[Congressional Record Volume 149, Number 96 (Thursday, June 26, 2003)]
[Senate]
[Page S8757]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH:
  S. 1361. A bill to amend the Internal Revenue Code of 1986 to provide 
that foreign base company shipping income shall include only income 
from aircraft and income from certain vessels transporting petroleum 
and related products; to the Committee on Finance.
  Mr. SMITH of Oregon. Mr. President, today I am introducing 
legislation which would deal with a real problem facing our Nation, the 
decline of our U.S.-owned shipping fleet. A U.S. owned shipping fleet 
is essential as a matter of national and economic security. My bill 
would help make U.S. based shipping companies more competitive in the 
global market.
  This is important to our country and to my state. Oregon plays a key 
role as a facilitator of international commerce. The Port of Portland 
is one of the most active ports in the world. It is a key link for 
trade between the United States and the Pacific Rim. In addition to its 
key role enabling global commerce, Portland is home to U.S. owned 
shipping companies, shipyards, and numerous support businesses.
  As a result of tax-law changes enacted in 1975 and 1986, U.S. 
shipping companies must pay tax on income earned by subsidiaries 
overseas immediately rather than when such income is later brought back 
to the United States. This treatment represents a sharp departure from 
the generally applicable income tax principle of ``deferral'' and 
places U.S.-based owners of international fleets at a distinct tax 
disadvantage compared to their foreign-based competitors.
  Controlled foreign corporations engaged in ocean transport are one of 
the only active businesses that are not eligible for general rule of 
deferral. My bill would amend the Internal Revenue Code to allow U.S. 
companies that own foreign-flagged ships to treat income earned by 
their controlled foreign corporations in the same manner as all other 
U.S. companies. In short, it would allow American shipping companies to 
defer the payment of tax on income that they derive from shipping 
activities outside the United States until that income is repatriated 
to the United States.
  Most foreign-based carriers pay no home-country taxes on income they 
earn abroad from international shipping. As a result of this 
competitive imbalance, U.S. companies now hold precious little share of 
the world shipping marketplace. Indeed, U.S. ownership of international 
shipping trades dropped precipitously in the aftermath of the 1975 and 
1986 tax-law changes. Before 1975, the U.S.-owned share of the world's 
open-registry shipping fleet stood at 26 percent. By 1986, the U.S. 
share had dropped to 14 percent. By 1996, the U.S. share had dropped to 
5 percent.
  Other security concerns also are raised by the decline in U.S. 
ownership of the international shipping trade. The U.S. military, in 
times of emergency, relies on the ability to requisition U.S.-owned 
foreign-flagged tankers, bulk carriers, and other vessels to carry oil, 
gasoline, and other materials in defense of U.S. interests overseas. 
These vessels comprise the Effective United States Control, EUSC, 
fleet. The sharp decline in the EUSC fleet since the 1975 and 1986 tax-
law changes, and the resulting adverse strategic consequences, have 
been confirmed in a recent MIT study conducted for the Navy Department. 
The study recommended that in the short term, the most practical and 
cost-effective means of reversing this trend would be to ``revise 
legislation to reflect tax deferment of income for some or all EUSC 
vessels.''
  U.S. security also depends in no small part on our ability to 
maintain adequate domestic oil supplies in times of emergency. The 
United States consumes approximately 19.6 million barrels of oil per 
day, of which roughly 55 percent, mostly crude, is imported into the 
United States. It is estimated that 95 percent of all oil imported into 
the United States by sea is now imported on foreign-owned tankers. This 
means that one half of every gallon of oil consumed in the United 
States is carried on foreign-owned vessels. This growing dependence on 
foreign parties--who may not be sympathetic to U.S. interests--to 
deliver our oil in times of global crisis is cause for potential alarm. 
In recent years, two of the largest American shipping companies have 
been purchased by foreign companies, thereby making their shipping 
operations more competitive than the remaining American companies.
  The time has come for us to make changes in the tax law that will 
allow our domestic companies to compete fairly in the global 
marketplace. I urge my colleagues to join me to enact this needed 
legislation. I ask unanimous consent that the text of the legislation 
be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1361

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``RAFT (Restore Access to 
     Foreign Trade) Act of 2003''.

     SEC. 2. ELIMINATION OF MOST VESSEL SHIPPING INCOME FROM 
                   FOREIGN BASE COMPANY INCOME.

       (a) Foreign Base Company Shipping Income To Include Only 
     Income From Aircraft and Petroleum Vessels.--Subsection (f) 
     of section 954 of the Internal Revenue Code of 1986 (relating 
     to foreign base company income) is amended--
       (1) by inserting ``petroleum'' before ``vessel'' each place 
     it appears, and
       (2) by adding at the end the following new sentence: ``For 
     purposes of this subsection, the term `petroleum vessel' 
     means any vessel engaged in the carriage of petroleum or 
     related products or byproducts if the controlled group (as 
     defined in section 267(f)(1) without regard to section 
     1563(b)(2)(C)) of which the taxpayer is a member is engaged 
     principally in the trade or business of exploring for, or 
     extracting, refining or marketing of, petroleum or related 
     products or byproducts.''.
       (b) Retention of Separate Foreign Tax Credit Basket for All 
     Shipping Income.--Subparagraph (D) of section 904(d)(2) of 
     the Internal Revenue Code of 1986 is amended by striking 
     ``(as defined in section 954(f))'' and inserting ``, as 
     defined in section 954(f), if references in such section to 
     petroleum vessels included references to all vessels''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2002, and to taxable years of 
     United States shareholders (within the meaning of section 
     951(b) of the Internal Revenue Code of 1986) within which or 
     with which such taxable years of such foreign corporations 
     end.
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