Federal agency for the 
administration, interpretation, and execution of our cargo 
preference requirements and guidelines. . . . It . . . does not 
change the application of existing law but will resolve many of 
the jurisdictional overlaps that exist with current shipper 
agencies, and ultimately help fashion a more coherent policy 
regarding the application of cargo preference laws,'' close 
quote.
    Whether by legislation or Executive order, 100 percent of 
all Government owned or financed cargoes should be required to 
move on U.S.-flag ships. This will help eliminate any 
gamesmanship. Without cargo, carriers will not invest in ships, 
and without those ships, there will not be jobs for our 
merchant mariners who also crew those Government reserve ships 
in time of need.
    Congress should ensure that the DOT and MARAD are directed 
and fully resourced to fully enforce the cargo preference laws, 
and Congress and the administration should consider policies 
that encourage shippers of all kinds to prioritize U.S.-flag 
shipping as part of their global supply chains, to include 
Government contracting policies and an incentive, such as a tax 
credit, for shippers to utilize U.S.-flag carriers.
    GAO was spot-on in its two conclusions on cargo preference. 
USA Maritime stands ready to work with the Congress and the 
agency on achieving these objectives.
    Thank you.
    [Mr. Ebeling's prepared statement follows:]

                                 
 Prepared Statement of Eric P. Ebeling, President and Chief Executive 
  Officer, American Roll-On Roll-Off Carrier Group, on behalf of USA 
                                Maritime
                              Introduction
    Chairman Carbajal, Ranking Member Gibbs, and members of the 
Committee--Thank you for the opportunity to appear before you today to 
discuss the state of the U.S.-flag international fleet and in 
particular the Cargo Preference laws of the United States. My name is 
Eric Ebeling and I am testifying today on behalf of USA Maritime, a 
coalition consisting of American-flag vessel owners and operators, 
trade associations, and maritime labor. USA Maritime is committed to 
ensuring the U.S. merchant marine will always be available to support 
our warfighters, enhance our economy through trade, and provide great 
jobs to thousands of Americans across the country.
    As President and CEO of American Roll-On Roll-Off Carrier (ARC), it 
is my honor to lead an incredibly talented team of men and women at the 
largest U.S.-flag Ro-Ro operator. ARC has long been a participant in 
the Voluntary Intermodal Sealift Agreement (VISA) and Maritime Security 
Program (MSP) and we are committed to investing in the U.S.-flag fleet 
and U.S. merchant marine to support our armed forces around the world. 
We have re-flagged seven large Ro-Ro vessels into U.S. registry since 
2016, including most recently M/V ARC COMMITMENT in December 2021 and 
M/V ARC DEFENDER in January 2022.
    The U.S.-flag fleet operating in international trade primarily 
consists of the militarily useful and commercially viable MSP fleet of 
60 ships and attendant global networks, as well as a handful of vessels 
operating in international trade outside the MSP fleet. Without the 
ships, networks and mariners provided by the MSP fleet, it would cost 
the government tens of billions of dollars to attempt to try to 
replicate the capabilities provided. The U.S.-flag fleet in 
international trade is at a crossroads, with declining cargoes 
resulting in a shrinking fleet and a shortage of qualified mariners. 
These factors in turn impact national defense readiness in terms of 
sealift and logistics support available to support the needs of the 
Department of Defense (DoD), but also impact the nation's ability to 
pursue generous overseas economic and agricultural assistance programs.
                   Overview of Cargo Preference Laws
    Cargo preference is the reservation by law for transportation on 
U.S.-flag vessels of all, or a portion of all, ocean-borne cargo which 
moves in international trade either as a direct result of the Federal 
Government's involvement, or indirectly because of the financial 
sponsorship of a federal program or guarantee provided by the Federal 
Government. It is relevant and appropriate at the outset to emphasize 
that these are laws, not policy recommendations or suggestions. A 
further note for clarity: USA Maritime is anxious to see the 
recommendations from the forthcoming Government Accountability Office 
(GAO) study on the cargo preference laws that is in part the impetus 
for this hearing. While the study was not made available to USA 
Maritime in advance, and we are not able to address its specific 
findings or recommendations in this written testimony, we are hopeful 
and expectant that the GAO study will demonstrate similar robust 
support for, and clear enforcement of, the cargo preference laws. The 
following overview and recommendations are therefore independent of the 
GAO study.
    The U.S. cargo preference laws are part of the overall statutory 
program to support the privately-owned and operated U.S.-flag fleet and 
merchant marine. Cargo preference requires that U.S. Government-
financed cargoes be shipped on U.S.-flag vessels, provided that such 
vessels are available at fair and reasonable rates. Preference cargoes 
are the key incentive for U.S.-flag operators in international trade to 
remain under U.S. registry and provide a vital cargo base to help 
offset regulatory, tax, crewing cost, and other cost advantages of 
operating a foreign-flag ship. The primary U.S. cargo preference laws 
are set forth in the Military Transportation Act of 1904 [Public Law 
58-198, approved 28 April 1904 (33 Stat. 5187), as amended (10 U.S.C. 
2631)], often also referenced as the Cargo Preference Act of 1904; 
Public Resolution 17 [73rd Congress, approved 26 March 1934 (48 Stat. 
500), as amended (46 App. U.S.C. 1241-1]; and the Cargo Preference Act 
of 1954 [Public Law 83-664, approved 26 August 1954, (68 Stat. 832) as 
amended (46 U.S.C. 55305)].
    The 1904 Act requires that 100% of all military cargoes purchased 
for or owned by U.S. military departments be shipped exclusively on 
vessels of the United States or belonging to the United States. The 
structure of the 1904 Act applies to all supplies for which the 
military has contracted, including supplies to which it does not have 
title at the time of shipment. Congress' overriding purpose is to 
protect and promote a sufficient merchant marine capable of providing 
sealift in time of war or national emergency. In general, well over 90% 
of all overseas military equipment is shipped by sea because of the 
cost efficiency of moving it by sea versus air as well as the scale and 
scope of such cargoes.
    Public Resolution 17 (1934) requires that all cargoes generated by 
the U.S. Export-Import (Ex-Im) Bank be shipped on U.S.-flag vessels 
unless a waiver is granted by the Maritime Administration, and the 
Cargo Preference Act of 1954 requires that at least 50% of civilian 
agency cargoes be transported on U.S.-flag vessels to the extent those 
vessels are available at fair and reasonable rates. Every Department or 
Agency is required to administer its programs in compliance with the 
1954 Act's 50% requirement and is further subject to regulations issued 
by the Secretary of Transportation. This 50% shipment requirement may 
only be waived under the specific terms of the statute by the 
``President, the Secretary of Defense, or Congress (by concurrent 
resolution or otherwise) . . . temporarily . . . by declaring the 
existence of an emergency justifying the waiver''. To USA Maritime's 
knowledge, no such waiver has ever been issued with respect to the 1954 
Act.
    U.S. cargo preference laws are crucial to the continued existence 
of the active, commercially viable, privately-owned U.S.-flag 
commercial shipping fleet--the most cost-effective sealift capability 
available to the U.S. Government. Proper enforcement by the Maritime 
Administration and vigilant adherence by the Department of Defense, 
Export-Import Bank, and all civilian departments and agencies is 
critically important not only to the American international fleet, but 
also to the survival of the U.S. merchant marine, who provide the 
loyal, well-trained crews for such vessels. Although less than 2% of 
the nation's waterborne trade moves on U.S.-flag ships, the cargo 
preference laws ensure that the oceans are not completely dominated by 
foreign-flag ships whose interests may not align with those of the 
United States.
    The existence of a U.S.-flag fleet ensures that the United States 
can implement any national security policy necessary without having to 
rely on the fleets of foreign nations. The U.S.-flag fleet is vital to 
U.S. national security, providing essential sealift in peacetime and 
wartime, and the ships that carry these cargoes provide important jobs 
for American seafarers who are available in time of national emergency 
to crew the sizeable fleet of reserve government vessels. By 
guaranteeing the availability of certain cargoes to U.S.-flag ships, 
the U.S. cargo preference laws help ensure that the vessels and 
attendant intermodal systems, terminals, commercial IT systems, trained 
crews, and vessel service industries continue to exist.
                            Military Cargoes
    U.S.-flag commercial shipping is critical for the global movement 
of U.S. forces and sustainment, and it generally holds that when the 
U.S. Military is most active, the cargo base is larger and therefore 
the U.S.-flag fleet sizes up accordingly. The most enduring and 
effective legislation supporting the U.S.-flag fleet has often come in 
the wake of the nation's wars. This includes the 1904 Military 
Transportation Act in the wake of the Spanish-American War; the 1920 
Merchant Marine Act after World War I; the 1954 Cargo Preference Act 
following World War II and the Korean War; and the 1996 Maritime 
Security Act post-Gulf War. The lack of any significant new maritime 
legislation after Afghanistan and Iraq is telling. Not coincidentally, 
the U.S.-flag fleet fell from a recent high of 107 ships in 
international trade in 2010-2011 to a recent low of 77 ships in 2016 
due to major decreases in defense, agricultural and other preference 
cargoes, a failure of the MSP stipend to keep pace adequately with 
rising costs generally, and a widening discrepancy between U.S.-flag 
operating and foreign-flag costs.
    The MSP fleet has stabilized over the past several years due to an 
increase in the MSP stipend that took effect in FY17. In December 2019, 
Congress wisely reauthorized MSP through 2035, which provides much 
needed longer-term stability as carriers invest in new assets and their 
networks for the long term. Having only just stabilized over the past 
several years, the U.S.-flag fleet has faced imploding government cargo 
markets during the pandemic, impacting carriers' ability to maintain 
service, and in turn negatively impacting U.S.-flag fleet and mariner 
readiness and by extension DoD readiness. As the Commander of U.S. 
Transportation Command (TRANSCOM) General Jacqueline Van Ovost noted in 
a December 2021 speech, ``(a)s a seafaring nation, our country has 
been, and is, and will continue to be reliant on the strength of the 
maritime industry and the many mariners'' also pointing to the 
importance of the U.S.-flag fleet and merchant marine as ``America's 
economic lifeline during peacetime.''
    Since all U.S. military cargo is required to move on U.S.-flag 
vessels, policymakers should consider other segments and policies for 
potential sources of reinvigoration for the U.S.-flag commercial fleet 
in international trade. One area adjacent to defense cargoes is foreign 
military sales, which can include shipments involving direct DoD credit 
sales, sales without such credit guarantees, offset purchases, 
purchases under co-production agreements, and excess defense articles. 
Such cargoes may not always entail a U.S.-flag shipping requirement, 
but could be considered for coverage, and would provide a further base 
of cargo to ensure the success of the U.S.-flag fleet and merchant 
marine. In addition, government contracting policies and procedures 
could prioritize U.S.-flag carriers that invest in owning and operating 
essential assets and networks in other government contracts involving 
transportation, logistics and supply chains.
                       Export-Import Bank Cargoes
    Ex-Im Bank, the national export credit agency (ECA) of the United 
States, seeks to create and maintain U.S. jobs by financing the sales 
of U.S. exports, primarily to emerging markets throughout the world, 
providing loan guarantees, export-credit insurance and direct loans. 
P.R. 17 of the 73rd Congress requires that all cargoes generated by the 
U.S. Export-Import Bank be shipped on U.S.-flag vessels unless a waiver 
is granted by the Maritime Administration. These cargoes not only help 
support and sustain thousands of well-paying jobs for the U.S.-flag 
merchant marine, but shipping on U.S.-flag vessels also counts towards 
the Ex-Im Bank's U.S. content requirement.
    As defined by Ex-Im Bank, the following transactions are covered by 
P.R. 17: direct loans, regardless of term or amount; and guarantees in 
excess of $20,000,000 (excluding the Ex-Im Bank Exposure Fee) or a 
repayment period of greater than seven (7) years. In theory, 100% of 
all covered cargoes generated by Ex-Im Bank are required to move on 
U.S.-flag bottoms, although waivers are commonplace for the movement of 
goods on recipient nation's flagged fleets, where applicable.
    Ex-Im generated cargoes were major sources of cargo for the U.S.-
flag international fleet in the 1990s during the post-Cold War 
rebuilding efforts in the former Soviet Union, and again for several 
years following the National Export Initiative of 2010. Soon 
thereafter, however, after nearly 75 years of relative stability, the 
Bank lost its charter for several years, and was unable to approve 
projects above de minimis values due to the lack of a Board quorum. The 
Bank has restabilized in the past several years, although without 
generating much in the way of meaningful export volumes for U.S.-flag 
carriers.
    Nevertheless, the U.S. shipping community is supportive of the Bank 
for global economic competitive purposes. There are at least 25 
countries that require support from an export credit agency before they 
will even consider a bid from an international company for a given 
project, and there are over 80 ECAs offering such financing. Such ECAs 
collectively exceed the size of the entire World Bank Group and fund 
more private sector projects in the developing working than any other 
class of financial institution. The U.S. Export-Import Bank levels the 
playing field for American companies competing for such international 
projects. Absent such an ECA, the United States would have effectively 
unilaterally disarmed from participating in these trades and markets. 
The U.S.-flag shipping and merchant mariner jobs should be considered 
just as critical as the industry and manufacturing jobs that are 
supported by Ex-Im financing.
                        Civilian Agency Cargoes
    Civilian agency is a catch-all term that include such diverse 
cargoes as USDA and USAID agricultural support and food aid, Federal 
Transit Administration projects, Department of State personal property 
and official fleet vehicles, Department of Energy projects, and many 
other non-military cargoes shipped or sponsored by the various 
departments and agencies of the U.S. Government. While often not as 
voluminous as military cargoes, civilian agency cargoes often move on 
different cycles and to a broader range of geographies than military 
cargoes, and thus help keep ships and mariners fully employed. These 
cargoes also move on all U.S.-flag vessel types, including container, 
roll-on/roll-off, heavy lift, and bulker vessels. A minimum of 50% of 
such cargoes are required to move on U.S.-flag bottoms, and while some 
agencies aim for more, others are less scrupulous.
    For nearly 30 years following the passage of the 1985 Food Security 
Act, 75% of agricultural cargoes were required to ship U.S.-flag, 
before the law was changed to 50% about a decade ago. In FY21, USAID 
shipped only 31% of P.L. 480 ``Food for Peace'' bulk cargoes on U.S.-
flag ships using a variety of administrative waivers currently 
available to Federal agencies. More recently, concurrent resolutions 
proposing the total elimination of civilian cargo preference for three 
years have surfaced in Congress, citing non-existent need arising out 
of the Ukraine invasion despite the availability and widespread use of 
such administrative waivers. USA Maritime calls upon Congress to reject 
the concurrent resolutions that attempt to leverage the war in Ukraine 
to eliminate civilian cargo preference for three years. The Federal 
government should not relinquish control over the carriage of U.S.-
taxpayer financed food aid cargoes to foreign-flag and foreign crewed 
ships, and it is precisely for instances such as the present one that 
we maintain a robust U.S.-flag fleet and merchant marine.
    One might reasonably ask why such gamesmanship and non-compliance 
is allowed to persist. The reason has to do with a combination of lax 
enforcement mechanisms and unclear or nonexistent consequences for 
violators, be they commercial entities or government agencies. The 
Maritime Administration, the agency tasked with administering the cargo 
preference laws, is not traditionally an enforcement or regulatory 
agency but rather a promotional agency.
    Congress has sought to address this matter multiple times over the 
decades. The Merchant Marine Act of 1970 provided the Secretary of 
Commerce (MARAD was then part of the Department of Commerce) with the 
responsibility and authority to promulgate cargo preference regulations 
and to monitor the administration of cargo preference legislation. As 
the legislative history explains, ``There is a clear need for a 
centralized control over the administration of preference cargoes. In 
the absence of such control, the various agencies charged with 
administration of cargo preference laws have adopted varying practices 
and policies, many of which are not American shipping oriented.'' The 
1970 act states that each agency involved in shipments of cargo that 
come under the Cargo Preference Act of 1954 is responsible for 
administering the program under regulations issued by the Secretary of 
Commerce, and the Secretary of Commerce is in turn responsible for 
reviewing the administration of the total program and for reporting 
annually to the Congress. These authorities were subsequently delegated 
by the Department of Transportation to the Maritime Administration.
    This shortcoming was also intended to be addressed by Section 3511 
of the Duncan Hunter National Defense Authorization Act of 2009 (P.L. 
110-417), which provides clarity that DoT, through MARAD, is the lead 
Federal agency responsible for interpretation and enforcement of the 
cargo preference laws, including providing for fines and debarment. 
Unfortunately, although arguably self-executing, MARAD never completed 
a rule making and the non-compliance has persisted.
    If there were any doubt about the intent of the FY09 NDAA language, 
it was clarified in a letter of October 8, 2009 from Senator Daniel K. 
Inouye to President Barack Obama:

          I am writing to personally express my strong support for the 
        enforcement of U.S. cargo preference laws. The U.S.-flag 
        merchant marine fleet is not only important to the efficient 
        flow of commerce, but also, as history has shown, is critical 
        to our national security. Our merchant fleet provides our 
        nation with critical, dependable sealift capability at a 
        fraction of the cost and, among other things, is instrumental 
        in supplying U.S. troops stationed abroad, as well as starving 
        people around the globe in times of war, peace, and natural 
        disaster.
          One of the most important elements in sustaining our U.S.-
        flag fleet is its continued ability to carry certain government 
        impelled cargo. For this reason, I authored a statutory 
        provision which was enacted into law as Section 3511 of the 
        Duncan Hunter National Defense Authorization Act of 2009 (P.L. 
        110-417) to ensure that U.S. cargo preference laws are legally 
        applicable to all shippers. Further, this provision is intended 
        to provide much needed clarity that the Department of 
        Transportation is the lead federal agency responsible for the 
        administration, interpretation, and execution of our cargo 
        preference requirements and guidelines. For too long, 
        interagency disputes between the U.S. Department of 
        Transportation, the U.S. Department of Agriculture, and the 
        United States Agency for International Development have 
        hampered the efficiency of our food aid programs.
          It is important to note that Section 3511 does not change the 
        application of existing law but will resolve many of the 
        jurisdictional overlaps that exist with current shipper 
        agencies, and ultimately help fashion a more coherent policy 
        regarding the application of cargo preference laws. As these 
        agencies work toward improving our export-based food aid 
        programs, it is essential that the clear authority of the 
        Department of Transportation over cargo preference laws is 
        maintained, and that any decisions, rules, and regulations are 
        consistent with current law.
          Given your strong support for the U.S. maritime industry and 
        your recognition of the importance of our nation's cargo 
        preference laws, I would appreciate your assistance with the 
        full implementation and enforcement of Section 3511. I look 
        forward to working with you in support of our nation's merchant 
        marine fleet.

    More recently, on January 25, 2021, the Biden Administration issued 
Executive Order 14005 to strengthen the oversight of and enforcement 
over cargo preference requirements, including creating a ``Made in 
America Office'' (MIAO). The guidance echoed previous efforts by 
stating that MIAO ``will work with relevant agencies to review how best 
to ensure agency compliance with cargo preference requirements in order 
to maximize the utilization of U.S.-flag vessels in excess of any 
applicable statutory minimum, to the greatest extent practicable''.
                            Recommendations
    Whether by legislation or executive order, 100% of all government-
owned or financed cargoes should be required to move on U.S.-flag 
ships. It is a rather simple equation: without cargo, carriers will not 
invest in ships, and without ships, there will not be jobs for merchant 
mariners. Without those merchant mariners, the Government-owned reserve 
sealift fleet cannot be crewed. Given declining government cargoes over 
the past decade, the impacts of the Covid-19 pandemic, and the already 
critical shortage of maritime labor available to crew the U.S.-flag 
commercial and government sealift fleets, this would provide a critical 
boost to U.S.-flag shipping and the American merchant marine. In a 
letter addressed to this Committee dated May 15, 2020, signed by then-
Commander of TRANSCOM General Stephen Lyons called for requiring ``100 
percent of all government-impelled cargoes to be transported on U.S. 
flagged vessels''. USA Maritime strongly endorses the recommendation.
    Congress should ensure that the Department of Transportation and 
Maritime Administration are directed and fully resourced to finally 
enforce the cargo preference laws, including through the implementation 
of the FY09 NDAA enforcement language. In addition to its MIAO effort, 
the Administration could also reissue or reinvigorate the April 1962 
Directive by President John F. Kennedy, a response to the ``worldwide 
economic and defense burdens facing the United States'', that directed 
all executive branch agencies to fully comply ``with the purpose of our 
various cargo preference laws'', to help meet the geopolitical and 
strategic great power competition challenges of today just as we did 
during the Cold War.
    Similarly, another way to expand the available cargo base for the 
U.S.-flag fleet is to allow for NATO member countries to meet their 2% 
defense spending commitment by shipping military or commercial cargo on 
U.S.-flag vessels. In a time of increased geopolitical risk in Europe 
due to the Russian invasion of Ukraine, the NATO alliance is perhaps 
more relevant than at any time since the end of the Cold War. Allowing 
NATO member nations to meet their spending commitments by supporting 
the U.S.-flag fleet would be a tangible way for the allies to support 
the essential asymmetric advantage that is the U.S.-flag sealift fleet.
    Lastly, Congress and the Administration should consider shipping 
policies that encourage shippers of all kinds, whether beneficial cargo 
owners, freight forwarders, non-vessel operating common carriers 
(NVOCCs) or otherwise, to prioritize U.S.-flag shipping as part of 
their global supply chains. Less than 2% of the nation's commerce moves 
on U.S.-flag ships, a figure that has more than halved in the last 50 
years. It is right and proper that government-financed or generated 
cargoes are set aside for U.S.-flag carriers as part of the overall 
statutory framework, but more could be done, including prioritizing 
asset-owning/operating companies in government contracts. As for non-
government cargoes, an incentive such as a tax credit for shippers to 
utilize U.S.-flag carriers could provide an additional source of cargo 
for U.S.-flag ships while providing an ancillary benefit to cargo 
shippers seeking to access the American market.
                               Conclusion
    General Darren McDew, then-Commander of U.S. Transportation 
Command, noted in an October 2017 speech, ``We don't know when, but 
someday the nation is going to come calling. When she does, she will 
need us, she will need our ships, she will need our mariners . . . if 
we do nothing now, the strength of the maritime fleet that brought the 
nation to war throughout history . . . that strength will not be here. 
It's already in decline.'' Alongside the Maritime Security Program, the 
cargo preference laws of the United States constitute the most 
important historical policy plank to ensure that this crown jewel 
capability continues to be available to TRANSCOM and DoD, and the 
nation writ large. Thank you for the opportunity to offer my views on 
the critical factors pertinent to the cargo preference laws and 
maintaining a strong U.S.-flag international fleet. I look forward to 
your questions.

    Mr. Garamendi. Thank you, Mr. Ebeling.
    We will now turn to Mr. Clark.
    Mr. Clark. Thank you, Mr. Chairman, Ranking Member Gibbs, 
for the opportunity to testify here today about the importance 
of cargo preference. I am a retired Navy officer and a think 
tanker today, so, I am going to talk a little bit more 
strategically about the challenge posed by noncompliance with 
cargo preference.
    Today, China dominates the global shipping industry. Six 
thousand vessels are owned by Chinese companies. More than 
4,500 are under Chinese flag. We have heard discussion today 
about the fact of the U.S. fleet only has about 85 vessels 
under U.S. flag that are oceangoing international shipping 
vessels.
    That is a disparity that would ordinarily not be that big 
of an issue in a globalized economy operating under the rule of 
law. But today we are seeing evidence where countries like 
Russia, like China, are weaponizing their supply chains against 
their opponents. We could find ourselves in the United States 
in the position of being the victim of supply chain warfare 
being imposed upon us by a company like China with this 
enormous reach in the global shipping industry.
    To avoid America suffering the fate that we see our 
European allies suffering today under the threat of Russia 
cutting off gas supplies, we need to improve and expand our own 
U.S. shipping fleet to provide a hedge against the potential 
for supply chain warfare and this weaponization of shipping 
against us. But there is a challenge in doing that, and I guess 
the cargo preference operating under U.S. flag is more 
expensive than operating under foreign flags of convenience. We 
have stricter safety rules. Labor requirements require us to 
have more people to ensure for the safety of the vessel, and 
also its security in foreign ports, and we are required that 
our mariners be U.S. citizens or residents.
    Carriers that are facing these higher costs cover those 
costs by carrying preference cargo that is at a premium 
compared to the price that they might receive in the open 
market, and by getting stipends from the Maritime Security 
Program and Tanker Security Program. These programs operate in 
conjunction, though. The stipends from the Maritime Security 
Program and TSP, the Tanker Security Program, aren't sufficient 
to cover the higher cost, so, preference cargo is absolutely 
essential.
    To be able to expand the fleet to support U.S. shipping 
needs and hedge against supply chain warfare, we are going to 
need to both expand the use of those stipends but also ensure 
that preference cargo is actually provided to the shippers that 
are charged with carrying it and that are operating under U.S. 
flag and incurring these higher costs for doing so. That larger 
fleet is also extremely important to supporting our maritime 
sealift demands that the military has during wartime or crisis.
    The most severe shortfall we are facing right now in our 
maritime sealift capacity for wartime demands is in tankers. 
Today, as Admiral Phillips mentioned, the Tanker Security 
Program is aiming to provide stipends, and, hopefully, 
preference cargo for up to 10 tankers that could be U.S.-
flagged and operating international trade.
    The requirement that has come out of the most recent 
mobility capabilities requirements study from TRANSCOM is for 
84 tankers. So, we have an enormous shortfall in the number of 
tankers available under U.S. flag to support U.S. military 
needs in a crisis or conflict. You could see a situation in 
which that same set of tankers could also be employed to help 
provide for U.S. shipping needs for fuel in the event of China 
employing supply chain warfare against us and using their 
shipping industry dominance against the United States.
    There are opportunities to improve that, though. Obviously, 
we need to improve compliance with cargo preference, and MARAD 
needs to be charged with being able to do that. We could also, 
as I mentioned in my written testimony, require that U.S. DoD 
fuel being provided overseas be sourced from U.S. refineries, 
which would increase the number of tankers required to carry 
that fuel, increasing the cargo available, and potentially 
allowing for an expansion of the Tanker Security Program and 
providing for more tankers under U.S. flag.
    But we're going to have to make these changes if we want to 
be able to have our sealift capacity that we need for wartime 
mobilization, as well as be able to insulate ourselves from the 
potential for the weaponization of supply chains and shipping 
against the United States against a China that is going to be 
increasingly belligerent and willing to use a lot of tools 
available to it in a hybrid approach to deter U.S. intervention 
on behalf of Taiwan or other U.S. allies overseas.
    So, again, thank you for the opportunity to speak with you 
today, and I hope that we can have a discussion about these 
improvements going forward.
    [Mr. Clark's prepared statement follows:]

                                 
 Prepared Statement of Bryan Clark, Senior Fellow and Director of the 
      Center for Defense Concepts and Technology, Hudson Institute
    Russia's actions to reduce gas exports to Europe show the risk of 
allowing an opposing power to gain control of essential contributors to 
a nation's economy. America's NATO allies are now scrambling to 
establish alternative sources of energy and revisit policies, such as 
Germany's decision to sundown its nuclear generating capacity, that led 
to an increased dependence on Russian gas.
    The United States could find itself in a similar situation 
regarding its maritime industry. Since the nation's founding, Americans 
have gone to sea for trade, to harvest resources from the oceans, and 
to advance the country's interests. By building and repairing ships, 
training mariners, operating shipping networks, and sustaining ports 
and waterways, the U.S. maritime industry makes possible the economic 
benefits of access to the sea.
    Recognizing the value of a strong maritime industry, China 
undertook a methodical effort--supported by more than $15 billion 
annually in government support--to establish the world's largest navy, 
coast guard and shipping fleet, gain control of ports worldwide, and 
become the world's largest shipbuilding nation. Today, Chinese 
companies own more commercial ships than any other country, almost 
doubling second place Greece. More than 7,000 large commercial ships 
are registered in China, just slightly below first-place Panama. China 
holds more than half the global orderbook for constructing large 
commercial ships and builds nearly all the world's shipping containers. 
Through its Belt-and-Road initiative, China has access and significant 
control over marine terminals and other infrastructure around the 
world.
    China's domination of the maritime industry has benefitted U.S. 
consumers by lowering prices for imported goods and subsidizing 
infrastructure improvements at overseas ports. However, it also creates 
vulnerabilities. During a confrontation between the United States or 
its allies and China, Beijing could use its control over the maritime 
shipping and transportation sector to impose costs and punish its 
opponents. Outside of military conflict, China's government could 
direct its companies, which lack the independence of U.S. firms, to 
discriminate in favor of Chinese interests through pricing, scheduling, 
insurance, or quality of service. The gas shortfalls being experienced 
today by Europe and recent supply chain backlogs may pale in comparison 
to the impact from a concerted effort by the Chinese maritime industry 
to disrupt the U.S. economy.
    U.S. policy decisions since the end of World War II contributed to 
this vulnerability. Fewer than 200 large commercial ships now fly the 
U.S. flag and fewer than 10 commercial ships are under construction in 
U.S. shipyards. American shipping companies faced tax and other 
regulatory disadvantages that led the largest to sell out to foreign 
buyers decades ago.
    To effectively compete, the United States will need to break with 
maritime strategies that assume commercial and national security 
contributions of the maritime industry are largely distinct. Instead, 
the United States should adopt a new approach that recognizes the 
inherent linkage between the two and fosters a healthier commercial 
industry that can support U.S. national security. A new comprehensive 
strategy is even more important now given the growing threat posed by 
Chinese maritime power, the urgent need for new approaches to 
shipbuilding and the repair of U.S. government ships, and the need for 
viable solutions for strategic sealift gaps.
                       Restoring sealift capacity
    A framework of regulation, law, and government programs governs and 
shapes the U.S. maritime industry. Most relevant to this hearing is the 
shipping fleet and its ability to support U.S. sealift demands during a 
crisis or conflict, including the potential of Beijing reducing U.S. 
access to Chinese flagged or owned vessels. By supporting the U.S. 
shipping fleet, the United States can insulate itself from Chinese 
pressure.
    As depicted in the figure below, in the U.S. domestic commercial 
shipping fleet, the Merchant Marine Act of 1920, also known as the 
Jones Act, requires ships conducting commerce between U.S. ports to be 
U.S.-built, U.S.-owned, and operated by crews of U.S. citizens or 
permanent residents. In the international commercial fleet, the 
Maritime Security Program (MSP) provides stipends to U.S.-flagged ship 
operators to help cover the higher cost of following U.S. regulations, 
and Cargo Preference rules require that U.S.-flagged ships carry all 
DoD and 50 percent of other U.S. government cargoes. Ships 
participating in MSP are enrolled in the Voluntary Intermodal Sealift 
Agreement (VISA), which requires participating vessels to be made 
available for surge sealift operations during wartime or other crises. 
VISA also includes other vessels from the domestic and international 
fleets, but they do not receive a stipend.
              Contributors to U.S. surge sealift capacity


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Shipping operators are reticent to operate under U.S. flag due to 
higher costs and a resulting lack of competitiveness that reduces cargo 
throughput. Outdated taxes and regulations--especially related to 
mariner wages and repair duties--should be reformed to help reduce 
expenses. To improve efficiency and encourage shipping, the government 
should also fund enhancements to intermodal links and deter cargo 
diversion. And because shipping companies will need more sailors to 
operate a larger U.S.-flagged fleet, merchant marine recruiting and 
retention should be improved through new initiatives to ease of 
credentialing and licensing and establishment of a Merchant Marine 
Reserve.
Maritime Security Program and cargo preference
    The current MSP offers a stipend to about 60 U.S.-flagged ships. At 
a relatively low cost compared to acquiring, crewing, and maintaining 
additional government ships, the MSP provides DoD access through VISA 
to commercial vessels, mariners, and associated global intermodal 
networks. By supporting the operation of U.S.-flagged ships in commerce 
around the world, the MSP also contributes to U.S. tax revenue and 
commercial access. However, the government could improve the program's 
effectiveness by stabilizing the MSP stipend, expanding MSP to cover 
sealift shortfalls and replacement of aging government-owned ships, and 
bringing specialized ship types into the MSP that are expensive for the 
government to buy and maintain.
    However, the MSP stipend is generally not sufficient to cover the 
costs of maintaining a ship under U.S. flag. Preference cargo, which 
generally can command higher rates compared to commercial cargo, makes 
up the difference. While government vendors and agencies are required 
to comply with Cargo Preference rules, avoidance is rampant.
    For example, defense contractors have difficulty identifying how 
all the elements of their supply chain arrive in the United States for 
manufacturing or assembly. This is a challenging problem, but recent 
efforts by the Department of Defense (DoD) to understand its supply 
chains should help identify the methods being used to move materials 
and parts from overseas suppliers to U.S. defense contractors.
    The Defense Logistics Agency (DLA) often circumvents Cargo 
Preference rules to save costs in the name of national security. While 
in general this would allow more funding to go to other defense 
programs and logistics needs, as a working capital fund, the DLA is 
also incentivized to reduce costs and reallocate the savings to 
internal priorities.
    Food aid is sometimes shipped on foreign-flagged ships to allow 
more dollars to be spent on aid, but this undercuts the purpose of the 
Cargo Preference program, which is to support the U.S. shipping 
industry. Circumventing cargo preference merely privileges one industry 
at the expense of another.
    By reducing the circumvention of cargo preference rules, the U.S. 
government could make operating under U.S. flag more attractive for 
carriers. With a larger base of preference cargo to ship, the MSP fund 
could eventually be applied to a larger number of carriers and expand 
the size of the program, and the U.S. flag fleet.
Tanker security program and cargo preference
    In the 2016 Mobility Capabilities Requirements Study, the U.S. 
Transportation Command (USTRANSCOM) identified a requirement of 86 
tankers necessary for the strategic sealift of fuel in a large 
contingency.\1\ Additional tankers are necessary to support U.S. Navy 
Consolidated Logistics (CONSOL) tanker at-sea fuel transfer 
requirements.\2\ However, DoD only has access to about 9 U.S.-flag 
militarily useful tankers that it could call upon in a contingency, 
exclusive of tankers in the domestic trade.\3\
---------------------------------------------------------------------------
    \1\ Lieutenant General Stephen Lyons, U.S. Army, Deputy Commander 
of USTRANSCOM, ``Logistics and Sealift Forces,'' statement before House 
Armed Services Committee Subcommittee on Seapower and Projection 
Forces, March 22, 2016, p. 3.
    \2\ U.S. Navy forces require lightering, CONSOL, or Modular Fuel 
Delivery System-equipped tankers to transfer fuel afloat to other 
tankers, to Combat Logistics Force ships, and to other vessels, 
respectively. For more information on this demand, please see: Timothy 
A. Walton, Ryan Boone, Harrison Schramm, Sustaining the Fight: 
Resilient Maritime Logistics for a New Era (Washington, DC: Center for 
Strategic and Budgetary Assessments, 2019), pp. 41-43, 77-83, https://
csbaonline.org/uploads/documents/Resilient_Maritime_Logistics.pdf. and 
Bryan Clark, Timothy A. Walton, and Seth Cropsey, Seapower at a 
Crossroads: A Plan to Restore the U.S. Navy's Maritime Advantage 
(Washington, DC: Hudson Institute, 2020), pp. 40, 41, 44, https://
s3.amazonaws.com/media.hudson.org/
Clark%20Cropsey%20Walton_American%20Sea
%20Power%20at%20a%20Crossroads.pdf.
    \3\ Figure 32 in Timothy A. Walton, Ryan Boone, Harrison Schramm, 
Sustaining the Fight: Resilient Maritime Logistics for a New Era 
(Washington, DC: Center for Strategic and Budgetary Assessments, 2019), 
p. 78, https://csbaonline.org/uploads/documents/Resilient_
Maritime_Logistics.pdf.
---------------------------------------------------------------------------
    Current U.S.-flagged fleet is far less than TRANSCOM requirement

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Source: Figure 32 in Timothy A. Walton, Ryan Boone, Harrison Schramm, 
   Sustaining the Fight: Resilient Maritime Logistics for a New Era 
(Washington, DC: Center for Strategic and Budgetary Assessments, 2019), 
            p. 78, https://csbaonline.org/uploads/documents/
                    Resilient_Maritime_Logistics.pdf

    The DoD faces a gap of approximately 76 fuel tankers to meet surge 
sealift requirements. The newly established Tanker Security Program 
(TSP) will help address this gap. But like the MSP, tankers 
participating in the TSP require preference cargo to be economically 
viable. Moreover, the TSP is small and would require more cargo if it 
is to expand to meet the 76-tanker gap.
    DLA Energy purchases the majority of its bulk fuel contracts for 
deliveries to Defense Fuel Support Points (DFSPs) Outside the 
Continental United States (OCONUS) from foreign refineries. Purchasing 
fuel from foreign refineries closer to DFSPs allows DLA Energy to buy 
fuel that is not only in some cases slightly less expensive than fuel 
from U.S. refineries, but also allows DLA Energy to minimize 
transportation costs, as the fuel can come from closer refineries than 
farther, U.S. ones. This approach has allowed DLA Energy, a working 
capital fund organization, to minimize costs passed on to the U.S. 
military services and defense agencies.
    DLA's approach has also had the unintended pernicious effect of 
reducing the amount of preference cargo available to U.S.-flag tankers 
and in turn reducing the number of U.S. tankers and crews available to 
support critical U.S. Department of Defense (DoD) requirements. It also 
creates a peacetime business environment misaligned with the threat 
environment. For example, DLA Energy has historically purchased most of 
the bulk fuel contracts for the Western Pacific solicitation from 
refineries in Japan, the Republic of Korea, and Singapore--refineries 
that would likely be subject to Chinese business control, coercion, or 
attack in a potential conflict with the People's Republic of China.
    Hoping requisite numbers of foreign tankers and their crews will be 
available in a conflict to substitute for U.S. tankers is imprudent. 
Global spare tanker capacity significantly fluctuates, and a large and 
growing portion of commercial tanker fleets are Chinese controlled or 
subject to Chinese coercion or might not want to participate in a Sino-
American confrontation.
    To start to address this major gap in U.S. tankers, one of the 
easiest and lowest-cost options is to source a greater proportion of 
DLA Energy bulk fuel contracts from U.S. refineries and to continue to 
require that fuel be transported to the greatest degree possible on 
U.S.-flag tankers participating in the Maritime Administration 
Voluntary Tanker Agreement (VTA).\4\
---------------------------------------------------------------------------
    \4\ The Voluntary Tanker Agreement (VTA) is an agreement that 
facilitates cooperation between tanker operators and the government 
(and grants shipowners anti-trust immunity for cooperating amongst 
themselves) if the government determines it necessary to requisition 
tankers in contingencies. Another complementary option to increase the 
number of U.S.-flag tankers is to increase the number of Tanker 
Security Fleet slots, increase their stipend to match the operating 
differential between U.S. and foreign-flag vessels, and eliminate 
regular Tanker Security Fleet participants' access to preference cargo 
fuel to have these tankers operate in international trade, while other 
U.S.-flag tankers transport preference cargo and meet domestic trade 
requirements. As another option, DoD can long-term charter additional 
tankers to serve as prepositioned reserves afloat that can move to 
areas of need. And lastly, the U.S. Congress could mandate a 
requirement in which a gradually growing proportion of U.S. energy 
exports would need to be lifted on U.S.-flag tankers. For a further 
discussion of this topic, please see: Timothy A. Walton, ``Resilient 
refueling beyond Red Hill'', Real Clear Defense, March 14, 2022, 
https://www.realcleardefense.com/articles/2022/03/14/
resilient_refueling_beyond_red_hill_
821616.html; and Timothy A. Walton, Ryan Boone, Harrison Schramm, 
Sustaining the Fight: Resilient Maritime Logistics for a New Era 
(Washington, DC: Center for Strategic and Budgetary Assessments, 2019), 
pp. 81-82, 118, https://csbaonline.org/uploads/documents/
Resilient_Maritime_Logistics.pdf.
---------------------------------------------------------------------------
    This requirement would end the current penny-wise, pound-foolish 
approach of purchasing most OCONUS bulk fuel contracts from foreign 
refineries and would provide three major benefits. First, more U.S.-
flag tankers could join the U.S. commercial fleet since there would be 
more preference cargo to support their operations. By participating in 
the VTA, these tankers could engage in commerce in peacetime and be 
requisitioned, if necessary, by the U.S. government during 
contingencies. Second, the proposed approach would provide more jobs to 
U.S. mariners and their supporting maritime industry personnel and 
provide additional revenues to U.S.-flag tanker companies (and tax 
receipts to the U.S. government from those companies and from their 
personnel). Third, the proposed approach would increase sales of fuels 
by U.S. refineries and in turn support jobs, revenues, and tax receipts 
at these refineries.
                            Recommendations
    The U.S. Congress should introduce legislation that mandates that 
DLA Energy, starting in FY 2023, purchase no less than 50 percent of 
tanker-delivered OCONUS bulk fuel contracts from U.S. refineries and 
that all tanker-delivered fuel be transported on U.S.-flag tankers 
participating in the Voluntary Tanker Agreement. The requirement should 
increase to eventually mandate that DLA Energy purchase no less than 
100 percent of tanker-delivered OCONUS bulk fuel contracts from U.S. 
refineries, and no less than 25 percent of pipeline-delivered OCONUS 
bulk fuel contracts from U.S. refineries, and that all tanker-delivered 
fuel be transported on U.S.-flag tankers participating in the Voluntary 
Tanker Agreement.
    To reduce circumvention of Cargo Preference rules, the U.S. 
Congress should require that DoD complete a survey of defense 
contractors to determine how well they understand the shipping used 
within their supply chains. The report should include a plan to gain a 
complete understanding of the overseas materials and part used in U.S. 
weapon systems and the shipping used to obtain them. The Congress 
should also require that DLA provide a report on its use of foreign-
flagged vessels, the reasons for doing so, and how the resulting 
savings were repurposed.
                               Conclusion
    In a future military or diplomatic confrontation against China, the 
United States could experience economic disruptions like those imposed 
by the Covid-19 pandemic's impact on supply chains or the energy 
shortfalls befalling Europe today. Some of these effects may be 
unavoidable, given the Chinese maritime industry's size and influence. 
However, the best insulation against the worst disruptions is to 
improve the health of the U.S. maritime industry, which depends on 
effective enforcement of cargo preference rules.

    Mr. Carbajal [presiding]. Thank you very much, Mr. Clark.
    Now, I will proceed with allowing all of the Members to ask 
your questions for 5 minutes. I will start by recognizing 
myself.
    This is to the entire panel. In the wake of the Russian 
invasion of Ukraine, there have been legislative efforts to 
waive cargo preference. What effect would that proposal have on 
the mariner base, the number of U.S.-flag vessels, military 
search capability, and readiness?
    [No response.]
    Don't all jump in at one time.
    Mr. Marcus. I will answer that, Mr. Chair, and thank you 
for the opportunity.
    I would say it would certainly diminish the amount of 
vessels available and crewmembers available to support any kind 
of sustained military sealift. If you cut the program to--you 
said you would cut the program, is that correct? Or did you say 
you would bring it to 100 percent?
    Mr. Carbajal. Cut or 100 percent----
    Mr. Marcus [interrupting]. Well, obviously, if you cut it--
and I am sorry. If you cut it, the amount of sealift would go 
down. The amount of available mariners would go down. You are 
cutting a program from 75 percent to 50 percent. In 2012, we 
saw the number of ships available decrease, at least 10 or 15 
ships. We saw members permanently leave the industry. So, you 
would have a crew shortage, and you would have a shortage of 
tonnage.
    And on the other side, if you increase the program from the 
current 50 percent to 100 percent, you would increase your 
sealift capability. You would increase your manpower and 
opportunities to grow the U.S. merchant marine.
    Mr. Carbajal. Thank you.
    Mr. Ebeling. Yes, thank you for the question.
    Just to maybe expand on that a little bit, any reduction in 
cargo will have a detrimental impact on the U.S.-flag fleet. As 
Captain Marcus alluded to, that impacts not just the ships, but 
the mariner pool, and that mariner pool also crews the 
Government reserve ships.
    This kind of circumstance is precisely why we have a U.S.-
flag fleet so that we can pursue any national security or 
economic policy that we so choose.
    Thank you.
    Mr. Carbajal. Thank you.
    Mr. Clark. And just to add to what my colleagues have said, 
the ships right now cannot operate cost effectively under just 
the Maritime Security Program stipend. They need the cargo 
preference cargo to augment that income and be able to operate 
in the black. So, you are going to see a continued erosion of 
the size of the U.S. fleet without preference cargo, and 
waiving this requirement would be devastating to that cargo 
amount.
    Mr. Carbajal. Thank you.
    Mr. Clark, the GAO report issued on Monday provides 
important information on the decline of the size of the fleet 
of U.S.-flag vessels engaged in international trade. In 1990, 
there were 199 U.S.-flag vessels in the fleet; but as of 2021, 
the fleet was down to 84 vessels. What can be done to stabilize 
the U.S.-flag vessel fleet in addition to obviously not cutting 
it, the preference?
    Mr. Clark. Right. Obviously not cutting cargo preference. 
So, making sure that preference cargo is carried by U.S.-flag 
ships is really important. So, compliance with cargo preference 
rules is essential. Going after the agencies that have been 
avoiding using U.S.-flag ships for preference cargo will be 
important. There are agencies that are obviously avoiding that 
for the purpose of saving money. Also defense contractors, 
including defense vendors, are sometimes not using U.S.-flag 
ships to move their cargo, and it is partially a result of not 
understanding their supply chain, but it is also a result of 
inadequate oversight. So, making sure that preference cargo is 
shipped on U.S. ships is one.
    The other part would be looking at expanding the Maritime 
Security Program, but to expand the Maritime Security Program 
and its associated stipend, we are going to need to have more 
preference cargo to make those ships viable economically. So, 
it goes back to cargo preference.
    Mr. Carbajal. Thank you.
    Mr. Ebeling, you mentioned foreign military sales as a way 
to invigorate the market. Can you provide more detail on what 
the Federal Government can do there to stabilize the cargo 
markets for U.S.-flag carriers?
    Mr. Ebeling. Sure. So, foreign military sales, there are 
different types of that, some of which, such as foreign 
military financing, or FMF, are subject to U.S.-flag shipping 
requirements. Other types of FMS may not be. One way to 
potentially support the U.S.-flag fleet is to require all types 
of FMS, or a larger percentage of such, to move on U.S.-flag 
ships.
    Mr. Carbajal. Thank you very much.
    Captain Marcus, in your testimony you brought up the 
administration's emphasis and prioritization of implementing 
cargo preference requirements. And yet, there are agencies such 
as the USDA, USAID, and DoD who are not following the 
President's Executive order. What would this mean to the 
maritime industry should these agencies comply for a change?
    Mr. Marcus. Well, I think it would certainly mean there 
would be more cargo carried aboard U.S.-flagged vessels, and 
there would most likely certainly be more vessels entering 
service under the U.S. flag and more bulk carriers to carry 
these commodities.
    Thank you.
    Mr. Carbajal. Thank you.
    I now will go to Representative Gibbs.
    Mr. Gibbs. Thank you, Mr. Chair.
    Mr. Clark, we were talking about your proposal because of 
the 82-percent drop in U.S.-flag vehicles. I've got the law 
here, and I just want to--for clarification, it says, 
``Supplies bought for the Army, Navy, Air Force, Marine Corps, 
or space force, or for a defense agency, or otherwise 
transported by the Department of Defense, may only be 
transported by sea in a vessel belonging to the United States 
or a vessel of the United States.'' And it has another 
definition. But then it goes on, there is a waiver provision: 
``The Secretary of Defense may waive the requirement.''
    I assume that is what has happened?
    Mr. Clark. Yes. So, what will happen, internal to the 
Department of Defense, they make a determination that there is 
not an available U.S. ship at an acceptable cost or reasonable 
cost and schedule. And then they will choose a foreign-flag 
ship to make the shipment. And that happens a lot because in a 
perverse sort of cycle, because we have reduced the amount of 
cargo that we are sending to U.S. ships, the size of the U.S. 
fleet shrinks, and then it makes it harder to schedule. So then 
the agencies can say, well, I can't get a ship at an acceptable 
schedule or cost. But that is because they have not been using 
the ships and, therefore, the fleet has been shrinking. So, 
they have waived that internally.
    Mr. Gibbs. I believe that provision is not in our 
jurisdiction. I think it is probably Armed Services Committee 
jurisdiction.
    Mr. Clark. That is an internal discussion inside the DoD, 
but the----
    Mr. Gibbs [interposing]. I understand.
    Mr. Clark. Right. But MARAD can enforce those rules under 
the existing law. So, it is just that DoD has chosen to 
establish its own waiver provisions, but under the existing 
law, MARAD is supposed to be administering the cargo preference 
rules.
    Mr. Gibbs. OK. That is interesting.
    If they did--in your proposal to ship oil from U.S. depots 
rather than foreign depots, how much do you think that we would 
be able to claw back of that 82 percent?
    Mr. Clark. It is hard to tell when you look at the math, 
but it looks like you would be able to at least get three more, 
and probably more than that, tankers under U.S. flag to source 
that, because it is obviously not going to be completely 
efficient. So, if all of that fuel was put on the smallest 
number of tankers possible, you are looking at 3, maybe 10.
    Mr. Gibbs. Yes, I thought that the efficiency is probably 
lost.
    Mr. Clark. Right, right. But the cost would be minimal, and 
it would expand the amount of, obviously, fuel being shipped on 
U.S. ships substantially.
    Mr. Gibbs. OK. I guess to the other two panelists, 
President Biden's Executive Order 14005 strengthens the 
oversight and enforcement, but MARAD has been unable to 
promulgate the rules. Are you working with the Biden 
administration to assure that MARAD is getting cooperation in 
the interagency review process to be able to promulgate these 
long-delayed regulations? What's your involvement with the 
Biden administration?
    Mr. Ebeling. Yes. USA Maritime has had productive 
discussions with the administration. It hasn't moved the needle 
much in terms of tangible action yet. Those discussions are 
ongoing, and we would be happy to work with the administration 
and the Congress on further tangible action.
    Mr. Gibbs. Mr. Marcus?
    Mr. Marcus. Yes. I will follow up in the same way. The AFL-
CIO Transportation Trades Department, the Maritime Trades 
Department, the labor unions, we have been working for a number 
of years to try to get regulatory mechanisms in place that are 
necessary to actually make this happen. And as has been said 
earlier in this testimony, it has gone year after year, 
Administrator after Administrator, and there needs to be some 
change, hopefully in the law, to make this more likely.
    Thank you.
    Mr. Gibbs. Yes. Mr. Marcus, I have a question. It is a 
little off topic, but I think it is timely. We are looking at a 
possible railroad strike, strike of freight rail. And since you 
represent the AFL-CIO, can you tell us any involvement that you 
have had with the railroad industry to try to mitigate, prevent 
a strike happening? Because the impact on your members is going 
to be significant if it happens, I believe.
    Mr. Marcus. Well, it is significant for the supply chain, 
and we have been working closely with the Transportation Trades 
Department supporting the railroad workers who have been under 
the thumb and experienced some horrifying job losses, working 
conditions, and safety problems for decades.
    So, we are supporting the railroad workers. And hopefully a 
just and fair resolution to their labor issues and the supply 
chain issues that plague the railways can be found.
    Mr. Gibbs. Are you hopeful?
    Mr. Marcus. I would have to say that I think it is going to 
have to get pushed further to get some real actions, but I am 
optimistic at the end of the day that a resolution will be 
found.
    Mr. Gibbs. Because I hope the kind of resolutions--we just 
went through a major bottleneck at the ports, especially on the 
west coast, and we saw that. We are slowly digging our way out 
of that. And I have always said, when one leg of the intermodal 
system breaks down, it has a tremendous catastrophic effect on 
the rest. And this could be--after just coming out of COVID and 
the supply chain issues, to have this happen at this time puts 
us on a very tight, precarious position. I am worried about 
that. So, I hope everybody is trying to work together to 
resolve the issue.
    Mr. Marcus. Yes, sir, I believe they are. Thank you for the 
inquiry.
    Mr. Gibbs. I yield back, Mr. Chairman.
    Mr. Carbajal. Thank you, Mr. Gibbs.
    I will now recognize Representative Lowenthal, the 
distinguished gentleman from California.
    Mr. Lowenthal. Thank you, Mr. Chairman. Great to see you 
back on the committee.
    This has been a very interesting discussion, and I want to 
elaborate on points that have already been made, but we are 
going in this vicious cycle. On one hand, agencies are arguing 
that existing U.S.-flag fleet cannot adequately meet their 
demands. This is used to justify lax enforcement and mandates 
which weaken the demand for critical services that are provided 
by U.S.-flag carriers, and it hinders the expansion of the 
fleet. And I believe the only response to this is to make sure 
that the fleet is big enough and flexible enough to meet 
congressional requirements. And, clearly, MARAD is not ensuring 
that agencies are following the law. We need to change that and 
to guarantee demand for U.S.-flagged vessels.
    But there are two sides of the equation, and I think we 
have already heard some of the responses about what else we can 
do besides MARAD ensuring demand for U.S. And I want to ask 
Captain Marcus and Mr. Ebeling, can you weigh in also on 
additional measures that we should be considering to help 
ensure that U.S.-flag vessels meet the demand for vessels and 
mariners? What else should we be doing?
    Mr. Marcus. Thank you, Congressman, for the inquiry.
    I think there is a lot that could be done. I think the 
starting point is clearly to have a national maritime policy. 
We lack a national maritime policy. We have a handful of 
programs to keep a minimal baseline of shipping afloat under 
U.S. flag, but we don't have a comprehensive national maritime 
policy.
    Specific things that could be done besides expanding the 
Maritime Security Program or the Tanker Security Program would 
be things like bilateral trade agreements, export quotas, which 
Congressman Garamendi and others have suggested over the years, 
and certainly a national program such as we saw in 1936. I 
mean, when there were war clouds in Europe in the thirties, 
U.S. Congress and President Roosevelt got together. They 
developed a merchant marine policy called the Merchant Marine 
Act of 1936, and what we have left is basically the remnants of 
those policies, a few new things added to keep us on the 
lifeline. But there is plenty of things that could be done. It 
requires national will, and it requires financial investment.
    Thank you.
    Mr. Lowenthal. Thank you, Captain Marcus.
    Mr. Ebeling, anything that you would like to add?
    Mr. Ebeling. Yes. Thank you.
    And I certainly echo Captain Marcus' remarks there. I was 
reflecting on the chairman's remark earlier about the decline 
of the fleet from the 1990s through the present, and I think it 
is important maybe to take a step back and look at the goals 
for the U.S.-flag fleet. And I think we have really emphasized 
the national security requirements. For example, Mr. Clark 
alluded to the mobility capability requirements study earlier. 
That has stayed pretty consistent at 19 to 20 million square 
feet of capacity needed to pursue the national security 
objectives for sealift.
    I think we need to expand the conversation beyond national 
security. Of course, defense sealift should be prioritized, but 
we should be looking at other programs as well, and maybe 
taking a little bit more of a holistic approach, looking at our 
global supply chains, looking at our contracting policies, 
looking at potential tax credits, so, we are really kind of 
elevating the discussion a little bit.
    So, thank you.
    Mr. Lowenthal. Thank you.
    And I yield back, Mr. Chair.
    Mr. Carbajal. Thank you, Mr. Lowenthal.
    I will recognize now Mr. Garamendi for 5 minutes.
    Mr. Garamendi. First, Mr. Chairman, thank you for holding 
the hearing. It is very, very important.
    The maritime industry is exceedingly important. We do need 
what I would call a national maritime security policy that 
would go beyond the subject matter of this issue, of this 
hearing, one that would provide usually the Jones Act to meet 
the national military security. That is another hearing and 
another day.
    I believe that we need a new law. As I said previously to 
the admiral about her power, four Administrators have failed to 
carry out the law. We need an explicit requirement--for each of 
you gentlemen, does it make sense that the Administrator, MARAD 
Administrator, have the authority and that the agencies must 
seek her permission, or the Administrator's permission, to 
waive the current requirement of 50 percent?
    Mr. Ebeling. In a word, yes. And I think that that has been 
Congress' intent going back at least to the fiscal year 2009 
NDAA, but even further, probably back to the 1970 act as well.
    Thank you.
    Mr. Garamendi. Mr. Clark?
    Mr. Clark. Yes, I agree.
    Mr. Garamendi. Captain Marcus?
    Mr. Marcus. Absolutely, we need a new law, and it needs to 
be effective. It needs to be implemented, yes, sir.
    Mr. Garamendi. Should we restore the 75 percent 
requirement?
    Mr. Marcus. Certainly speaking for labor, absolutely. It 
would bring more cargo. It would require more vessels and 
improve and increase the industry for the better of the Nation.
    Thank you.
    Mr. Ebeling. We would support that, but I would also argue 
perhaps to consider 100 percent, which would also take some of 
the gamesmanship out of it.
    Thank you.
    Mr. Garamendi. Very good.
    Mr. Clark. I agree, and I think 100 percent is the 
appropriate number because it does open up a lot of 
interpretation otherwise. And I think it also requires stepping 
back and saying what is the purpose of this program, which is 
fundamentally to ensure that we have a U.S.-flag fleet to 
support both our national security needs and insulate us 
against potential supply chain warfare. And we need to start 
thinking of it in a strategic approach as opposed to being just 
tactical.
    Mr. Garamendi. And if there was a reasonable waiver 
associated with 100 percent, could we get past that argument 
that we would undoubtedly hear about 100 percent?
    Mr. Clark. A waiver, but that would be something that MARAD 
should be agreeing to rather than something the agencies 
independently decide.
    Mr. Garamendi. So, a tight waiver, well-understood waiver?
    Mr. Clark. Right.
    Mr. Garamendi. Administered by MARAD?
    Mr. Clark. Correct.
    Mr. Garamendi. Yes?
    Mr. Ebeling. Just to add, I think that is correct, but I 
would also argue that it should be subject to availability and 
fair and reasonable rates as well. And that is part of the 
existing law and that, I think, even if it were 100 percent, 
that should probably stay as part of the existing law.
    Thank you.
    Mr. Garamendi. Captain Marcus, anything to add?
    Mr. Marcus. No. I would just echo what was said, but also 
say with the question of availability, which has been noted 
earlier in this hearing, the less cargo, the less ships are 
available. So, as was said earlier by Mr. Von Ah, if you are 
down to the last three boat carriers in the U.S.-flag fleet, 
there is not going to be a whole lot of availability. So, you 
need a larger number of vessels to have the availability to use 
the program.
    Thank you.
    Mr. Garamendi. That goes to my next series of questions 
about waiving into the American-flag fleet ships that are 
presently not. Should we allow foreign-flag ships to be 
reflagged into the American fleet? For example, the current 3-
year law makes that almost impossible. Should we modify that in 
such a way as to allow those ships to be flagged in to be 
available more quickly, and then requirements that they not be 
in and out? Does it make sense to do that?
    Mr. Marcus. Yes. Certainly, the 3-year wait, as has been 
noted earlier, is a problem in the current law for flagging in 
vessels. And I do think there should be some mechanism to 
require the vessels, once flagged in, to remain in service for 
the defined period of time.
    Thank you, sir.
    Mr. Garamendi. Mr. Ebeling?
    Mr. Ebeling. I would just add that removing the 3-year 
wait, while it may have some short-term positive impacts, would 
not necessarily generate any new cargo. And so, I think that is 
an important consideration to bear in mind as well.
    Thank you.
    Mr. Clark. Yes. And I agree. I think the one thing to note 
is that there are several requirements that you have to meet in 
order to be U.S.-flagged that make it so that it is not just a 
jumping in and jumping out sort of operation. It will take some 
time for a ship to be qualified and have the appropriate crew. 
So, there is still a requirement in place. It is just not a 
time requirement.
    Mr. Garamendi. My time having expired, but my questions 
not, I yield back.
    Mr. Carbajal. Thank you, Mr. Garamendi.
    That concludes our hearing for today.
    I would like to thank the witnesses for your testimony. 
Your contributions to today's discussion have been very 
informative and helpful.
    I ask unanimous consent that the record of today's hearing 
remain open until such time as our witnesses have provided 
answers to any questions that may be submitted to them in 
writing.
    I also ask unanimous consent that the record remain open 
for 15 days for any additional comments and information 
submitted by Members or witnesses to be included in the record 
of today's hearing.
    Without objection, so ordered.
    The subcommittee stands adjourned.
    [Whereupon, at 11:42 a.m., the subcommittee was adjourned.]



                       Submissions for the Record

                              ----------                              


   Prepared Statement of Hon. Peter A. DeFazio, a Representative in 
      Congress from the State of Oregon, and Chair, Committee on 
                   Transportation and Infrastructure
    Thank you, Chair Carbajal, for calling this very important hearing 
on compliance with and enforcement of cargo preference requirements. 
Oversight of cargo preference laws is long overdue, and this hearing 
could not come at a better time with the release of the Government 
Accountability Office's (GAO) report on cargo preference enforcement on 
Monday.
    I'd like to acknowledge Rear Admiral Phillips' first appearance 
before this subcommittee in her new role as Maritime Administrator. It 
is great to see you again and I look forward to hearing how the 
Maritime Administration (MARAD) plans to better enforce cargo 
preference compliance.
    The U.S. depends on a robust merchant fleet not only for economic 
purposes but also for national security. This past year, we've seen the 
negative effects of an industry dominated by foreign companies and 
interests wreaking havoc on our supply chain. It is counter to U.S. 
interests to increase reliance on foreign-flagged vessels. For decades 
we've seen the U.S.-flag fleet shrink, dropping from 199 vessels in 
1990 to 84 presently. The flags of convenience system has exacerbated 
this issue, allowing companies to flag their vessels under countries 
that lack labor, safety, and environmental standards.
    Cargo preference provides a backbone to support the dwindling 
internationally sailing U.S.-flag fleet, especially when coupled with 
other incentive programs like the Maritime Security Program. Cargo 
preference refers to the various laws requiring government-impelled 
cargo to be carried on U.S.-flagged vessels. Without it, the U.S. would 
not have the means to carry defense cargo overseas in times of war and 
would instead rely on foreign-flagged vessels.
    There's an old saying: ``cargo is king.'' By providing a baseline 
of cargo for U.S.-flagged ships, we incentivize more vessels to join 
the fleet. Without guaranteeing cargo for U.S. vessels, we lose demand 
for U.S. owned and crewed ships. The 2012 Moving Ahead for Progress in 
the 21st Century Act reduced the cargo preference minimum for non-
military government impelled cargo from 75 percent to 50 percent. Since 
then, we've witnessed a 36 percent drop in total government cargo 
transported on U.S.-flagged vessels and the number of U.S.-flagged 
vessels. That is why it is vital that cargo preference requirements not 
only be restored to the 75 percent requirement for non-military cargo, 
but also that existing statutory requirements be fully enforced.
    Over the years, we've heard of agencies working to defy or subvert 
the statutory requirements of cargo preference through the 
overutilization of ``notwithstanding'' exemptions and individual 
agencies making their own determinations of availability without 
seeking assistance from MARAD. But we haven't been able to track this 
due to the lack of public reporting by MARAD.
    The compliance rates reported to MARAD and provided by GAO in their 
report paint a false picture of what is occurring. While on the surface 
it seems as if these federal agencies are in full compliance, in 
reality the percentage is inflated to include instances where 
``notwithstanding'' or non-availability exemptions are granted. If you 
look at the strict amount of cargo carried on U.S.-flagged vessels not 
taking the exemptions into account, it is far lower than the 100 
percent for military cargo and 50 percent for non-military government-
impelled cargo mandated by statute.
    In addition, MARAD has yet to complete a rulemaking on cargo 
preference guidance to determine availability or procedures for 
determining agency compliance. Without completing this rulemaking, 
MARAD cannot and has not used enforcement powers granted to them in the 
National Defense Authorization Act for Fiscal Year 2009. We will 
continue to see agencies pad their numbers and not provide full data 
until MARAD moves forward with a rulemaking.
    The report released Monday by the GAO highlights the frustrating 
position MARAD is in and recommends they move forward with a 
rulemaking. It is my understanding that MARAD concurs with the 
recommendations of the report. While they may agree with the 
recommendations, they're presently blocked from publishing a rulemaking 
by the Office of Management and Budget and the agencies subject to 
cargo preference requirements. Today I expect to hear more on how MARAD 
can move forward with a rulemaking and enforcement.
    We cannot wait any longer while MARAD is bullied into a position of 
non-compliance with the law. That is why we included a provision in 
this year's House National Defense Authorization Act which would 
require MARAD to report cargo preference data again and move forward 
with a rulemaking.
    I thank GAO for their work on this insightful report and look 
forward to our witnesses' comments on the findings and the current 
state of cargo preference compliance.

                                 
  Prepared Statement of Hon. Sam Graves, a Representative in Congress 
     from the State of Missouri, and Ranking Member, Committee on 
                   Transportation and Infrastructure
    Thank you, Chair Carbajal, and thank you to our witnesses for being 
here today.
    Cargo preference is one of the key policy mechanisms the United 
States uses to maintain U.S.-flag vessels and U.S. mariners. These 
vessels and mariners will support national defense sealift surge 
operations when such operations become necessary.
    It's unfortunate that Federal agencies that are subject to cargo 
preference have blocked MARAD from even writing, much less 
implementing, the cargo preference enforcement regulations Congress 
mandated in 2009.
    I look forward to hearing from the witnesses today about how we can 
help MARAD enforce cargo preference laws on uncooperative Federal 
bureaucrats.
    Thank you, Chair Carbajal. I yield back.

                                 
   U.S. Government Accountability Office, ``Maritime Administration: 
Actions Needed To Enhance Cargo Preference Oversight,'' GAO-22-105160, 
   Sept. 12, 2022, Submitted for the Record by Hon. Salud O. Carbajal
    The 49-page report is retained in committee files and is available 
online at https://www.gao.gov/assets/gao-22-105160.pdf.



                                Appendix

                              ----------                              


Question from Hon. Bob Gibbs to Bryan Clark, Senior Fellow and Director 
  of the Center for Defense Concepts and Technology, Hudson Institute

    Question 1. Dr. Clark, does the Department of Defense make non-
availability determinations when making decisions regarding preference 
cargo carried in accordance with section 2631 of title 10, United 
States Code?
    Answer. DoD, via the commander of Military Sealift Command (MSC) 
and commander, Military Surface Distribution and Deployment Command 
(SDDC), can make its own non-availability determinations.\1\ These 
determinations, however, are required to consult, as appropriate:
---------------------------------------------------------------------------
    \1\ U.S. Government, Defense Acquisition Regulation, PGI 247.5--
OCEAN TRANSPORTATION BY U.S.-FLAG VESSELS, October 28, 2022, https://
www.acquisition.gov/dfarspgi/pgi-247.5-ocean-transportation-u.s.-flag-
vessels.
---------------------------------------------------------------------------
    (i)  Published tariffs;
    (ii)  Industry publications;
    (iii)  The U.S. Maritime Administration; and
    (iv)  Other available sources.

    The DoD appears to have a process for consulting MARAD on non-
availability determinations that is used regularly, based on our 
research and that of the Government Accountability Office.