[Congressional Record Volume 143, Number 4 (Tuesday, January 21, 1997)]
[Senate]
[Pages S141-S142]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      OECD SHIPBUILDING AGREEMENT

  Mr. LOTT. The 104th Congress was unable to reach a consensus on 
legislation to implement an OECD Shipbuilding Agreement. Opponents of 
the agreement, as negotiated, insisted that the amendments passed by 
the House of Representatives be incorporated into any implementing 
legislation. Supporters of the agreement found these amendments 
unacceptable. As a result, no legislation was passed to put the OECD 
Shipbuilding Agreement into effect.
  If the outcome is to be any different in the 105th Congress, I would 
urge the Administration and the Office of the U.S. Trade Representative 
to fully consider the amendments to H.R. 2754 passed by the House last 
year. Those amendments, which were sponsored by the House National 
Security Committee, were in response to major concerns regarding this 
agreement's damaging impact on our national security interests, and on 
the Navy's core shipbuilding industrial base. While preserving the 
underlying intent of the OECD agreement, the amendments adopted by the 
House provide some modest safeguards with respect to these national 
security concerns.
  Ms. SNOWE. Those amendments were approved by an overwhelming majority 
in the House who felt that, without the changes, the OECD Agreement 
failed to provide an effective mechanism for disciplining foreign 
shipbuilding subsidy practices. I should add that a number of Members 
in this body who have examined the agreement also share this view. The 
base agreement, coupled with the many loopholes and special concessions 
granted to foreign governments, would continue to place U.S. 
shipbuilders at a tremendous competitive disadvantage. For this reason, 
the largest U.S. shipbuilders, representing over 90 percent of all 
workers in the Nation's major shipbuilding base, opposed implementation 
of the agreement even though they were the primary advocates of an 
effective discipline on foreign government subsidy and dumping 
practices in the first place.
  Mr. LOTT. In order to put into perspective the concerns of the U.S. 
shipbuilding industry, it may be helpful to review some of the 
background leading up to this agreement. In 1981, the U.S. Government 
terminated its subsidy program to the U.S. shipbuilding industry. Thus, 
in 1989, the United States went to the negotiating table as the only 
nonsubsidizing shipbuilding country. The U.S. shipbuilding industry had 
already lost all of its commercial shipbuilding market share and was 
bracing itself for a dramatic decrease in Navy shipbuilding orders.
  Ms. SNOWE. In 1993, 4 years after international negotiations had 
failed to produce an agreement to end foreign subsidies, Congress and 
President Clinton revived and amended a modest ship loan guarantee 
program called Title XI. The purpose of this program was to help U.S. 
shipbuilders recapture commercial market share in the face of dramatic 
cuts in the Navy's shipbuilding plan and continued foreign government 
subsidies in the commercial market.
  Mr. LOTT. This modest loan guarantee program has begun the revival of 
commercial shipbuilding in the United States. For the first time in 
almost 40 years, our major U.S. shipbuilders are building commercial 
ships for export. Environmentally safe oceangoing double-hulled oil 
tankers are being constructed for our domestic trades. Over a 2-year 
period, $1.7 billion in commercial shipbuilding orders has been 
generated in the United States. These commercial orders are helping to 
sustain our major builders of Navy ships.
  Ms. SNOWE. In 1996, when the administration sought congressional 
approval of the OECD Shipbuilding Agreement, the Department of Defense 
submitted a Navy shipbuilding budget request for the fewest numbers of 
ships in more than 60 years. While the Navy's Fiscal Year 1997 Future 
Years Defense Plan called for an average of only 5 ships per year, the 
Navy anticipates that it will need to procure 10 to 12 ships per year 
beginning in the year 2002, if it is to maintain a 346-ship fleet. The 
challenge for our Nation and the Navy is to sustain the critical core 
shipbuilding industrial base during this alltime low in Navy 
shipbuilding and still have the capability to meet future Navy building 
needs.
  Facing these circumstances, in 1989 the U.S. shipbuilding industry 
sought an international agreement to end foreign government 
shipbuilding subsidies. The industry believed then, as it does now, 
that it was essential to end foreign government participation in the 
commercial shipbuilding market if it was to have a fighting chance to 
make the transition to building both commercial and Navy ships, and 
thus survive this historic low in Navy shipbuilding.
  Mr. LOTT. As negotiations dragged on for over 5 years, the 
marketplace was changing dramatically and rapidly, while the objective 
of the negotiators seemed to remain static. There was a failure on the 
part of our negotiators to recognize these changes and the activities 
of the various participating parties during the negotiations.
  China, which had no commercial shipbuilding market in 1990, began to 
target shipbuilding to industrialize its economy. China now ranks third 
in the world for commercial shipbuilding, and it is not a signatory to 
this agreement. Other countries, such as the Ukraine and Poland, are 
also not covered by this agreement and have displayed a renewed 
interest in their shipbuilding sectors.
  Ms. SNOWE. During the negotiations, Germany granted $4 billion in 
shipyard modernization subsidies to the former East German shipyards. 
South Korea approved close to a $1 billion bailout of its largest 
shipbuilder Daewoo. Other European countries continued to grant 
billions in subsidies to their shipbuilding industries to fill their 
order books.
  Mr. LOTT. When an agreement was finally reached in 1994, major U.S. 
shipbuilders expressed their objections with the terms of the OECD 
Shipbuilding Agreement before it was signed by the U.S. and other 
parties. These builders articulated to the Administration their 
concerns with the very generous transition concessions granted to the

[[Page S142]]

foreign signatories, the changing market conditions with the growing 
prominence of China, and the ineffective ``injurious pricing'' or anti-
dumping provision--especially in light of South Korea's massive 
expansion of its shipbuilding capacity throughout the negotiations.
  Ms. SNOWE. These concerns and the agreement's negative implications 
for the U.S. Navy shipbuilding industrial base were ignored by the 
negotiators of this agreement. U.S. shipbuilders were also dismayed 
that they were granted no transition period in contrast to what was 
granted to the foreign governments. The successful, but modest, Title 
XI loan guarantee program would be rendered ineffective immediately 
upon the agreement's entry into force and the domestic trade of the 
United States, as governed by the Jones Act, was placed in severe 
jeopardy by our negotiators. In an effort to correct these weaknesses 
and flaws, the House of Representatives amended the implementing 
legislation (H.R. 2754) to address the major national security concerns 
of the agreement.
  Mr. LOTT. The Office of the U.S. Trade Representative has maintained 
throughout the debate on this agreement that the Jones Act, which 
requires ships transporting cargo between two U.S. ports to be U.S.-
built, -owned, and -operated, is exempt from the agreement. This is 
only partially true. Although the agreement does not repeal the law, it 
establishes a framework and procedure for foreign governments to take 
retaliatory actions against U.S. shipbuilders and U.S. exporters for 
ships constructed for the domestic trades of the United States. These 
countermeasures include bid restrictions and bid tariffs against U.S. 
builders seeking international orders if they also benefit from Jones 
Act orders. The agreement also provides that GATT-related tariff 
concessions may be withdrawn against other U.S. products to offset the 
benefit of Jones Act ship construction contracts to U.S. builders. 
Moreover, the agreement states that the Jones Act is a derogation of 
the agreement--and I quote--``could undermine the balance of rights and 
obligations of the Parties under the Agreement and is unacceptable to 
the other Parties.''
  Ms. SNOWE. U.S. ownership, manning, and construction of vessels 
serving the Jones Act trade has provided the Department of Defense with 
a pool of trained mariners, vessels, and the industrial capability to 
respond in time to national defense emergencies. For example, the very 
shipyards that build and repair Jones Act vessels were called upon to 
activate military reserve ships during Operation Desert Storm/Desert 
Shield, and it was the trained mariners who operate Jones Act vessels 
in peacetime who were called upon to crew these military ships once 
activated. The Jones Act contributes to the maintenance of this skilled 
work force and defense industrial capability.
  Because of the importance of the Jones Act to our national security, 
the House adopted an amendment specifically prohibiting the imposition 
of trade countermeasures against U.S. shipbuilders and other exporters 
for Jones Act ship construction. This amendment is essential to our 
Nation's defense readiness.
  Mr. LOTT. The House also adopted an amendment defining and exempting 
``military reserve vessels'' from coverage under the agreement. This 
provision is essential to ensure that military ships--such as Army, 
Navy, and Marine Corps surge and prepositioned sealift ships--cannot be 
deemed commercial ships under the agreement because of their dual-use 
characteristics and capability. Without this exemption, DOD may be 
precluded from procuring military reserve and auxiliary ships with 
defense features from U.S. shipbuilders without the threat of 
retaliatory trade countermeasures.
  Ms. SNOWE. Many of DOD's reserve and auxiliary ships are commercially 
built, owned, and operated, and they are chartered to DOD under long-
term lease agreements. The U.S. Navy intends to continue this approach 
to acquiring these needed assets in the future. Furthermore, it is 
extremely difficult, if not impossible, to completely separate a ship's 
defense features from its commercial features. Therefore, the 
implementing legislation needs to contain the definition and exemption 
for these types of ships or the United States will be subjected to an 
international trade panel's interpretation of what is, or is not, a 
military vessel or a defense feature.
  Mr. LOTT. As I mentioned earlier, the only government support program 
for U.S. shipbuilders is the Title XI Ship Loan Guarantee Program. The 
program was revived and amended in FY 1994 as part of the National 
Shipbuilding Initiative contained in the National Defense Authorization 
Act. The purpose of the program was to help U.S. shipbuilders attract 
commercial shipbuilding orders in the face of a dramatic turndown in 
Navy orders and foreign government commercial shipbuilding subsidies.
  Ms. SNOWE. Title XI provides for a government guarantee of commercial 
loans for the construction of ships in the United States for U.S. and 
export customers. Up to 87.5 percent of the 25-year loan is guaranteed 
under the program. Upon entry into force of the OECD Shipbuilding 
Agreement, however, the terms of title XI would be immediately changed 
to guarantee only up to 80 percent of a commercial loan over a 12-year 
period. According to U.S. shipbuilders, the current orders for 
construction of large oceangoing commercial ships would not have been 
consummated under these terms and conditions.
  Mr. LOTT. Almost every signatory to this agreement--except the United 
States--was granted special transition subsidy authority for a period 
of 3 years. Many members of the House of Representatives and Senate do 
not understand why the title XI program should not continue under its 
current terms and conditions for a 3-year period given the agreements's 
special deals, exemptions, and transition programs in the billions of 
dollars for Belgium, Portugal, Spain, Germany, France and South Korea. 
This inequity in the transition rules is extremely detrimental to U.S. 
builders were disadvantaged for 15 years while they received no 
government subsidies in the face of billions by foreign governments. 
Moreover, without a 3-year continuance of title XI, U.S. shipbuilders 
would be three years further behind their foreign competition. This is 
unacceptable to the majority in Congress.
  Ms. SNOWE. The House bill would place the U.S. on an equal par with 
foreign signatories time-wise. It would allow title XI to continue at 
its present terms and conditions during the 3-year transition period in 
which foreign signatories were granted very generous subsidy 
concessions. Furthermore, major U.S. shipbuilders desperately need this 
extension to the program if they are to complete their transition back 
to building commercial ships. If this transition is unsuccessful, the 
Navy's core shipbuilding base will not be sustained to meet its future 
requirements.
  Mr. LOTT. In closing, it is incumbent upon each Congress to ensure 
that our international trade agreements are in our best national 
interest. Rubber stamping every international agreement, regardless of 
its content or impact, is not in anyone's best interest. I understand 
that the office of the U.S. Trade Representative has invested years of 
hard work in reaching the OECD Agreement. Unfortunately, it falls 
abysmally short of the objectives established by the very industry 
which sought an international agreement. After all, who better 
understands the shipbuilding industry than the shipbuilding industry 
itself? And for that matter, who in Congress better understand our 
national security interests that the committees with jurisdiction over 
national security policy?
  There are major disagreements in Congress on whether this agreement 
is good or bad for this country. Indications from the Office of the 
USTR are that it is unwilling to reopen the negotiations to achieve an 
agreement that addresses the concerns of the majority in Congress of 
both political parties. If this is the position of the U.S. Trade 
Representative, then I can only say that pursuing implementing 
legislation in the 105th Congress will result in the same outcome as 
that of the 104th Congress. I would hope that the USTR would have 
learned something from last year's experience and not waste its time or 
our with a repeat performance.

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