[Congressional Record (Bound Edition), Volume 147 (2001), Part 16]
[Extensions of Remarks]
[Page 22083]
[From the U.S. Government Publishing Office, www.gpo.gov]



  INTRODUCTION OF H.R. --, THE MERCHANT MARINE COST PARITY ACT OF 2001

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                       Thursday, November 8, 2001

  Mr. OBERSTAR. Mr. Speaker, we are a nation of immigrants, most of 
whom arrived on the shores of the United States by ship. We are a 
country in which 95 percent of our imports from noncontiguous countries 
are brought to us by ship. Yet, less than one percent of our imports 
and exports are transported on U.S.-flag ships.
  The Baltimore Sun recently published two articles that accurately 
described the decline of the U.S.-flag fleet. As the article states, 
vessels don't fly the U.S.-flag anymore ``because American cargo ships 
are also the most expensive in the world.'' The first article was 
titled ``Merchant marine's demise endangers war readiness''. Not only 
will we not have sufficient ships to move our war materials, but we 
won't have enough trained sailors to operate the laid-up fleet of 
Government-owncd ships that the Department of Defense is depending on 
to transport our tanks and heavy equipment when they are mobilized.
  In 1991, the United States needed more than 200 cargo ships to 
support Operation Desert Storm. To get those vessels operating, we 
called up retired seamen who had sailed during World War II. Today, we 
have fewer ships and fewer trained personnel.
  President Franklin Roosevelt recognized the need for a privately 
owned and operated merchant marine. Without the U.S.-flag merchant 
marine, Great Britain would not have had the supplies to survive the 
onslaught of Germany. Today, the world would be a very different place 
had it not been for the men who served our nation during World War II 
in the U.S. merchant marine. President Roosevelt proposed, and Congress 
passed, the Merchant Marine Act of 1936. This program established the 
Operating Differential Subsidy program to help pay U.S. shipowners for 
the higher cost of operating their vessels under the U.S.-flag.
  By 1951 there were 1,238 privately owned U.S.-flag vessels sailing on 
the oceans of the world. Unfortunately, it has been all down hill from 
there. Today, there are 94 U.S.-flag vessels in the U.S. foreign trade 
and seven U.S.-flag vessels ``in trade between foreign countries.
  The question is: Why has this happened? The answer: The higher cost 
of operating a vessel under the U.S.-flag due to various Federal 
requirements.
  Today, shipowners can buy quality ships from many countries in the 
world. Containerships, tankers, and cruise ships all must be built to 
high standards established by the International Maritime Organizations. 
However, which country the owner chooses to register the ship can 
significantly affect the cost of the operating the ship. Shipowners 
change their vessel's registration every day to avail themselves of 
lower costs offered by different flags. If you choose to register your 
ship in Panama, you don't have to pay any income taxes on your shipping 
income. You can hire low cost crews from countries like the Philippines 
and Malaysia. And, if you register in these countries you don't have to 
worry about the cost of being sued when a seaman is injured or killed.
  All of the European countries have seen similar declines in their 
flag fleets, because shipowners choose to transfer their country of 
registry to lower cost countries. However, in the past several years, 
countries such as Norway, Germany, and Great Britain have changed their 
laws to make their fleets more competitive in the international market. 
In the past 18 months, the size of the British fleet has increased by 
40 percent due to the changes in their tax and maritime policies.
  It is time for the United States, once the greatest maritime power in 
the world, to make similar changes. Instead of proposing a subsidy 
program like the one proposed by President Roosevelt, it is time to 
look at the underlying laws that increase the cost of operating under 
the U.S.-flag.
  Today, I have introduced H.R. --, the ``Merchant Marine Cost Parity 
Act of 2001''. This legislation, which Transportation and 
Infrastructure Committee Chairman Don Young has cosponsored, addresses 
four areas that significantly increase the cost of operating a vessel 
under the U.S.-flag: tax costs, wage costs, insurance costs, and vessel 
inspection costs.
  This act will help to decrease the tax liability for operating a 
vessel under the U.S. flag. Currently, a shipowner must pay a 
traditional ``income tax'' on his profits if the vessel is registered 
in the United States. H.R. -- is modeled after the British Tonnage Tax 
system that replaced its tax based on income with a flat tax based on 
the tonnage of the ship.
  For example, under H.R. --, if the container ship Regina Maersk 
(43,399 net tons) were registered under the U.S.-flag it would pay a 
flat tax of $17,476 a year to the U.S. Government. This is computed by 
the shipowner being allocated a daily income for the ship based on the 
tonnage of the ship at a rate of $.40 for each ton up to 25,000 net 
tons and $.20 for each ton over 25,000 net tons. Therefore, the owner 
of the Regina Maersk would have a daily income of $136.80. When 
multiplied by 365 days, this totals an annual income of $49,932. This 
amount is taxed at the 35 percent U.S. corporate income tax rate to 
establish a total tax liability of $17,476 a year for the shipping 
income of the Regina Maersk. This is comparable to the tax liability 
that would be due if this ship were registered under the British flag. 
What is ironic is that this provision should not cost the Federal 
treasury much money because with fewer than 100 ships currently 
operating under the U.S.-flag in the foreign trade, there will be a 
minimal amount of tax revenue lost. In addition, most foreign-flag 
vessels don't have to pay the treasury any income taxes on their 
shipping income today. Therefore, if they transfer to the U.S. flag and 
pay $17,000 in tonnage taxes, it's certainly more than the amount 
they're paying in income taxes now under a foreign flag.
  Federal law requires seamen employed on U.S.-flag vessels to be U.S. 
citizens. We in the United States have the benefit of a much higher 
standard of living than many of the countries that supply seafarers for 
foreign-flag vessels. However, U.S. tax laws do not treat U.S. seamen 
the same as we treat other U.S. citizens working overseas. If a U.S. 
citizen is working overseas for any other industry, such as a bank or 
oil company, he or she do not have to pay any U.S. 'income tax on their 
first $80,000 in income. While seamen are working overseas, they do not 
get any similar tax break. H.R. _ helps to decrease the cost of 
operating on a U.S.-flag vessel by granting seamen working on U.S.-flag 
vessels in the foreign trade the same exclusion from taxation on their 
first $80,000 in income as we grant every other U.S. citizen working 
overseas.
  H.R. _ also seeks to address the higher vessel design costs imposed 
by complying with U.S. Coast Guard standards. My bill exempts the 
vessel from Coast Guard standards as long as the vessel meets the 
safety standards established by the International Maritime 
Organization. This provision will allow U.S.-flag vessels 'in the 
foreign trade to meet the same standards as their foreign-flag 
competitors.
  The cost of buying insurance for U.S.-flag vessels engaged in the 
foreign trade is also higher than the costs for foreign-flag vessels. 
H.R. _ allows the shipowner and the employee representative to agree 
upon an ``insurance policy that will adequately compensate seamen when 
they are injured or killed onboard these vessels. To ensure that the 
shipowner does not force the policy limits too low, the Secretary of 
Transportation win establish a minimum amount of coverage that must be 
provided, such as the amounts provided in the Longshore Act.
  Mr. Speaker, capital investments go to where you can make money. For 
more than 100 years, the United States Government has placed financial 
burdens on the U.S.-flag vessel shipowner that has driven these vessels 
from our shores. I cannot accept the United States Government 
continuing to allow the decline of our fleet until there are no 
privately owned U.S.-flag vessels engaged in our foreign trade.
  The United States must develop a long-term and integrated strategy 
that will adequately address all of the cost issues that drive capital 
investment away from the U.S.-flag shipping industry. I believe that 
H.R. _ can provide the foundation for that strategy. I look forward to 
working with the Administration, shipowners, and labor to ensure we can 
truly put U.S. merchant marine on a cost parity with their quality 
foreign-flag competition.
  When Great Britain announced its intention to develop the tonnage tax 
system, P&O Nedlloyd Lines announced that they would bring at least 50 
ships to the UK register. Today, I would like to challenge the maritime 
industry to make a similar commitment to the U.S. flag.
  With the help of the Administration, maritime industry, and labor, we 
can ensure that Old Glory is raised on the sterns of hundreds more 
U.S.-flag vessels.




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