[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.
____________________