[House Report 104-229]
[From the U.S. Government Publishing Office]



                                                                       
104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-229
_______________________________________________________________________


 
                     MARITIME SECURITY ACT OF 1995

_______________________________________________________________________


 August 3, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


  Mr. Spence, from the Committee on National Security, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1350]

      [Including cost estimate of the Congressional Budget Office]
  The Committee on National Security, to whom was referred the 
bill (H.R. 1350) to amend the Merchant Marine Act, 1936, to 
revitalize the United States-flag merchant marine, and for 
other purposes, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:
SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Maritime Security Act of 1995''.

SEC. 2. MARITIME SECURITY PROGRAM.

  Title VI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1171 et 
seq.) is amended--
          (1) by striking the title heading and inserting the 
        following:

            ``Title VI--Vessel Operating Assistance Programs

        ``Subtitle A--Operating-Differential Subsidy Program'';

        and
          (2) by adding at the end the following new subtitle:

             ``Subtitle B--Maritime Security Fleet Program

                        ``establishment of fleet
  ``Sec. 651. (a) In General.--The Secretary of Transportation shall 
establish a fleet of active, militarily useful, privately-owned vessels 
to meet national defense and other security requirements and maintain a 
United States presence in international commercial shipping. The Fleet 
shall consist of privately owned, United States-flag vessels for which 
there are in effect operating agreements under this subtitle, and shall 
be known as the Maritime Security Fleet.
  ``(b) Vessel Eligibility.--A vessel is eligible to be included in the 
Fleet if the vessel is self-propelled and--
          ``(1)(A) is operated by a person as an ocean common carrier 
        (as that term is used in the Shipping Act of 1984 (46 App. 
        U.S.C. 1701 et seq.));
          ``(B) whether in commercial service, on charter to the 
        Department of Defense, or in other employment, is either--
                  ``(i) a roll-on/roll-off vessel with a carrying 
                capacity of at least 80,000 square feet or 500 twenty-
                foot equivalent units; or
                  ``(ii) a lighter aboard ship vessel with a barge 
                capacity of at least 75 barges; or
          ``(C) any other type of vessel that is determined by the 
        Secretary to be suitable for use by the United States for 
        national defense or military purposes in time of war or 
        national emergency;
          ``(2)(A)(i) is a United States-documented vessel; and
          ``(ii) on the date an operating agreement covering the vessel 
        is entered into under this subtitle, is--
                  ``(I) a LASH vessel that is 25 years of age or less; 
                or
                  ``(II) any other type of vessel that is 15 years of 
                age or less;
        except that the Secretary of Transportation may waive the 
        application of clause (ii) if the Secretary, in consultation 
        with the Secretary of Defense, determines that the waiver is in 
        the national interest; or
          ``(B) it is not a United States-documented vessel, but the 
        owner of the vessel has demonstrated an intent to have the 
        vessel documented under chapter 121 of title 46, United States 
        Code, if it is included in the Fleet, and the vessel will be 
        less than 10 years of age on the date of that documentation;
          ``(3) the Secretary of Transportation determines that the 
        vessel is necessary to maintain a United States presence in 
        international commercial shipping or, after consultation with 
        the Secretary of Defense, determines that the vessel is 
        militarily useful for meeting the sealift needs of the United 
        States with respect to national emergencies; and
          ``(4) at the time an operating agreement for the vessel is 
        entered into under this subtitle, the vessel will be eligible 
        for documentation under chapter 121 of title 46, United States 
        Code.
                         ``operating agreements
  ``Sec. 652. (a) In General.--The Secretary of Transportation shall 
require, as a condition of including any vessel in the Fleet, that the 
owner or operator of the vessel enter into an operating agreement with 
the Secretary under this section. Notwithstanding subsection (g), the 
Secretary may enter into an operating agreement for, among other 
vessels that are eligible to be included in the Fleet, any vessel which 
continues to operate under an operating-differential subsidy contract 
under subtitle A or which is under charter to the Department of 
Defense.
  ``(b) Requirements for Operation.--An operating agreement under this 
section shall require that, during the period a vessel is operating 
under the agreement--
          ``(1) the vessel--
                  ``(A) shall be operated exclusively in the foreign 
                trade or in mixed foreign and domestic trade allowed 
                under a registry endorsement issued under section 12105 
                of title 46, United States Code, and
                  ``(B) shall not otherwise be operated in the 
                coastwise trade; and
          ``(2) the vessel shall be documented under chapter 121 of 
        title 46, United States Code.
  ``(c) Certain Requirements Not To Apply.--A contractor of a vessel 
included in an operating agreement under this subtitle may operate the 
vessel in the foreign commerce of the United States without 
restriction, and shall not be subject to any requirement under section 
801, 808, 809, or 810.
  ``(d) Effectiveness and Annual Payment Requirements of Operating 
Agreements.--
          ``(1) Effectiveness.--The Secretary of Transportation may 
        enter into an operating agreement under this subtitle for 
        fiscal year 1996. The agreement shall be effective only for 1 
        fiscal year, but shall be renewable, subject to the 
        availability of appropriations, for each subsequent fiscal year 
        through the end of fiscal year 2005.
          ``(2) Annual payment.--An operating agreement under this 
        subtitle shall require, subject to the availability of 
        appropriations and the other provisions of this section, that 
        the Secretary of Transportation pay each fiscal year to the 
        contractor, for each vessel that is covered by the operating 
        agreement, an amount equal to $2,300,000 for fiscal year 1996 
        and $2,100,000 for each fiscal year thereafter in which the 
        agreement is in effect. The amount shall be paid in equal 
        monthly installments at the end of each month. The amount shall 
        not be reduced except as provided by this section.
  ``(e) Certification Required for Payment.--As a condition of 
receiving payment under this section for a fiscal year for a vessel, 
the owner or operator of the vessel shall certify, in accordance with 
regulations issued by the Secretary of Transportation, that the vessel 
has been and will be operated in accordance with subsection (b)(1) for 
at least 320 days in the fiscal year. Days during which the vessel is 
drydocked, surveyed, inspected, or repaired shall be considered days of 
operation for purposes of this subsection.
  ``(f) Operating Agreement is Obligation of United States 
Government.--An operating agreement under this subtitle constitutes a 
contractual obligation of the United States Government to pay the 
amounts provided for in the agreement to the extent of actual 
appropriations.
  ``(g) Limitations.--The Secretary of Transportation shall not make 
any payment under this subtitle for a vessel with respect to any days 
for which the vessel is--
          ``(1) subject to an operating-differential subsidy contract 
        under subtitle A or under a charter to the United States 
        Government, other than a charter pursuant to section 653;
          ``(2) not operated or maintained in accordance with an 
        operating agreement under this subtitle; or
          ``(3) more than 25 years of age, except that the Secretary 
        may make such payments for a LASH vessel for any day for which 
        the vessel is more than 25 years of age if that vessel--
                  ``(A) is modernized after January 1, 1994,
                  ``(B) is modernized before it is 25 years of age, and
                  ``(C) is not more than 30 years of age.
  ``(h) Payments.--With respect to payments under this subtitle for a 
vessel covered by an operating agreement, the Secretary of 
Transportation--
          ``(1) except as provided in paragraph (2), shall not reduce 
        any payment for the operation of a vessel to carry military or 
        other preference cargoes under section 2631 of title 10, United 
        States Code, the Act of March 26, 1934 (46 App. U.S.C. 1241-1), 
        section 901(a), 901(b), or 901b of this Act, or any other cargo 
        preference law of the United States;
          ``(2) shall not make any payment for any day that a vessel is 
        engaged in transporting more than 7,500 tons of civilian bulk 
        preference cargoes pursuant to section 901(a), 901(b), or 901b 
        that is bulk cargo (as that term is defined in section 3 of the 
        Shipping Act of 1984 (46 App. U.S.C. 1702)); and
          ``(3) shall make a pro rata reduction in payment for each day 
        less than 320 in a fiscal year that a vessel covered by an 
        operating agreement is not operated in accordance with 
        subsection (b)(1), with days during which the vessel is 
        drydocked or undergoing survey, inspection, or repair 
        considered to be days on which the vessel is operated.
  ``(i) Priority for Awarding Agreements.--Subject to the availability 
of appropriations, the Secretary shall enter into operating agreements 
according to the following priority:
          ``(1) Vessels owned by citizens.--
                  ``(A) Priority.--First, for any vessel that is--
                          ``(i) owned and operated by persons who are 
                        citizens of the United States under section 2 
                        of the Shipping Act, 1916; or
                          ``(ii) less than 10 years of age and owned 
                        and operated by a corporation that is--
                                  ``(I) eligible to document a vessel 
                                under chapter 121 of title 46, United 
                                States Code; and
                                  ``(II) affiliated with a corporation 
                                operating or managing for the Secretary 
                                of Defense other vessels documented 
                                under that chapter, or chartering other 
                                vessels to the Secretary of Defense.
                  ``(B) Limitation on number of operating agreements.--
                The total number of operating agreements that may be 
                entered into by a person under the priority in 
                subparagraph (A)--
                          ``(i) for vessels described in subparagraph 
                        (A)(i), may not exceed the sum of--
                                  ``(I) the number of United States-
                                documented vessels the person operated 
                                in the foreign commerce of the United 
                                States (except mixed coastwise and 
                                foreign commerce) on May 17, 1995; and
                                  ``(II) the number of United States-
                                documented vessels the person chartered 
                                to the Secretary of Defense on that 
                                date; and
                          ``(ii) for vessels described in subparagraph 
                        (A)(ii), may not exceed 5 vessels.
                  ``(C) Treatment of related parties.--For purposes of 
                subparagraph (B), a related party with respect to a 
                person shall be treated as the person.
          ``(2) Other vessels owned by citizens and government 
        contractors.--To the extent that amounts are available after 
        applying paragraph (1), any vessel that is owned and operated 
        by a person who is--
                  ``(A) a citizen of the United States under section 2 
                of the Shipping Act, 1916, that has not been awarded an 
                operating agreement under the priority established 
                under paragraph (1); or
                  ``(B)(i) eligible to document a vessel under chapter 
                121 of title 46, United States Code; and
                  ``(ii) affiliated with a corporation operating or 
                managing other United States-documented vessels for the 
                Secretary of Defense or chartering other vessels to the 
                Secretary of Defense.
          ``(3) Other vessels.--To the extent that amounts are 
        available after applying paragraphs (1) and (2), any other 
        eligible vessel.
  ``(j) Transfer of Operating Agreements.--A contractor under an 
operating agreement may transfer the agreement (including all rights 
and obligations under the agreement) to any person eligible to enter 
into that operating agreement under this subtitle after notification of 
the Secretary in accordance with regulations prescribed by the 
Secretary, unless the transfer is disapproved by the Secretary within 
90 days after the date of that notification. A person to whom an 
operating agreement is transferred may receive payments from the 
Secretary under the agreement only if each vessel to be covered by the 
agreement after the transfer is an eligible vessel under section 
651(b).
  ``(k) Reversion of Unused Authority.--The obligation of the Secretary 
to make payments under an operating agreement under this subtitle shall 
terminate with respect to a vessel if the contractor fails to engage in 
operation of the vessel for which such payment is required--
          ``(1) within one year after the effective date of the 
        operating agreement, in the case of a vessel in existence on 
        the effective date of the agreement, or
          ``(2) within 30 months after the effective date of the 
        operating agreement, in the case of a vessel to be constructed 
        after that effective date.
  ``(l) Procedure for Considering Application; Effective Date for 
Certain Vessels.--
          ``(1) Procedures.--Within 90 days after receipt of an 
        application for enrollment of a vessel in the Fleet, the 
        Secretary shall enter into an operating agreement with the 
        applicant or provide in writing the reason for denial of that 
        application.
          ``(2) Effective date.--Unless an earlier date is requested by 
        the applicant, the effective date for an operating agreement 
        with respect to a vessel which is, on the date of entry into an 
        operating agreement, either subject to a contract under 
        subtitle A or on charter to the United States Government, other 
        than a charter under section 653, shall be the expiration or 
        termination date of the contract under subtitle A or of the 
        Government charter covering the vessel, respectively, or any 
        earlier date the vessel is withdrawn from that contract or 
        charter.
  ``(m) Early Termination.--An operating agreement under this subtitle 
shall terminate on a date specified by the contractor if the contractor 
notifies the Secretary, by not later than 60 days before the effective 
date of the termination, that the contractor intends to terminate the 
agreement. Vessels covered by an operating agreement terminated under 
to this subsection shall remain documented under chapter 121 of title 
46, United States Code, until the date the operating agreement would 
have terminated according to its terms. A contractor who terminates an 
operating agreement pursuant to this subsection shall continue to be 
bound by the provisions of section 653 until the date the operating 
agreement would have terminated according to its terms. All terms and 
conditions of an Emergency Preparedness Agreement entered into under to 
section 653 shall remain in effect until the date the operating 
agreement would have terminated according to its terms, except that the 
terms of such Emergency Preparedness Agreement may be modified by the 
mutual consent of the contractor and the Secretary of Transportation.
  ``(n) Termination for Lack of Funds.--If funds are not appropriated 
under the authority provided by section 655 for any fiscal year, then 
each vessel covered by an operating agreement under this subtitle is 
thereby released from any further obligation under the operating 
agreement, the operating agreement shall terminate, and the vessel 
owner or operator may transfer and register such vessel under an 
effective United States-controlled foreign flag, notwithstanding any 
other provision of law. If section 902 is applicable to such vessel 
after registry under an effective United States-controlled foreign 
flag, the vessel is available to be requisitioned by the Secretary of 
Transportation pursuant to section 902.
  ``(o) Award of Operating Agreements.--
          ``(1) In general.--The Secretary of Transportation, subject 
        to paragraph (4), shall award operating agreements within each 
        priority under subsection (i) (1), (2), and (3) under 
        regulations prescribed by the Secretary.
          ``(2) Number of agreements awarded.--Regulations under 
        paragraph (1) shall provide that if appropriated amounts are 
        not sufficient for operating agreements for all vessels within 
        a priority under subsection (i) (1), (2), or (3), the Secretary 
        shall award to each person submitting a request a number of 
        operating agreements that bears approximately the same ratio to 
        the total number of vessels in the priority, as the amount of 
        appropriations available for operating agreements for vessels 
        in the priority bears to the amount of appropriations necessary 
        for operating agreements for all vessels in the priority.
          ``(3) Treatment of related parties.--For purposes of 
        paragraph (2), a related party with respect to a person shall 
        be treated as the person.
          ``(4) Preference for u.s.-built vessels.--In awarding 
        operating agreements for vessels within a priority under 
        subsection (i) (1), (2), or (3), the Secretary shall give 
        preference to a vessel that was constructed in the United 
        States, to the extent such preference is consistent with 
        establishment of a fleet described in the first sentence of 
        section 651(a) (taking into account the age of the vessel, the 
        nature of service provided by the vessel, and the commercial 
        viability of the vessel).
  ``(p) Notice to U.S. Shipbuilders Required.--The Secretary shall 
include in any operating agreement under this subtitle a requirement 
that the contractor under the agreement shall, by not later than 30 
days after soliciting any bid or offer for the construction of any 
vessel in a foreign shipyard and before entering into a contract for 
construction of a vessel in a foreign shipyard, provide notice of the 
intent of the contractor to enter into such a contract to each shipyard 
in the United States that is capable of constructing the vessel.
                    ``national security requirements
  ``Sec. 653. (a) Emergency Preparedness Agreement.--
          ``(1) Requirement to enter agreement.--The Secretary of 
        Transportation shall establish an Emergency Preparedness 
        Program under this section that is approved by the Secretary of 
        Defense. Under the program, the Secretary of Transportation 
        shall include in each operating agreement under this subtitle a 
        requirement that the contractor enter into an Emergency 
        Preparedness Agreement under this section with the Secretary. 
        The Secretary shall negotiate and enter into an Emergency 
        Preparedness Agreement with each contractor as promptly as 
        practicable after the contractor has entered into an operating 
        agreement under this subtitle.
          ``(2) Terms of agreement.--An Emergency Preparedness 
        Agreement under this section shall require that upon a request 
        by the Secretary of Defense during time of war or national 
        emergency, an owner or operator of a vessel covered by an 
        operating agreement under this subtitle shall make available 
        commercial transportation resources (including services). The 
        basic terms of the Emergency Preparedness Agreement shall be 
        established pursuant to consultations among the Secretary, the 
        Secretary of Defense, and Maritime Security Program 
        contractors. In any Emergency Preparedness Agreement, the 
        Secretary and a contractor may agree to additional or modifying 
        terms appropriate to the contractor's circumstances.
  ``(b) Resources Made Available.--The commercial transportation 
resources to be made available under an Emergency Preparedness 
Agreement shall include vessels or capacity in vessels, intermodal 
systems and equipment, terminal facilities, intermodal and management 
services, and other related services, or any agreed portion of such 
nonvessel resources for activation as the Secretary may determine to be 
necessary, seeking to minimize disruption of the contractor's service 
to commercial shippers.
  ``(c) Compensation.--
          ``(1) In general.--The Secretary of Transportation shall 
        provide in each Emergency Preparedness Agreement for reasonable 
        compensation for all commercial transportation resources 
        provided pursuant to this section.
          ``(2) Specific requirements.--Compensation under this 
        subsection--
                  ``(A) shall not be less than the contractor's 
                commercial market charges for like transportation 
                resources;
                  ``(B) shall include all the contractor's costs 
                associated with provision and use of the contractor's 
                commercial resources to meet emergency requirements;
                  ``(C) in the case of a charter of an entire vessel, 
                shall be fair and reasonable;
                  ``(D) shall be in addition to and shall not in any 
                way reflect amounts payable under section 652; and
                  ``(E) shall be provided from the time that a vessel 
                or resource is diverted from commercial service until 
                the time that reenters commercial service.
  ``(d) Temporary Replacement Vessels.--Notwithstanding any other 
provision of this subtitle or of other law to the contrary--
          ``(1) a contractor may operate or employ in foreign commerce 
        a foreign-flag vessel or foreign-flag vessel capacity, as a 
        temporary replacement for a United States-documented vessel or 
        United States-documented vessel capacity that is activated 
        under an Emergency Preparedness Agreement; and
          ``(2) such replacement vessel or vessel capacity shall be 
        eligible during the replacement period to transport preference 
        cargoes subject to section 2631 of title 10, United States 
        Code, the Act of March 26, 1934 (46 App. U.S.C. 1241-1), and 
        sections 901(a), 901(b), and 901b of this Act to the same 
        extent as the eligibility of the vessel or vessel capacity 
        replaced.
  ``(e) Redelivery and Liability of U.S. for Damages.--
          ``(1) In general.--All commercial transportation resources 
        activated under an Emergency Preparedness Agreement shall, upon 
        termination of the period of activation, be redelivered to the 
        contractor in the same good order and condition as when 
        received, less ordinary wear and tear, or the Government shall 
        fully compensate the contractor for any necessary repair or 
        replacement.
          ``(2) Limitation on liability of u.s.--Except as may be 
        expressly agreed to in an Emergency Preparedness Agreement, or 
        as otherwise provided by law, the Government shall not be 
        liable for disruption of a contractor's commercial business or 
        other consequential damages to a contractor arising from 
        activation of commercial transportation resources under an 
        Emergency Preparedness Agreement.
          ``(3) Limitation on application of other requirements.--
        Sections 902 and 909 of this Act shall not apply to a vessel 
        while it is covered by an Emergency Preparedness Agreement 
        under this subtitle. Any Emergency Preparedness Agreement 
        entered into by a contractor shall supersede any other 
        agreement between that contractor and the Government for vessel 
        availability in time of war or national emergency.
                             ``definitions
  ``Sec. 654. In this subtitle:
          ``(1) Fleet.--The term `Fleet' means the Maritime Security 
        Fleet established pursuant to section 651(a).
          ``(2) LASH vessel.--The term `LASH vessel' means a lighter 
        aboard ship vessel.
          ``(3) United states-documented vessel.--The term `United 
        States-documented vessel' means a vessel documented under 
        chapter 121 of title 46, United States Code.
                   ``authorization of appropriations
  ``Sec. 655. There are authorized to be appropriated for operating 
agreements under this subtitle, to remain available until expended, 
$100,000,000 for fiscal year 1996 and such sums as may be necessary, 
not to exceed $100,000,000, for each fiscal year thereafter through 
fiscal year 2005.''.
SEC. 3. TERMINATION OF OPERATING-DIFFERENTIAL SUBSIDY PROGRAM.

  (a) Limitation on Payments for Older Vessels.--Section 605(b) of the 
Merchant Marine Act, 1936 (46 App. U.S.C. 1175(b)), is amended to read 
as follows:
  ``(b) No operating-differential subsidy shall be paid for the 
operation of a vessel after the calendar year the vessel becomes 25 
years of age, unless the Secretary of Transportation has determined, 
before the date of enactment of the Maritime Security Act of 1995, that 
it is in the public interest to grant such financial aid for the 
operation of such vessel.''.
  (b) Wind-Up of Program.--Subtitle A of such Act (46 App. U.S.C. 1171 
et seq.), as designated by the amendment made by section 2(1), is 
further amended by adding at the end the following new section:
  ``Sec. 616. (a) After the date of enactment of the Maritime Security 
Act of 1995, the Secretary of Transportation shall not enter into any 
new contract for operating-differential subsidy under this subtitle.
  ``(b) Notwithstanding any other provision of this Act, any operating-
differential subsidy contract in effect under this title on the day 
before the date of enactment of the Maritime Security Act of 1995 shall 
continue in effect and terminate as set forth in the contract, unless 
voluntarily terminated at an earlier date by the parties (other than 
the United States Government) to the contract.
  ``(c) The essential service requirements of section 601(a) and 
603(b), and the provisions of sections 605(c) and 809(a), shall not 
apply to the operating-differential subsidy program under this subtitle 
effective upon the earlier of--
          ``(1) the date that a payment is made, under the Maritime 
        Security Program established by subtitle B to a contractor 
        under that subtitle who is not party to an operating-
        differential subsidy contract under this subtitle, with the 
        Secretary to cause notice of the date of such payment to be 
        published in the Federal Register as soon as possible; or
          ``(2) with respect to a particular contractor under the 
        operating-differential subsidy program, the date that 
        contractor enters into a contract with the Secretary under the 
        Maritime Security Program established by subtitle B.
  ``(d)(1) Notwithstanding any other provision of law, a vessel may be 
transferred and registered under an effective United States-controlled 
foreign flag if--
          ``(A) the operator of the vessel receives an operating-
        differential subsidy pursuant to a contract under this subtitle 
        which is in force on October 1, 1994, and the Secretary 
        approves the replacement of such vessel with a comparable 
        vessel, or
          ``(B) the vessel is covered by an operating agreement under 
        subtitle B, and the Secretary approves the replacement of such 
        vessel with a comparable vessel for inclusion in the Maritime 
        Security Fleet established under subtitle B.
  ``(2) Any such vessel may be requisitioned by the Secretary of 
Transportation pursuant to section 902.''.

SEC. 4. DOMESTIC OPERATIONS.

  Section 805(a) of the Merchant Marine Act, 1936 (46 App. U.S.C. 
1223(a)) is amended by striking ``1935'' each place it appears and 
inserting ``1995''.

SEC. 5. USE OF FOREIGN-FLAG VESSELS.

  (a) In General.--Section 804 of the Merchant Marine Act, 1936 (46 
App. U.S.C. 1222) is amended by adding at the end the following new 
subsection:
  ``(f) The provisions of subsection (a) shall not preclude a 
contractor receiving assistance under subtitle A or B of title VI, or 
any holding company, subsidiary, or affiliate of the contractor, or any 
officer, director, agent, or executive thereof, from--
          ``(1) owning, chartering, or operating any foreign-flag 
        vessel on a voyage or a segment of a voyage that does not call 
        at a port in the United States;
          ``(2) owning, chartering, or operating any foreign-flag 
        vessel in line haul service between the United States and 
        foreign ports if--
                  ``(A) the foreign-flag vessel was operated by, or is 
                a replacement for a foreign-flag vessel operated by, 
                such owner or operator, or any holding company, 
                subsidiary, affiliate, or associate of such owner or 
                operator, on the date of enactment of the Maritime 
                Security Act of 1995;
                  ``(B) the owner or operator, with respect to each 
                additional foreign-flag vessel, other than a time 
                chartered vessel, has first applied to have that vessel 
                covered by an operating agreement under to subtitle B 
                of title VI, and the Secretary has not awarded an 
                operating agreement with respect to that vessel within 
                90 days after the filing of the application; or
                  ``(C) the vessel has been placed under foreign 
                documentation pursuant to section 9 of the Shipping 
                Act, 1916 (46 App. U.S.C. 808), except that any 
                foreign-flag vessel, other than a time chartered 
                vessel, a replacement vessel under section 653(d), or a 
                vessel operated by the owner or operator on the date of 
                enactment of the Maritime Security Act of 1995, in line 
                haul service between the United States and foreign 
                ports is registered under the flag of an effective 
                United States-controlled foreign flag, and available to 
                be requisitioned by the Secretary of Transportation 
                pursuant to section 902 of this Act;
          ``(3) owning, chartering, or operating foreign-flag bulk 
        cargo vessels that are operated in foreign-to-foreign service 
        or the foreign commerce of the United States;
          ``(4) chartering or operating foreign-flag vessels that are 
        operated solely as replacement vessels for United States-flag 
        vessels or vessel capacity that are made available to the 
        Secretary of Defense pursuant to section 653 of this Act; or
          ``(5) entering into time or space charter or other 
        cooperative agreements with respect to foreign-flag vessels or 
        acting as agent or broker for a foreign-flag vessel or 
        vessels.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to a contractor under subtitle B of title VI of the Merchant Marine 
Act, 1936, as amended by this Act, upon enactment of this Act, and 
shall apply to a contractor under subtitle A of title VI of that Act, 
upon the earlier of--
          (1) the date that a payment is made, under the Maritime 
        Security Program under subtitle B of that title to a contractor 
        under subtitle B of that title who is not party to an 
        operating-differential subsidy contract under subtitle A of 
        that title, with the Secretary of Transportation to cause 
        notice of the date of such payment to be published in the 
        Federal Register as soon as possible; or
          (2) with respect to a particular contractor under the 
        operating-differential subsidy program under subtitle A of that 
        title, the date that contractor enters into a contract with the 
        Secretary under the Maritime Security Program established by 
        subtitle B of that title.

SEC. 6. AMENDMENT TO SHIPPING ACT, 1916.

  Section 9 of the Shipping Act, 1916 (46 App. U.S.C. 808) is amended 
by adding at the end the following:
  ``(e) Notwithstanding subsection (c)(2), the Merchant Marine Act, 
1936, or any contract entered into with the Secretary of Transportation 
under that Act, a vessel may be placed under a foreign registry, 
without approval of the Secretary, if--
          ``(1)(A) the Secretary determines that at least one 
        replacement vessel of a capacity that is equivalent or greater, 
        as measured by deadweight tons, gross tons, or container 
        equivalent units, as appropriate, is documented under chapter 
        121 of title 46, United States Code, by the owner of the vessel 
        placed under the foreign registry; and
          ``(B) the replacement vessel is not more than 10 years of age 
        on the date of that documentation;
          ``(2)(A) an application for an operating agreement under 
        subtitle B of title VI of the Merchant Marine Act, 1936 has 
        been filed with respect to a vessel which is eligible to be 
        included in the Maritime Security Fleet under section 651(b)(1) 
        of that Act; and
          ``(B) the Secretary has not awarded an operating agreement 
        with respect to that vessel within 90 days after the date of 
        that application;
          ``(3) a contract covering the vessel under subtitle A of 
        title VI of the Merchant Marine Act, 1936 has expired, and that 
        vessel is more than 15 years of age on the date the contract 
        expires; or
          ``(4) an operating agreement covering the vessel under 
        subpart B of title VI of the Merchant Marine Act, 1936 has 
        expired.''.

SEC. 7. CONSTRUCTION DIFFERENTIAL SUBSIDY RESTRICTIONS.

  Title V of the Merchant Marine Act, 1936 (46 App. U.S.C. 1151 et 
seq.) is amended by adding at the end the following new section:

``SEC. 512. LIMITATION ON RESTRICTIONS.

  ``Notwithstanding any other provision of law or contract, all 
restrictions and requirements under sections 503, 506, and 802 
applicable to a liner vessel constructed, reconstructed, or 
reconditioned with the aid of construction-differential subsidy shall 
terminate upon the expiration of the 25-year period beginning on the 
date of the original delivery of the vessel from the shipyard.''.

SEC. 8. REGULATIONS.

  (a) In General.--The Secretary of Transportation may prescribe rules 
as necessary to carry out this Act and the amendments made by this Act.
  (b) Interim Rules.--The Secretary of Transportation may prescribe 
interim rules necessary to carry out this Act and the amendments made 
by this Act. For this purpose, the Secretary of Transportation is 
excepted from compliance with the notice and comment requirements of 
section 553 of title 5, United States Code. All rules prescribed under 
the authority of this subsection that are not earlier superseded by 
final rules shall expire no later than 270 day after the date of 
enactment of this Act.
                          Purpose and Summary

    The purpose of H.R. 1350 is to establish a program, known 
as the Maritime Security Program, that would assure the 
retention by the United States of an active, privately owned, 
U.S.-flag and U.S.-crewed merchant shipping fleet to meet 
national and foreign commerce needs and to provide sustainment 
sealift capability in time of war or national emergency.
    To accomplish the goals of ensuring the availability of a 
U.S. merchant fleet for wartime or national emergencies and in 
order to retain a pool of qualified mariners to serve on these 
vessels, the committee recommends a substitute to H.R. 1350 
that would establish the Maritime Security Program. The 
committee substitute would phase out the existing operating-
differential subsidy (ODS) program, would remove operating 
restrictions on participants in the Maritime Security Program 
and would provide reduced payments to vessels operators who 
agree to make their vessels available to the Secretary of 
Defense upon request. Funding in the amount of $100 million per 
year for payments to vessel operators would be authorized. Each 
ship which participates in the program would receive $2.3 
million per year for the first year and $2.1 million per year 
for the remaining nine years of the program. When fully 
operational, the program would result in the retention of 
approximately 40 to 50 U.S.-flag vessels. Absent this program, 
these vessels would shift their operations to foreign flags of 
convenience with foreign crews.
    The current operating-differential subsidy program makes a 
payment based on the differential between U.S. crew wages and 
foreign crew wages. This payment scheme provides little 
incentive for vessel operators to reduce costs or to seek 
operational efficiencies. The Maritime Security Program would 
pay a flat amount per year per vessel. These payments would be 
up to 50 percent less per vessel than those under the existing 
program and would therefore create incentives for operators to 
constrain their operating costs.
    The committee substitute to H.R. 1350 also would expand the 
existing obligation of vessel owners to provide sealift 
assistance to the Department of Defense in time of national 
need. Upon a request by the Department of Defense, vessel 
owners would be required to make their vessels, their vessels' 
capacity, and their intermodal equipment, terminal facilities 
and management services available for sealift operations.

                  Background and Need for Legislation

    Following World War II, the United States had the largest 
commercial, privately owned merchant shipping fleet in the 
world. Almost half of the world's commercial fleet sailed under 
the American flag. Today, the U.S. merchant marine is in a 
state of crisis. While the United States remains the world's 
largest trading nation, our commercial fleet now ranks 
sixteenth in size in the world. As the number of ships in the 
U.S.-flag fleet declines, so does the number of civilian 
seafarers. Without remedial action, there simply will be no 
U.S. fleet to conduct foreign commerce, and the United States 
will have to rely on foreign-flag shipping for all imports and 
exports and for the sustainment of future military operations.
    During Operations Desert Shield and Desert Storm, the 
privately owned U.S.-flag fleet played a significant role in 
sealift operations. Approximately 32 percent of the cargo for 
those operations was shipped on container and chartered U.S.-
flag ships, and 47 percent was shipped on government-controlled 
U.S.-flag ships. All of the U.S.-flag ships used during sealift 
operations were crewed by trained American merchant mariners. 
The Persian Gulf War thus demonstrated the continuing, modern 
day importance of maintaining the merchant fleet to meet our 
national security sealift needs.
    Military sealift has two components: surge and sustainment. 
Surge sealift involves the mobilization of ships for the 
initial 30 day rapid deployment of unit equipment and military 
personnel for an overseas operation. Sustainment sealift refers 
to the requirements imposed on the merchant fleet to ship cargo 
in order to supply and resupply our forces beyond the first 30 
days of an overseas military operation.
    Surge sealift requirements are met through the use of fast 
sealift vessels and through the activation of specific vessels 
in the Ready Reserve Fleet (RRF). Fast sealift vessels are 
fully manned, 365 days a year. RRF vessels have at most only 10 
assigned crew members during periods when such ships are not 
activated. To deploy within the 5 to 10 days required by 
mobility requirements, a substantial number of mariners must be 
activated from the existing U.S.-flag fleets in order to 
operate RRF vessels. For example, over 3,000 civilian mariners 
were required to meet mobilization requirements during 
Operations Desert Shield and Desert Storm.
    Since 1965, the number of jobs on privately-owned, 
oceangoing U.S.-flag ships of 1,000 gross tons and over has 
dropped from 50,986 to 8,603, as of January 1, 1995. Of these, 
3,163 were licensed officers and 5,440 were unlicensed seamen. 
A recent analysis by the U.S. Transportation Command concluded 
that in the absence of a Maritime Security Program, the U.S. 
mariner job base would be barely adequate to crew surge sealift 
vessels, with the RRF being at the highest risk.
    While mariner shortages are most problematic for a 
successful surge sealift effort, the success of the sustainment 
sealift effort is most dependent on the efficient movement of 
goods including ammunition, food, and medical supplies in 
containers, a technology pioneered by U.S.-flag shipping 
companies. The intermodal nature of U.S. carriers makes this 
type of logistical support readily achievable through the use 
of their commercial land/water transportation systems. A key 
feature of the committee substitute to H.R. 1350 is that vessel 
operators would be required to make land as well as water 
transportation systems available to the Department of Defense.
    In addition to the manning and operational considerations 
that underlie the need for the Maritime Security Program, there 
are concerns related to the size and financial soundness of the 
merchant fleet. In 1948, there were 716 vessels under the U.S. 
flag. Less than 150 privately owned vessels are currently in 
U.S.-foreign commerce and in the foreign-to-foreign trades. 
While the number of vessels under the U.S. flag and the number 
of jobs on those vessels have decreased, U.S.-flag carriers 
have become more efficient over time and now move more cargo 
than ever before. For example, in 1950, it took 681 ships to 
move 21.5 million tons of cargo. In 1992, it took only 189 
ships to move 24.6 million tons of cargo. Regardless of how 
efficient U.S.-flag carriers become, in order to compete 
internationally U.S. shipowners must have capital cost, 
operating costs, and tax liabilities that compare favorably 
with, or are at least equal to, those of their foreign-flag 
competitors.
    Unfortunately, complying with federal laws results in 
higher operating costs for U.S.-flag carriers. For instance, 
federal law requires that all licensed and unlicensed seamen on 
U.S.-flag vessels must be U.S. citizens or permanent resident 
aliens. Ships registered in Liberia, Panama, or the Marshall 
Islands have no such requirement and employ seamen from 
countries such as Bangladesh or the Philippines, who make as 
little as $350 per month and are subject to virtually no 
restrictions on working hours. In addition, tax laws and U.S. 
Coast Guard requirements are substantially more onerous for 
U.S.-flag vessels than for those operated under foreign flags 
and registration.
    To offset the higher cost of operating under the U.S. flag, 
the Merchant Marine Act, 1936 created the ODS program, through 
which payments are made to U.S. carriers on specified trade 
routes. These ODS contracts begin to expire in 1995, and over 
90% will have expired by 1998. Without the continued 
availability of a program to offset, at a minimum, labor costs, 
it is expected that there will be little or no U.S.-flag 
container fleet by the year 2000.
    The committee therefore believes that it is in the best 
interests of the United States to retain a minimum number of 
these merchant vessels under the U.S. flag and to provide, as 
do many nations, adequate financial incentives to register 
vessels in their home country. Support for reform of the ODS 
program in order to provide such incentives has been ongoing 
for several years. Presidents Bush and Clinton both proposed 
maritime reform legislation to Congress, and bills passed the 
House in each session of the 103rd Congress.
                            Committee Action

    On March 29, 1995, H.R. 1350 was introduced jointly, by 
request, by committee Chairman Spence, the committee's Ranking 
Minority member, Mr. Dellums, and by the Chairman of the 
Special Oversight Panel on the Merchant Marine, Mr. Bateman.
    The Merchant Marine Panel held two days of hearings on H.R. 
1350. On March 28, 1995, the panel received testimony from the 
Administration. Vice Admiral Albert J. Herberger, the U.S. 
Maritime Administrator, and Vice Admiral Philip Quast, 
Commander of the Military Sealift Command, testified in support 
of the legislation.
    On April 6, 1995, the Merchant Marine Panel received 
testimony from maritime industry and union representatives. The 
witness panel representing the U.S.-flag operators included Mr. 
John Snow, CSX Corporation/Sealand Service, Inc., Mr. John 
Lillie, American President Lines, Mr. William Verdon, Crowley 
Maritime Corporation, Mr. Erik Johnson, Central Gulf Lines, 
Inc. The witness panel representing maritime shipboard labor 
included Mr. Michael Sacco, Seafarers International Union of 
North America, Mr. Charles Crangel, American Maritime Officers, 
Mr. James Hopkins, International Organization of masters, Mates 
and Pilots, Mr. Joel Bem, Marine Engineers' Beneficial 
Association, and Mr. Talmage Simkins, National Maritime Union. 
All testified in favor of the bill.
    On May 17, 1995, the Special Oversight Panel on the 
Merchant Marine recommended, by voice vote, that a substitute 
to H.R. 1350 be forwarded to the full committee.
    The substitute would make a number of changes to H.R. 1350, 
as introduced. The substitute would authorize a new Maritime 
Security Program and would authorize the Secretary of 
Transportation to enter into operating agreements for fiscal 
year 1996. These operating agreements would be effective only 
for a one year period but would be renewable, subject to annual 
appropriations, through the end of 2005. The program would be 
authorized at $100 million per year. Annual payments under the 
substitute would be $2.3 million per ship per year for the 
first year and $2.1 million per ship per year for the following 
nine years of the program. The Merchant Marine Panel recognized 
the value in providing longer term contract authority between 
the U.S. government and the U.S. flag operators, however fiscal 
constraints precluded the enactment of multi-year contract 
authority as the Administration had proposed. The substitute 
also would expand the obligations of vessel operators who 
participate in the program by requiring them to make available 
a broad range of intermodal assets and not simply vessels. The 
substitute also would allow vessel operators to reflag if 
Congress fails to appropriate the funds necessary to operate 
the program.
    On May 24, 1995, the Committee on National Security 
considered the panel-recommended substitute to H.R. 1350. No 
amendments were offered. H.R. 1350 was ordered reported 
favorably to the House by unanimous voice vote, a quorum being 
present.
                      Section-by-Section Analysis

                         SECTION 1--SHORT TITLE

    Section 1 would establish the short title for the Act as 
the ``Maritime Security Act of 1995''.

                  SECTION 2--MARITIME SECURITY PROGRAM

    Section 2 would add a new subtitle B to the Merchant Marine 
Act, 1936, consisting of new sections 651 through 655 of title 
46 App., United States Code. The program established under new 
Subtitle B would be entitled the ``Maritime Security Fleet 
Program''. Under this subtitle, the Secretary of Transportation 
would be required to establish a fleet of active, militarily 
useful, privately-owned vessels to meet national defense and 
other security requirements and for the purpose of maintaining 
a United States presence in international commercial shipping. 
The vessels in this fleet would be those which are covered by 
an operating agreement.
    Section 651(b) would establish the criteria that vessels 
must meet to be eligible to be covered by an operating 
agreement. To be eligible, the vessel must currently be 
operating in ocean common carriage, must be a roll-on/roll-off 
vessel with a carrying capacity of at least 80,000 square feet 
or 500 twenty-foot equivalent units, or must be a lighter 
aboard ship vessel (LASH) with a barge capacity of at least 75 
barges. In addition to these specific categories, the Secretary 
would be authorized to select additional vessel types that may 
be needed to meet specific national defense or military 
requirements, such as small tankers or bulkers. Vessels that 
are currently not under the U.S. flag would be eligible to be 
covered if they are less than 10 years of age when placed under 
the U.S. flag. A vessel not yet under the U.S. flag would have 
to meet U.S. flag documentation requirements at the time the 
vessel enters into the operating agreement.
    Section 652 would establish the terms, payment levels, and 
limitations on operating agreements. Restrictions, including 
trade route restrictions, which are imposed on existing ODS 
operators would be inapplicable to vessels under the new 
program. Because of budget limitations, the operating 
agreements would be one year contracts, with a provision 
authorizing annual renewals for up to nine years. Each renewal 
would be subject to the availability of appropriations. The 
annual payment for each vessel under an operating agreement 
would be $2.3 million for fiscal year 1996 and $2.1 million for 
each subsequent fiscal year. All participating vessels must be 
documented under U.S. law and operated in the foreign commerce. 
Participating vessels may not be operated in the coastwise 
trade, except for the trade between the United States and Guam, 
American Samoa, Wake Island, Midway Island, or Kingman Reef. A 
vessel would not be eligible to receive a payment under this 
program if it is under charter to the United States Government 
or is subject to an existing operating-differential contract.
    Section 652(i) would establish the order in which the 
Secretary shall award contracts for vessels based on 3 
priorities. The first priority includes two types of vessels: 
those that are owned by citizens of the United States under 
section 2 of the Shipping Act, 1916, and those that are less 
than 10 years old and owned by persons that are eligible to own 
a U.S.-flag vessel if the owner also operates or manages other 
U.S.-flag vessels for the Secretary of Defense or charters 
vessels to the Secretary of Defense. However, the number of 
vessels for which an owner and operator may be awarded an 
operating agreement under this priority would be capped at the 
number of U.S.-flag vessels that the owner operated in the 
foreign commerce of the United States (except mixed coastwise 
and foreign) on May 17, 1995, plus the number of U.S.-flag 
vessels that the owner had under charter to the Secretary of 
Defense on that date.
    Under this provision, if appropriated funds are available 
after awarding contracts for all eligible vessels covered under 
the first priority, then the Secretary would be able to award 
contracts under the second priority. The second priority would 
include the same two types of vessel owners that are eligible 
under the first priority, but only with respect to vessels in 
excess of the cap for that owner or operator in the first 
priority. To the extent that appropriated funds would be 
available after awarding contracts for all eligible vessels 
covered under the first and second priorities, the Secretary 
would be required to award contracts for vessels that are 
otherwise eligible.
    Section 652(n) would provide that if funds are not 
appropriated for any fiscal year, then each vessel covered by 
an operating agreement under this subtitle is released from any 
further obligation under the agreement, and the operator may 
transfer and register that vessel under an effective United 
States-controlled foreign flag.
    Provisions included in section 652(o) would give a 
preference to American built vessels in the award of operating 
agreements.
    Section 653(a) would establish requirements for the 
Emergency Preparedness Agreement that must be entered into as a 
condition for receiving payment under an operating agreement. 
The Emergency Preparedness Agreement would be entered into 
pursuant to the Emergency Preparedness Program established by 
the Secretary of Transportation but approved by the Secretary 
of Defense. Upon a request by the Secretary of Defense during 
time of war or national emergency, an owner or operator of a 
vessel covered by an operating agreement would be required to 
make available commercial transportation resources.
    Section 653(b) would define commercial transportation 
resources which must be made available upon a request by the 
Secretary of Defense to include vessels or capacity in vessels, 
intermodal systems and equipment, terminal facilities, and 
intermodal and management services, or any portion of the above 
categories that the Secretary may deem necessary.
    Under section 653(c), the Secretary of Transportation would 
not be permitted to reduce the amounts received under the 
operating agreement to an owner or operator who makes 
commercial transportation resources available under an 
Emergency Preparedness Program.
    Under section 653(d), an owner or operator who makes a 
vessel available to the Secretary of Defense under this section 
would be allowed to employ a foreign-flag vessel in the foreign 
commerce of the United States as a replacement vessel for a 
vessel covered by an operating agreement under this subtitle.
    Section 653(e) would require the Secretary to redeliver the 
vessel or other resources which were used during a war or 
national emergency in the same condition as when made 
available, less ordinary wear and tear. The Government would be 
required to compensate the contractor for necessary repairs or 
replacements. This section also would provide that the 
Emergency Preparedness Agreement shall supersede any other 
agreement between the contractor and the government.
    Section 654 contains definitions applicable to Subtitle B.
    Section 655 would authorize to be appropriated for 
operating agreements under this subtitle $100 million for 
fiscal year 1996 and such sums as may be necessary, but not to 
exceed $100 million, for each fiscal year thereafter through 
fiscal year 2005.

    section 3--termination of operating-differential subsidy program

    Section 3 would amend the Merchant Marine Act, 1936, to 
generally provide for the phasing out of the current Operating 
Differential Subsidy program. Section 3(a) would amend section 
605(b) of the Merchant Marine Act, 1936 to prohibit the payment 
of an operating-differential subsidy for the operation of a 
vessel that is more than 25 years of age, unless the Secretary 
of Transportation determines, before enactment of this Act that 
it is in the public interest to grant such financial aid for 
the operation of such vessel.
    Section 3(b) would create a new section 616 of the Merchant 
Marine Act, 1936. The new section would prohibit any new 
operating-differential contracts after the new program is 
enacted and would remove the trade route and essential service 
restrictions on vessels that are subject to existing contracts 
once the new program is operating. An operator of a vessel 
included in an operating agreement, would be allowed to place 
that vessel under an effective United States flag if a 
comparable vessel is included in the agreement as a 
replacement.

                     section 4--domestic operations

    This section would maintain existing service in the 
domestic offshore trades by amending section 805(a) of the 
Merchant Marine Act, 1936. The year ``1935'' would be replaced 
by the year ``1995'' each place it appears in that section of 
the Act.

                 section 5--use of foreign-flag vessels

    This section would amend section 804 of the Merchant Marine 
Act, 1936 to permit a vessel owner who is receiving payments 
under the new program to operate, under specified conditions, 
foreign-flag feeder vessels, line haul vessels and to enter 
into space chartering arrangements. Foreign-flag vessels in 
line haul service would be required to be under an effective 
United States controlled foreign flag.

            section 6--amendments to the shipping act, 1916

    This section would amend section 9 of the Shipping Act, 
1916 to allow the owner of a U.S.-flag vessel to place its 
vessels under foreign registry under certain conditions. These 
conditions generally relate to the expiration of existing 
contracts, admittance of replacement vessels or the 
nonavailability of new contracts.

      section 7--restrictions on construction differential subsidy

    This section would reaffirm a longstanding executive branch 
interpretation of applicable statutes that a liner vessel built 
using a construction differential subsidy is eligible to enter 
the domestic trades at the expiration of 25 years, beginning 
from the date of original delivery of the vessel.

                         section 8--regulations

    This section would authorize the Secretary of 
Transportation to issue interim and final regulations for the 
purpose of implementing this Act.
                         Departmental Position

    The committee understands the Department of Defense and the 
Department of Transportation support H.R. 1350.

                           Committee Position

    The Committee on National Security, on May 24, 1995, a 
quorum being present, approved H.R. 1350, as amended, by 
unanimous voice vote.

                              Fiscal Data

    Pursuant to clause 7 of rule XIII of the Rules of the House 
of Representatives, the committee attempted to ascertain annual 
outlays that would result from enactment of H.R. 1350 during 
fiscal year 1996 and the four following fiscal years. The 
results of such efforts are reflected in the cost estimate 
prepared by the Director of the Congressional Budget Office 
under section 403 of the Congressional Budget Act of 1974, 
which is included in this report pursuant to clause 2(l)(3)(C) 
of House rule XI.

                  Congressional Budget Office Estimate

    In compliance with clause 2(l)(3)(C) of rule XI of Rules of 
the House of Representatives, the cost estimate prepared by the 
Congressional Budget Office and submitted pursuant to section 
403 of the Congressional Budget of 1974 is as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 19, 1995.
Hon. Floyd D. Spence,
Chairman, Committee on National Security, House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1350, the Maritime 
Security Act of 1995.
    Enactment of H.R. 1350 would not affect direct spending or 
receipts. Therefore, pay-as-you-go procedures would not apply 
to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.
               congressional budget office cost estimate

    1. Bill number: H.R. 1350.
    2. Bill title: Maritime Security Act of 1995.
    3. Bill status: As ordered reported by the House Committee 
on National Security on May 24, 1995.
    4. Bill purpose: H.R. 1350 would amend Title VI of the 
Merchant Marine Act, 1936, which authorizes federal operating 
subsidies for U.S.-flag shipping companies. Section 2 of the 
bill would replace the existing operating differential subsidy 
(ODS) program currently administered by the Maritime 
Administration (MARAD) with a new program. Specifically, the 
section would establish the Maritime Security Fleet (MSF) 
within the Department of Transportation. Owners or operators of 
ships enrolled in the MSF would enter into annual operating 
agreements with MARAD making their vessels available to the 
government when needed for national security. In exchange, the 
agency would pay the ship owners or operators $2.1 million 
($2.3 million for 1996) per ship, subject to appropriation of 
the necessary amounts. The bill would authorize the Secretary 
of Transportation to enter into one-year agreements in 1996; 
the contracts could then be renewed each year through 2005 
subject to the availability of appropriations. All eligible 
carriers would be able to sign the one-year agreements during 
1996 but would not receive the monthly payments for vessels 
covered by ODS contracts or Military Sealift Command (MSC) 
charters until these other payments ended. The bill would 
authorize the appropriation of $100 million for fiscal year 
1996, and such sums as necessary up to $100 million per year 
for fiscal years 1997 through 2005.
    Section 3 of the bill would prohibit the Secretary of 
Transportation from renewing or executing new ODS contracts 
once the legislation is enacted. Carriers with active contracts 
would continue to receive subsidy payments until those 
agreements expire, unless the carriers choose to terminate them 
at an earlier date.
    5. Estimated cost to the Federal Government:
    Under current MARAD policies, operating subsidies to U.S. 
shipping companies will terminate in fiscal year 2001, when the 
last existing ODS contract expires. No new contracts have been 
executed since 1981, and MARAD no longer extends existing 
agreements. CBO projects that ODS outlays will fall from $167 
million in 1996 to less than $7 million by 2000. CBO estimates 
that, as a result of H.R. 1350, subsidy payments to shipping 
companies would total $209 million in 1996 and 1997. Total 
subsidies would fall to $146 million in 1998, the first full 
year of payments under the new program, as more ODS contracts 
expire. From 2001 (when all ODS contracts will have expired) 
through 2005, annual subsidies would equal $100 million, the 
amount authorized for MSF payments. The budgetary impacts of 
the legislation are summarized in the table below:

----------------------------------------------------------------------------------------------------------------
                                                   1995       1996       1997       1998       1999       2000  
----------------------------------------------------------------------------------------------------------------
Spending under current law:                                                                                     
    Budget authority \1\......................  .........  .........  .........  .........  .........  .........
    Estimated outlays.........................        211        167        128         46         11          7
Proposed changes:                                                                                               
    Estimated authorization level.............  .........         46         84        100        100        100
    Estimated outlays.........................  .........         42         81        100        100        100
Spending under H.R. 1350:                       .........  .........  .........  .........  .........  .........
    Authorization level.......................  .........         46         84        100        100        100
    Estimated outlays.........................        211        209        209        146        111        107
----------------------------------------------------------------------------------------------------------------
\1\ Spending under current law is equal to CBO baseline estimates of outlays that will occur under existing     
  contracts. Budget authority was provided for this purpose in the years that the contracts were signed; no new 
  authority is shown under current law because CBO does not expect any new ODS agreements to be executed.       

    The costs of this bill fall within budget function 400.
    6. Basis of estimate: For purposes of this estimate, CBO 
assumed that H.R. 1350 would be enacted by the start of fiscal 
year 1996. The table shows the amounts estimated to be 
necessary for subsidy payments, up to the $100 million annual 
cap specified in the bill. We have further assumed that MSF 
operating agreements would be signed during the second and 
third quarters of fiscal year 1996 at the earliest, based on 
the requirements of the legislation.
    Even though the bill specifies an authorization level of 
$100 million for 1996, CBO estimates that MARAD would need to 
obligate only about $46 million in the first year of the new 
program. Appropriations and outlays would rise to $100 million 
annually by 1998, once all agreements have been signed and all 
enrolled vessels have begun receiving payments. (We estimate 
that fewer than 10 ships currently under other federal 
contracts will enter the MSF; most of these will begin 
receiving payments by 1998.) At that time, MSF appropriations 
will be sufficient to subsidize about 47 ships.
    7. Pay-as-you-go considerations: None.
    8. Estimated cost to State and local governments: None.
    9. Estimate comparison: None.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: Deborah Reis.
    12. Estimated approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.
                        Committee Cost Estimate

    The committee generally concurs with the estimate contained 
in the report of the Congressional Budget Office.

                       Inflation Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the committee concludes that the bill 
would have no significant inflationary impact.

                           Oversight Findings

    With respect to clause 2(l)(3)(A) of rule XI of the Rules 
of the House of Representatives, this legislation results from 
hearings and other oversight activities conducted by the 
committee pursuant to clause 2(b)(1) of rule X.
    With respect to clause 2(l)(3)(B) of rule XI of the Rules 
of the House of Representatives, section 308 of the 
Congressional Budget Act of 1974, and on the basis of the cost 
estimate prepared by the Congressional Budget Office, this 
legislation does not include any new budget, spending, or 
credit authority, nor does it provide for any increase or 
decrease in tax revenues or expenditures.
    With respect to clause 2(l)(3)(D) of rule XI of the Rules 
of the House of Representatives, the committee has not received 
a report from the Committee on Government Reform and Oversight 
pertaining to the subject matter of H.R. 1350.

                             Rollcall Votes

    In accordance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, no rollcall votes were 
taken with respect to H.R. 1350. H.R. 1350 was ordered reported 
favorably to the House by unanimous voice vote.
         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                       MERCHANT MARINE ACT, 1936

          * * * * * * *

               Title V--Construction-Differential Subsidy

          * * * * * * *
SEC. 512. LIMITATION ON RESTRICTIONS.

  Notwithstanding any other provision of law or contract, all 
restrictions and requirements under sections 503, 506, and 802 
applicable to a liner vessel constructed, reconstructed, or 
reconditioned with the aid of construction-differential subsidy 
shall terminate upon the expiration of the 25-year period 
beginning on the date of the original delivery of the vessel 
from the shipyard.
          * * * * * * *

               [Title VI--Operating-Differential Subsidy]
             Title VI--Vessel Operating Assistance Programs

           Subtitle A--Operating-Differential Subsidy Program
          * * * * * * *
  Sec. 605. (a)  * * *
  [(b) No operating-differential subsidy shall be paid for the 
operation of a vessel that is more than twenty-five years of 
age unless the Secretary of Transportation finds that it is to 
the public interest to grant such financial aid for the 
operation of such vessel and enters a formal order thereon.]
  (b) No operating-differential subsidy shall be paid for the 
operation of a vessel after the calendar year the vessel 
becomes 25 years of age, unless the Secretary of Transportation 
has determined, before the date of enactment of the Maritime 
Security Act of 1995, that it is in the public interest to 
grant such financial aid for the operation of such vessel.
          * * * * * * *
  Sec. 616. (a) After the date of enactment of the Maritime 
Security Act of 1995, the Secretary of Transportation shall not 
enter into any new contract for operating-differential subsidy 
under this subtitle.
  (b) Notwithstanding any other provision of this Act, any 
operating-differential subsidy contract in effect under this 
title on the day before the date of enactment of the Maritime 
Security Act of 1995 shall continue in effect and terminate as 
set forth in the contract, unless voluntarily terminated at an 
earlier date by the parties (other than the United States 
Government) to the contract.
  (c) The essential service requirements of section 601(a) and 
603(b), and the provisions of sections 605(c) and 809(a), shall 
not apply to the operating-differential subsidy program under 
this subtitle effective upon the earlier of--
          (1) the date that a payment is made, under the 
        Maritime Security Program established by subtitle B to 
        a contractor under that subtitle who is not party to an 
        operating-differential subsidy contract under this 
        subtitle, with the Secretary to cause notice of the 
        date of such payment to be published in the Federal 
        Register as soon as possible; or
          (2) with respect to a particular contractor under the 
        operating-differential subsidy program, the date that 
        contractor enters into a contract with the Secretary 
        under the Maritime Security Program established by 
        subtitle B.
  (d)(1) Notwithstanding any other provision of law, a vessel 
may be transferred and registered under an effective United 
States-controlled foreign flag if--
          (A) the operator of the vessel receives an operating-
        differential subsidy pursuant to a contract under this 
        subtitle which is in force on October 1, 1994, and the 
        Secretary approves the replacement of such vessel with 
        a comparable vessel, or
          (B) the vessel is covered by an operating agreement 
        under subtitle B, and the Secretary approves the 
        replacement of such vessel with a comparable vessel for 
        inclusion in the Maritime Security Fleet established 
        under subtitle B.
  (2) Any such vessel may be requisitioned by the Secretary of 
Transportation pursuant to section 902.

              Subtitle B--Maritime Security Fleet Program


                         establishment of fleet


  Sec. 651. (a) In General.--The Secretary of Transportation 
shall establish a fleet of active, militarily useful, 
privately-owned vessels to meet national defense and other 
security requirements and maintain a United States presence in 
international commercial shipping. The Fleet shall consist of 
privately owned, United States-flag vessels for which there are 
in effect operating agreements under this subtitle, and shall 
be known as the Maritime Security Fleet.
  (b) Vessel Eligibility.--A vessel is eligible to be included 
in the Fleet if the vessel is self-propelled and--
          (1)(A) is operated by a person as an ocean common 
        carrier (as that term is used in the Shipping Act of 
        1984 (46 App. U.S.C. 1701 et seq.));
          (B) whether in commercial service, on charter to the 
        Department of Defense, or in other employment, is 
        either--
                  (i) a roll-on/roll-off vessel with a carrying 
                capacity of at least 80,000 square feet or 500 
                twenty-foot equivalent units; or
                  (ii) a lighter aboard ship vessel with a 
                barge capacity of at least 75 barges; or
          (C) any other type of vessel that is determined by 
        the Secretary to be suitable for use by the United 
        States for national defense or military purposes in 
        time of war or national emergency;
          (2)(A)(i) is a United States-documented vessel; and
          (ii) on the date an operating agreement covering the 
        vessel is entered into under this subtitle, is--
                  (I) a LASH vessel that is 25 years of age or 
                less; or
                  (II) any other type of vessel that is 15 
                years of age or less;
        except that the Secretary of Transportation may waive 
        the application of clause (ii) if the Secretary, in 
        consultation with the Secretary of Defense, determines 
        that the waiver is in the national interest; or
          (B) it is not a United States-documented vessel, but 
        the owner of the vessel has demonstrated an intent to 
        have the vessel documented under chapter 121 of title 
        46, United States Code, if it is included in the Fleet, 
        and the vessel will be less than 10 years of age on the 
        date of that documentation;
          (3) the Secretary of Transportation determines that 
        the vessel is necessary to maintain a United States 
        presence in international commercial shipping or, after 
        consultation with the Secretary of Defense, determines 
        that the vessel is militarily useful for meeting the 
        sealift needs of the United States with respect to 
        national emergencies; and
          (4) at the time an operating agreement for the vessel 
        is entered into under this subtitle, the vessel will be 
        eligible for documentation under chapter 121 of title 
        46, United States Code.


                          operating agreements


  Sec. 652. (a) In General.--The Secretary of Transportation 
shall require, as a condition of including any vessel in the 
Fleet, that the owner or operator of the vessel enter into an 
operating agreement with the Secretary under this section. 
Notwithstanding subsection (g), the Secretary may enter into an 
operating agreement for, among other vessels that are eligible 
to be included in the Fleet, any vessel which continues to 
operate under an operating-differential subsidy contract under 
subtitle A or which is under charter to the Department of 
Defense.
  (b) Requirements for Operation.--An operating agreement under 
this section shall require that, during the period a vessel is 
operating under the agreement--
          (1) the vessel--
                  (A) shall be operated exclusively in the 
                foreign trade or in mixed foreign and domestic 
                trade allowed under a registry endorsement 
                issued under section 12105 of title 46, United 
                States Code, and
                  (B) shall not otherwise be operated in the 
                coastwise trade; and
          (2) the vessel shall be documented under chapter 121 
        of title 46, United States Code.
  (c) Certain Requirements Not To Apply.--A contractor of a 
vessel included in an operating agreement under this subtitle 
may operate the vessel in the foreign commerce of the United 
States without restriction, and shall not be subject to any 
requirement under section 801, 808, 809, or 810.
  (d) Effectiveness and Annual Payment Requirements of 
Operating Agreements.--
          (1) Effectiveness.--The Secretary of Transportation 
        may enter into an operating agreement under this 
        subtitle for fiscal year 1996. The agreement shall be 
        effective only for 1 fiscal year, but shall be 
        renewable, subject to the availability of 
        appropriations, for each subsequent fiscal year through 
        the end of fiscal year 2005.
          (2) Annual payment.--An operating agreement under 
        this subtitle shall require, subject to the 
        availability of appropriations and the other provisions 
        of this section, that the Secretary of Transportation 
        pay each fiscal year to the contractor, for each vessel 
        that is covered by the operating agreement, an amount 
        equal to $2,300,000 for fiscal year 1996 and $2,100,000 
        for each fiscal year thereafter in which the agreement 
        is in effect. The amount shall be paid in equal monthly 
        installments at the end of each month. The amount shall 
        not be reduced except as provided by this section.
  (e) Certification Required for Payment.--As a condition of 
receiving payment under this section for a fiscal year for a 
vessel, the owner or operator of the vessel shall certify, in 
accordance with regulations issued by the Secretary of 
Transportation, that the vessel has been and will be operated 
in accordance with subsection (b)(1) for at least 320 days in 
the fiscal year. Days during which the vessel is drydocked, 
surveyed, inspected, or repaired shall be considered days of 
operation for purposes of this subsection.
  (f) Operating Agreement is Obligation of United States 
Government.--An operating agreement under this subtitle 
constitutes a contractual obligation of the United States 
Government to pay the amounts provided for in the agreement to 
the extent of actual appropriations.
  (g) Limitations.--The Secretary of Transportation shall not 
make any payment under this subtitle for a vessel with respect 
to any days for which the vessel is--
          (1) subject to an operating-differential subsidy 
        contract under subtitle A or under a charter to the 
        United States Government, other than a charter pursuant 
        to section 653;
          (2) not operated or maintained in accordance with an 
        operating agreement under this subtitle; or
          (3) more than 25 years of age, except that the 
        Secretary may make such payments for a LASH vessel for 
        any day for which the vessel is more than 25 years of 
        age if that vessel--
                  (A) is modernized after January 1, 1994,
                  (B) is modernized before it is 25 years of 
                age, and
                  (C) is not more than 30 years of age.
  (h) Payments.--With respect to payments under this subtitle 
for a vessel covered by an operating agreement, the Secretary 
of Transportation--
          (1) except as provided in paragraph (2), shall not 
        reduce any payment for the operation of a vessel to 
        carry military or other preference cargoes under 
        section 2631 of title 10, United States Code, the Act 
        of March 26, 1934 (46 App. U.S.C. 1241-1), section 
        901(a), 901(b), or 901b of this Act, or any other cargo 
        preference law of the United States;
          (2) shall not make any payment for any day that a 
        vessel is engaged in transporting more than 7,500 tons 
        of civilian bulk preference cargoes pursuant to section 
        901(a), 901(b), or 901b that is bulk cargo (as that 
        term is defined in section 3 of the Shipping Act of 
        1984 (46 App. U.S.C. 1702)); and
          (3) shall make a pro rata reduction in payment for 
        each day less than 320 in a fiscal year that a vessel 
        covered by an operating agreement is not operated in 
        accordance with subsection (b)(1), with days during 
        which the vessel is drydocked or undergoing survey, 
        inspection, or repair considered to be days on which 
        the vessel is operated.
  (i) Priority for Awarding Agreements.--Subject to the 
availability of appropriations, the Secretary shall enter into 
operating agreements according to the following priority:
          (1) Vessels owned by citizens.--
                  (A) Priority.--First, for any vessel that 
                is--
                          (i) owned and operated by persons who 
                        are citizens of the United States under 
                        section 2 of the Shipping Act, 1916; or
                          (ii) less than 10 years of age and 
                        owned and operated by a corporation 
                        that is--
                                  (I) eligible to document a 
                                vessel under chapter 121 of 
                                title 46, United States Code; 
                                and
                                  (II) affiliated with a 
                                corporation operating or 
                                managing for the Secretary of 
                                Defense other vessels 
                                documented under that chapter, 
                                or chartering other vessels to 
                                the Secretary of Defense.
                  (B) Limitation on number of operating 
                agreements.--The total number of operating 
                agreements that may be entered into by a person 
                under the priority in subparagraph (A)--
                          (i) for vessels described in 
                        subparagraph (A)(i), may not exceed the 
                        sum of--
                                  (I) the number of United 
                                States-documented vessels the 
                                person operated in the foreign 
                                commerce of the United States 
                                (except mixed coastwise and 
                                foreign commerce) on May 17, 
                                1995; and
                                  (II) the number of United 
                                States-documented vessels the 
                                person chartered to the 
                                Secretary of Defense on that 
                                date; and
                          (ii) for vessels described in 
                        subparagraph (A)(ii), may not exceed 5 
                        vessels.
                  (C) Treatment of related parties.--For 
                purposes of subparagraph (B), a related party 
                with respect to a person shall be treated as 
                the person.
          (2) Other vessels owned by citizens and government 
        contractors.--To the extent that amounts are available 
        after applying paragraph (1), any vessel that is owned 
        and operated by a person who is--
                  (A) a citizen of the United States under 
                section 2 of the Shipping Act, 1916, that has 
                not been awarded an operating agreement under 
                the priority established under paragraph (1); 
                or
                  (B)(i) eligible to document a vessel under 
                chapter 121 of title 46, United States Code; 
                and
                  (ii) affiliated with a corporation operating 
                or managing other United States-documented 
                vessels for the Secretary of Defense or 
                chartering other vessels to the Secretary of 
                Defense.
          (3) Other vessels.--To the extent that amounts are 
        available after applying paragraphs (1) and (2), any 
        other eligible vessel.
  (j) Transfer of Operating Agreements.--A contractor under an 
operating agreement may transfer the agreement (including all 
rights and obligations under the agreement) to any person 
eligible to enter into that operating agreement under this 
subtitle after notification of the Secretary in accordance with 
regulations prescribed by the Secretary, unless the transfer is 
disapproved by the Secretary within 90 days after the date of 
that notification. A person to whom an operating agreement is 
transferred may receive payments from the Secretary under the 
agreement only if each vessel to be covered by the agreement 
after the transfer is an eligible vessel under section 651(b).
  (k) Reversion of Unused Authority.--The obligation of the 
Secretary to make payments under an operating agreement under 
this subtitle shall terminate with respect to a vessel if the 
contractor fails to engage in operation of the vessel for which 
such payment is required--
          (1) within one year after the effective date of the 
        operating agreement, in the case of a vessel in 
        existence on the effective date of the agreement, or
          (2) within 30 months after the effective date of the 
        operating agreement, in the case of a vessel to be 
        constructed after that effective date.
  (l) Procedure for Considering Application; Effective Date for 
Certain Vessels.--
          (1) Procedures.--Within 90 days after receipt of an 
        application for enrollment of a vessel in the Fleet, 
        the Secretary shall enter into an operating agreement 
        with the applicant or provide in writing the reason for 
        denial of that application.
          (2) Effective date.--Unless an earlier date is 
        requested by the applicant, the effective date for an 
        operating agreement with respect to a vessel which is, 
        on the date of entry into an operating agreement, 
        either subject to a contract under subtitle A or on 
        charter to the United States Government, other than a 
        charter under section 653, shall be the expiration or 
        termination date of the contract under subtitle A or of 
        the Government charter covering the vessel, 
        respectively, or any earlier date the vessel is 
        withdrawn from that contract or charter.
  (m) Early Termination.--An operating agreement under this 
subtitle shall terminate on a date specified by the contractor 
if the contractor notifies the Secretary, by not later than 60 
days before the effective date of the termination, that the 
contractor intends to terminate the agreement. Vessels covered 
by an operating agreement terminated under to this subsection 
shall remain documented under chapter 121 of title 46, United 
States Code, until the date the operating agreement would have 
terminated according to its terms. A contractor who terminates 
an operating agreement pursuant to this subsection shall 
continue to be bound by the provisions of section 653 until the 
date the operating agreement would have terminated according to 
its terms. All terms and conditions of an Emergency 
Preparedness Agreement entered into under to section 653 shall 
remain in effect until the date the operating agreement would 
have terminated according to its terms, except that the terms 
of such Emergency Preparedness Agreement may be modified by the 
mutual consent of the contractor and the Secretary of 
Transportation.
  (n) Termination for Lack of Funds.--If funds are not 
appropriated under the authority provided by section 655 for 
any fiscal year, then each vessel covered by an operating 
agreement under this subtitle is thereby released from any 
further obligation under the operating agreement, the operating 
agreement shall terminate, and the vessel owner or operator may 
transfer and register such vessel under an effective United 
States-controlled foreign flag, notwithstanding any other 
provision of law. If section 902 is applicable to such vessel 
after registry under an effective United States-controlled 
foreign flag, the vessel is available to be requisitioned by 
the Secretary of Transportation pursuant to section 902.
  (o) Award of Operating Agreements.--
          (1) In general.--The Secretary of Transportation, 
        subject to paragraph (4), shall award operating 
        agreements within each priority under subsection (i) 
        (1), (2), and (3) under regulations prescribed by the 
        Secretary.
          (2) Number of agreements awarded.--Regulations under 
        paragraph (1) shall provide that if appropriated 
        amounts are not sufficient for operating agreements for 
        all vessels within a priority under subsection (i) (1), 
        (2), or (3), the Secretary shall award to each person 
        submitting a request a number of operating agreements 
        that bears approximately the same ratio to the total 
        number of vessels in the priority, as the amount of 
        appropriations available for operating agreements for 
        vessels in the priority bears to the amount of 
        appropriations necessary for operating agreements for 
        all vessels in the priority.
          (3) Treatment of related parties.--For purposes of 
        paragraph (2), a related party with respect to a person 
        shall be treated as the person.
          (4) Preference for u.s.-built vessels.--In awarding 
        operating agreements for vessels within a priority 
        under subsection (i) (1), (2), or (3), the Secretary 
        shall give preference to a vessel that was constructed 
        in the United States, to the extent such preference is 
        consistent with establishment of a fleet described in 
        the first sentence of section 651(a) (taking into 
        account the age of the vessel, the nature of service 
        provided by the vessel, and the commercial viability of 
        the vessel).
  (p) Notice to U.S. Shipbuilders Required.--The Secretary 
shall include in any operating agreement under this subtitle a 
requirement that the contractor under the agreement shall, by 
not later than 30 days after soliciting any bid or offer for 
the construction of any vessel in a foreign shipyard and before 
entering into a contract for construction of a vessel in a 
foreign shipyard, provide notice of the intent of the 
contractor to enter into such a contract to each shipyard in 
the United States that is capable of constructing the vessel.


                     national security requirements


  Sec. 653. (a) Emergency Preparedness Agreement.--
          (1) Requirement to enter agreement.--The Secretary of 
        Transportation shall establish an Emergency 
        Preparedness Program under this section that is 
        approved by the Secretary of Defense. Under the 
        program, the Secretary of Transportation shall include 
        in each operating agreement under this subtitle a 
        requirement that the contractor enter into an Emergency 
        Preparedness Agreement under this section with the 
        Secretary. The Secretary shall negotiate and enter into 
        an Emergency Preparedness Agreement with each 
        contractor as promptly as practicable after the 
        contractor has entered into an operating agreement 
        under this subtitle.
          (2) Terms of agreement.--An Emergency Preparedness 
        Agreement under this section shall require that upon a 
        request by the Secretary of Defense during time of war 
        or national emergency, an owner or operator of a vessel 
        covered by an operating agreement under this subtitle 
        shall make available commercial transportation 
        resources (including services). The basic terms of the 
        Emergency Preparedness Agreement shall be established 
        pursuant to consultations among the Secretary, the 
        Secretary of Defense, and Maritime Security Program 
        contractors. In any Emergency Preparedness Agreement, 
        the Secretary and a contractor may agree to additional 
        or modifying terms appropriate to the contractor's 
        circumstances.
  (b) Resources Made Available.--The commercial transportation 
resources to be made available under an Emergency Preparedness 
Agreement shall include vessels or capacity in vessels, 
intermodal systems and equipment, terminal facilities, 
intermodal and management services, and other related services, 
or any agreed portion of such nonvessel resources for 
activation as the Secretary may determine to be necessary, 
seeking to minimize disruption of the contractor's service to 
commercial shippers.
  (c) Compensation.--
          (1) In general.--The Secretary of Transportation 
        shall provide in each Emergency Preparedness Agreement 
        for reasonable compensation for all commercial 
        transportation resources provided pursuant to this 
        section.
          (2) Specific requirements.--Compensation under this 
        subsection--
                  (A) shall not be less than the contractor's 
                commercial market charges for like 
                transportation resources;
                  (B) shall include all the contractor's costs 
                associated with provision and use of the 
                contractor's commercial resources to meet 
                emergency requirements;
                  (C) in the case of a charter of an entire 
                vessel, shall be fair and reasonable;
                  (D) shall be in addition to and shall not in 
                any way reflect amounts payable under section 
                652; and
                  (E) shall be provided from the time that a 
                vessel or resource is diverted from commercial 
                service until the time that reenters commercial 
                service.
  (d) Temporary Replacement Vessels.--Notwithstanding any other 
provision of this subtitle or of other law to the contrary--
          (1) a contractor may operate or employ in foreign 
        commerce a foreign-flag vessel or foreign-flag vessel 
        capacity, as a temporary replacement for a United 
        States-documented vessel or United States-documented 
        vessel capacity that is activated under an Emergency 
        Preparedness Agreement; and
          (2) such replacement vessel or vessel capacity shall 
        be eligible during the replacement period to transport 
        preference cargoes subject to section 2631 of title 10, 
        United States Code, the Act of March 26, 1934 (46 App. 
        U.S.C. 1241-1), and sections 901(a), 901(b), and 901b 
        of this Act to the same extent as the eligibility of 
        the vessel or vessel capacity replaced.
  (e) Redelivery and Liability of U.S. for Damages.--
          (1) In general.--All commercial transportation 
        resources activated under an Emergency Preparedness 
        Agreement shall, upon termination of the period of 
        activation, be redelivered to the contractor in the 
        same good order and condition as when received, less 
        ordinary wear and tear, or the Government shall fully 
        compensate the contractor for any necessary repair or 
        replacement.
          (2) Limitation on liability of u.s.--Except as may be 
        expressly agreed to in an Emergency Preparedness 
        Agreement, or as otherwise provided by law, the 
        Government shall not be liable for disruption of a 
        contractor's commercial business or other consequential 
        damages to a contractor arising from activation of 
        commercial transportation resources under an Emergency 
        Preparedness Agreement.
          (3) Limitation on application of other 
        requirements.--Sections 902 and 909 of this Act shall 
        not apply to a vessel while it is covered by an 
        Emergency Preparedness Agreement under this subtitle. 
        Any Emergency Preparedness Agreement entered into by a 
        contractor shall supersede any other agreement between 
        that contractor and the Government for vessel 
        availability in time of war or national emergency.
                              definitions


  Sec. 654. In this subtitle:
          (1) Fleet.--The term ``Fleet'' means the Maritime 
        Security Fleet established pursuant to section 651(a).
          (2) LASH vessel.--The term ``LASH vessel'' means a 
        lighter aboard ship vessel.
          (3) United states-documented vessel.--The term 
        ``United States-documented vessel'' means a vessel 
        documented under chapter 121 of title 46, United States 
        Code.


                    authorization of appropriations


  Sec. 655. There are authorized to be appropriated for 
operating agreements under this subtitle, to remain available 
until expended, $100,000,000 for fiscal year 1996 and such sums 
as may be necessary, not to exceed $100,000,000, for each 
fiscal year thereafter through fiscal year 2005.
          * * * * * * *

                    Title VIII--Contract Provisions

          * * * * * * *
  Sec. 804. (a)  * * *
          * * * * * * *
  (f) The provisions of subsection (a) shall not preclude a 
contractor receiving assistance under subtitle A or B of title 
VI, or any holding company, subsidiary, or affiliate of the 
contractor, or any officer, director, agent, or executive 
thereof, from--
          (1) owning, chartering, or operating any foreign-flag 
        vessel on a voyage or a segment of a voyage that does 
        not call at a port in the United States;
          (2) owning, chartering, or operating any foreign-flag 
        vessel in line haul service between the United States 
        and foreign ports if--
                  (A) the foreign-flag vessel was operated by, 
                or is a replacement for a foreign-flag vessel 
                operated by, such owner or operator, or any 
                holding company, subsidiary, affiliate, or 
                associate of such owner or operator, on the 
                date of enactment of the Maritime Security Act 
                of 1995;
                  (B) the owner or operator, with respect to 
                each additional foreign-flag vessel, other than 
                a time chartered vessel, has first applied to 
                have that vessel covered by an operating 
                agreement under to subtitle B of title VI, and 
                the Secretary has not awarded an operating 
                agreement with respect to that vessel within 90 
                days after the filing of the application; or
                  (C) the vessel has been placed under foreign 
                documentation pursuant to section 9 of the 
                Shipping Act, 1916 (46 App. U.S.C. 808), except 
                that any foreign-flag vessel, other than a time 
                chartered vessel, a replacement vessel under 
                section 653(d), or a vessel operated by the 
                owner or operator on the date of enactment of 
                the Maritime Security Act of 1995, in line haul 
                service between the United States and foreign 
                ports is registered under the flag of an 
                effective United States-controlled foreign 
                flag, and available to be requisitioned by the 
                Secretary of Transportation pursuant to section 
                902 of this Act;
          (3) owning, chartering, or operating foreign-flag 
        bulk cargo vessels that are operated in foreign-to-
        foreign service or the foreign commerce of the United 
        States;
          (4) chartering or operating foreign-flag vessels that 
        are operated solely as replacement vessels for United 
        States-flag vessels or vessel capacity that are made 
        available to the Secretary of Defense pursuant to 
        section 653 of this Act; or
          (5) entering into time or space charter or other 
        cooperative agreements with respect to foreign-flag 
        vessels or acting as agent or broker for a foreign-flag 
        vessel or vessels.
  Sec. 805. (a) It shall be unlawful to award or pay any 
subsidy to any contractor under authority of title VI of this 
Act, or to charter any vessel to any person under title VII of 
this Act, if said contractor or charterer, or any holding 
company, subsidiary, affiliate, or associate of such contractor 
or charterer, or any officer, director, agent, or executive 
thereof, directly or indirectly, shall own, operate, or charter 
any vessel or vessels engaged in the domestic intercoastal or 
coastwise service, or own any pecuniary interest, directly or 
indirectly, in any person or concern that owns, charters, or 
operates any vessel or vessels in the domestic intercoastal or 
coastwise service, without the written permission of the 
Secretary of Transportation. Every person, firm or corporation 
having any interest in such application shall be permitted to 
intervene and the Secretary of Transportation shall give a 
hearing to the applicant and the intervenors. The Secretary of 
Transportation shall not grant any such application if the 
Secretary of Transportation finds it will result in unfair 
competition to any person, firm, or corporation operating 
exclusively in the coastwise or intercoastal service or that it 
would be prejudicial to the objects and policy of this Act: 
Provided, That if such contractor or other person above-
described or a predecessor in interest was in bona-fide 
operation as a common carrier by water in the domestic, 
intercoastal, or coastwise trade in [1935] 1995 over the route 
or routes or in the trade or trades for which application is 
made and has so operated since that time or if engaged in 
furnishing seasonal service only, was in bona-fide operation in 
[1935] 1995 during the season ordinarily covered by its 
operation, except in either event, as to interruptions of 
service over which the applicant or its predecessor in interest 
had no control, the Secretary of Transportation shall grant 
such permission without requiring further proof that public 
interest and convenience will be served by such operation, and 
without further proceedings as to the competition in such route 
or trade.
  If such application be allowed, it shall be unlawful for any 
of the persons mentioned in this section to divert, directly or 
indirectly, any moneys, property, or other thing of value, used 
in foreign-trade operations, for which a subsidy is paid by the 
United States, into any such coastwise or intercoastal 
operations; and whosoever shall violate this provision shall be 
guilty of a misdemeanor.
          * * * * * * *
                              ----------                              

                  SECTION 9 OF THE SHIPPING ACT, 1916

  Sec. 9. (a)  * * *
          * * * * * * *
  (e) Notwithstanding subsection (c)(2), the Merchant Marine 
Act, 1936, or any contract entered into with the Secretary of 
Transportation under that Act, a vessel may be placed under a 
foreign registry, without approval of the Secretary, if--
          (1)(A) the Secretary determines that at least one 
        replacement vessel of a capacity that is equivalent or 
        greater, as measured by deadweight tons, gross tons, or 
        container equivalent units, as appropriate, is 
        documented under chapter 121 of title 46, United States 
        Code, by the owner of the vessel placed under the 
        foreign registry; and
          (B) the replacement vessel is not more than 10 years 
        of age on the date of that documentation;
          (2)(A) an application for an operating agreement 
        under subtitle B of title VI of the Merchant Marine 
        Act, 1936 has been filed with respect to a vessel which 
        is eligible to be included in the Maritime Security 
        Fleet under section 651(b)(1) of that Act; and
          (B) the Secretary has not awarded an operating 
        agreement with respect to that vessel within 90 days 
        after the date of that application;
          (3) a contract covering the vessel under subtitle A 
        of title VI of the Merchant Marine Act, 1936 has 
        expired, and that vessel is more than 15 years of age 
        on the date the contract expires; or
          (4) an operating agreement covering the vessel under 
        subpart B of title VI of the Merchant Marine Act, 1936 
        has expired.
          * * * * * * *