[Senate Report 105-154]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 293
105th Congress                                                   Report
                                 SENATE

 1st Session                                                    105-154
_______________________________________________________________________


 
                   OECD SHIPBUILDING TRADE AGREEMENT

                               __________

                              R E P O R T

                                 OF THE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                                   on

                                S. 1216




                                     

               November 10, 1997.--Ordered to be printed


       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       one hundred fifth congress

                             first session

                     JOHN McCAIN, Arizona, Chairman

TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             WENDELL H. FORD, Kentucky
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas            Virginia
OLYMPIA SNOWE, Maine                 JOHN F. KERRY, Massachusetts
JOHN ASHCROFT, Missouri              JOHN B. BREAUX, Louisiana
BILL FRIST, Tennessee                RICHARD H. BRYAN, Nevada
SPENCER ABRAHAM, Michigan            BYRON L. DORGAN, North Dakota
SAM BROWNBACK, Kansas                RON WYDEN, Oregon

                       John Raidt, Staff Director

     Ivan A. Schlager, Democratic Chief Counsel and Staff Director

                                     

                                                       Calendar No. 293
105th Congress                                                   Report
                                 SENATE

 1st Session                                                    105-154
_______________________________________________________________________


                   OECD SHIPBUILDING TRADE AGREEMENT

                                _______
                                

               November 10, 1997.--Ordered to be printed

_______________________________________________________________________


       Mr. McCain, from the Committee on Commerce, Science, and 
                Transportation, submitted the following

                              R E P O R T

                         [To accompany S. 1216]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 1216) ``A Bill to approve and 
implement the OECD Shipbuilding Trade Agreement'', having 
considered the same, reports favorably thereon with amendments 
and recommends that the bill (as amended) do pass.

                          Purpose of the Bill

  S. 1216, as reported, would approve and implement the 
Agreement Respecting Normal Competitive Conditions in the 
Commercial Shipbuilding and Repair Industry (hereinafter 
referred to as the ``Shipbuilding Agreement''). The 
Shipbuilding Agreement resulted from negotiations conducted 
under the auspices of the Organization for Economic Cooperation 
and Development (OECD).

                          Background and Needs

  In December, 1994, after five years of negotiations under the 
auspices of the OECD, the Shipbuilding Agreement was signed by 
the United States, the European Community (on behalf of the 
twelve European member countries), Norway, South Korea, and 
Japan. Negotiations leading to this agreement were initiated by 
the United States following complaints by United States 
shipbuilding companies that foreign shipbuilders had been 
engaging in unfair competitive practices.
  The Shipbuilding Agreement was scheduled to enter into force 
January 1, 1996. However, because the Shipbuilding Agreement 
had not been ratified by the United States and Japan by that 
date, 
the signatory countries agreed to extend the ratification 
deadline until June 15, 1996. On June 14, 1996, representatives 
of Japan deposited that country's instrument of ratification 
with the OECD Secretariat.

                          Legislative History

  In the Senate, Senator Breaux introduced S. 1354 on October 
23, 1995. S. 1354 reflected the Administration's proposed 
implementation legislation. On May 8, 1996, the Finance 
Committee reported H.R. 3074, which contained legislation to 
implement the Shipbuilding Agreement. On December 11, 1997, a 
companion bill to S. 1354, H.R. 2754, was introduced in the 
House of Representatives by Representative Crane. On June 13, 
1996, the House of Representatives adopted H.R. 2754 with an 
amendment offered during floor debate by Representative 
Bateman. No further action was taken on Shipbuilding Agreement 
implementing legislation during the 104th Congress, and efforts 
to approve implementing legislation resumed in the 105th 
Congress.
  On April 22, 1997, Senator Breaux introduced S. 629, which 
was referred to the Commerce Committee. S. 629 included several 
changes to the Administration's legislation proposal in an 
attempt to address the concerns reflected by Mr. Bateman's 
amendment to H.R. 2754 the previous year in a manner consistent 
with the Shipbuilding Agreement. On April 30, 1997, the 
Commerce Committee held a hearing on international trade 
issues, including the Shipbuilding Agreement. On June 11, 1997, 
the Commerce Committee held a hearing specifically on the 
Shipbuilding Agreement. During these hearings, testimony was 
heard from supporters and opponents of the Shipbuilding 
Agreement.
  On September 11, 1997, the Finance Committee adopted an 
original bill, which was designated as S. 1216 upon the filing 
of the Finance Committee report (Senate Report 105-84) on 
September 24, 1997. On September 22, 1997, the Chairmen and 
ranking members of the Finance and Commerce Committees agreed 
that S. 1216 should be sequentially referred to the Commerce 
Committee for a period not to exceed 10 days to enable the 
Commerce Committee to consider those sections of the bill under 
the jurisdiction of the Commerce Committee. On September 26, 
1997, the Chairmen and ranking members of the Commerce 
Committee and the Finance Committee agreed that S. 629 should 
be discharged from the Commerce Committee and referred to the 
Finance Committee. S. 629 was referred to the Finance Committee 
on November 9, 1997.
  On November 4, 1997, the Committee considered S. 1216 and 
agreed that, when and if S. 1216 was referred to the Committee, 
it be reported as considered by the Committee. The Committee 
also adopted amendments offered by Senators Lott and Breaux 
that amended sections 115, 117, 120, and 121 of S. 1216. S. 
1216 was referred to the Committee on November 9, 1997, and, 
pursuant to the Committee's action on November 4, the amended 
bill was ordered reported by the Committee.

                      Summary of Major Provisions

  For a summary of the major provisions, see Senate Report 105-
84.

                            Estimated Costs

  In accordance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 403 of the 
Congressional Budget Act of 1974, the budgetary impact of S. 
1216 is discussed in Senate Report 105-84.

                      Regulatory Impact Statement

  In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the regulatory impact of S. 1216 
is discussed in Senate Report 105-84.

                      Section-by-section Analysis

  The bill consists of two titles. Title I of the bill consists 
of three subtitles. Senate Report 105-84 provides the section-
by-section analysis of Subtitle A of Title I of the bill; 
sections 111, 112, 113, 116, 118, 119, certain definitions 
within section 121, and 122 of Subtitle B of Title I of the 
bill; Subtitle C of Title I of the bill; and Title II of the 
bill. This report provides the section-by-section analysis of 
sections 114, 115, 117, 120, and certain definitions within 
section 121 of Subtitle B of Title I of the bill.

SECTION 114. AMENDMENTS TO THE MERCHANT MARINE ACT, 1936.

  Section 114 makes several changes to the Merchant Marine Act, 
1936 (the 1936 Act). The 1936 Act includes tax and subsidy 
programs that provide benefits limited to vessels constructed 
in the United States. These programs are: (1) construction 
reserve funds (CRF); (2) operating differential subsidies 
(ODS); and (3) capital construction funds (CCF). In addition, 
under the 1936 Act, vessels built or rebuilt outside the United 
States must wait three years after being documented as a U.S. 
vessel before being permitted to carry government-impelled 
cargoes under certain cargo preference provisions.
  In addition, Title XI of the 1936 Act authorizes the 
Secretary of Transportation to provide a U.S. government 
guarantee for certain types of financing for the construction, 
reconstruction, or reconditioning of U.S.-built vessels. Loan 
guarantees may apply to financing of up to 87.5 percent of the 
vessel cost (with up to a 25 year loan repayment period), at an 
interest rate determined by the Secretary to be reasonable.
  Section 114 would amend the 1936 Act to provide the same 
treatment under the CRF, ODS, and CCF programs as is currently 
accorded U.S.-built vessels for vessels covered by the 
Shipbuilding Agreement that are constructed in Shipbuilding 
Agreement signatory countries and documented in the United 
States. The changes to the CRF and CCF would apply only with 
respect to monies deposited on or after the date on which the 
Shipbuilding Agreement enters into force with respect to the 
United States. Section 114 would also eliminate the general 
requirement that vessels enrolled in the ODS program be built 
and repaired in a United States shipyard. The provision of 
parity for Shipbuilding Agreement signatory country shipyards 
in this section should in no way be considered as authorization 
for the Department of Transportation to continue the ODS 
program beyond its current expiration date. A new, more cost-
effective Maritime Security Program was enacted in 1996 to 
replace the expiring ODS program. The changes to the cargo 
preference provision would apply to vessels built, or rebuilt, 
in a Shipbuilding Agreement signatory country on or after the 
date on which the Shipbuilding Agreement enters into force with 
respect to the United States. In all cases concerning the CRF, 
ODS, CCF, and cargo preference programs, the requirement that 
the vessels be documented in the United States remains.
  Section 114 also provides that, with respect to vessels 
covered by the Shipbuilding Agreement and the related OECD 
Understanding on Export Credits for Ships (the ``Export Credit 
Understanding''), and integrated tug-barges, the Secretary of 
Transportation shall extend loan guarantees under the 1936 Act 
Title XI program on terms consistent with the Shipbuilding 
Agreement and the Export Credit Understanding. Among other 
things, the Shipbuilding Agreement and the Export Credit 
Understanding limit guaranteed financing to 80 percent of the 
vessel's cost (with a repayment period of not more than 12 
years) and provide, with certain exceptions in the first two 
years, that the interest rate not be lower than the Commercial 
Interest Reference Rate (CIRR) of the currency of credit.

SECTION 115. APPLICABILITY OF TITLE XI AMENDMENTS.

  Section 115(a) provides that, notwithstanding any provision 
of the Shipbuilding Agreement or the Export Credit 
Understanding, the amendments made under section 114 of the 
OECD Shipbuilding Trade Agreement Act to Title XI of the 1936 
Act shall not apply to any commitment made before January 1, 
2001, to provide a government loan guarantee under the Title XI 
program with respect to a vessel (1) delivered before January 
1, 2004, or (2) in unusual circumstances, vessels delivered as 
soon after December 31, 2003, as is practicable. Section 115 
defines unusual circumstances as an act of God (other than 
ordinary storms or inclement weather conditions), labor 
strikes, acts of sabotage, explosions, fires, or vandalism, and 
similar circumstances beyond the control of the parties 
concerned, which prevent delivery of a vessel before January 1, 
2004. The bill, as it was referred to the Committee, originally 
applied the Title XI amendments to loan guarantee commitments 
made on or after January 1, 2000, and with respect to vessels 
delivered on or after January 1, 2003. The Lott-Breaux 
amendments adopted by the Committee amended these effective 
dates by delaying them for an additional year.
  The delay in the implementation date for the changes to Title 
XI of the 1936 Act, is critical to the ability of those 
shipyards which were formerly building exclusively naval 
vessels for the last 20 years to transition to building a 
combination of naval and commercial vessels. If the provisions 
of the existing Title XI loan guarantee program were to be 
reduced abruptly, some U.S. shipyards that had been dependent 
on defense business could lose their ability to remain viable 
commercial concerns. In light of the numerous exceptions and 
exemptions granted to foreign shipyards under the OECD 
Agreement and the so-called standstill agreement, the Committee 
believes the modest exception made by section 115 is reasonable 
and appropriate.
  Section 115(b) also clarifies that the changes made in 
section 114 shall not prevent the Secretary of Transportation 
from employing Title XI of the 1936 Act in a manner consistent 
with clause 8 and Annex II of the Export Credit Understanding, 
to assist U.S. shipyards in meeting unfair competition by 
shipyards in countries that are not Shipbuilding Agreement 
parties.

SECTION 117. JONES ACT AND RELATED LAWS NOT AFFECTED.

  Section 117(a) provides that nothing in the Shipbuilding 
Agreement shall be construed to amend, alter, or modify in any 
manner the Merchant Marine Act, 1920 (46 App. U.S.C. 861 et 
seq.), the Act of June 19, 1886 (46 App. U.S.C. 289), or any 
other provision of law set forth in Accompanying Note 2 to 
Annex II of the Shipbuilding Agreement (referred to 
collectively as the coastwise trade laws of the United States). 
Furthermore, nothing in the Shipbuilding Agreement shall 
undermine the operation or administration of the coastwise 
trade laws of the United States or impede their objectives.
  Section 117(b) provides that nothing in the Shipbuilding 
Agreement shall be construed to provide any mechanism for 
withdrawal of concessions under GATT 1994 any World Trade 
Organization (WTO) agreement by another Shipbuilding Agreement 
party because of construction of vessels by U.S. shipbuilders 
for operation in the U.S. coastwise trade. The bill, as 
referred to the Committee, originally covered only concessions 
under GATT 1994. The Lott-Breaux amendments adopted by the 
Committee amended this section to also include any WTO 
agreement.
  Section 117(c) provides for an annual review of the 
Shipbuilding Agreement as part of the annual review of all 
trade agreements conducted by the United States Trade 
Representative (USTR). This review shall assess the impact, if 
any, of the Shipbuilding Agreement on the operation or 
implementation of the coastwise trade laws of the United 
States. In making this assessment, the USTR shall consult with 
the Secretary of Transportation, the Secretary of Defense, U.S. 
industry, labor groups, and other interested parties. The USTR 
shall report the results of the review to the President, the 
Senate Committees on Commerce, Science, and Transportation and 
Finance, and the House Committees on National Security and Ways 
and Means.

SECTION 120. PROTECTION OF UNITED STATES SECURITY INTERESTS.

  Section 120 provides that nothing in the Shipbuilding 
Agreement shall be construed to prevent the United States from 
taking any action which it considers necessary for the 
protection of its essential security interest, including 
invoking its sovereign authority to define, for the purposes of 
excluding from coverage under the Shipbuilding Agreement, 
``military vessels'', ``military reserve vessels'', or 
``essential security interest'' on a case-by-case basis, as 
determined by the Secretary of Defense. The Committee believes 
it necessary and appropriate that U.S. sovereign authority to 
set its security requirements should not be eliminated through 
trade-related actions by other countries.
  The bill, as referred to the Committee, originally required 
the President to determine whether it is necessary for the 
protection of the United States' essential security interest to 
exclude military vessels and military reserve vessels from 
coverage under the Shipbuilding Agreement. It also authorized 
the Secretary of Defense, after this determination was made by 
the President, to designate the vessels to be excluded. The 
Lott-Breaux amendments adopted by the Committee amended this 
section to provide the Secretary of Defense with the authority 
to determine the military vessels and military reserve vessels 
to be excluded and the essential security interest of the 
United States that triggers these exclusions.

SECTION 121. DEFINITIONS.

  Section 121 defines several terms used in subtitle B of the 
OECD Shipbuilding Trade Agreement Act. The terms ``military 
vessel'' and ``military reserve vessel'', as used in new 
section 861 of the Tariff Act of 1930, as added by section 102 
of the OECD Shipbuilding Trade Agreement Act, are identical in 
meaning to those same terms that would be defined in this 
subtitle.
  The term ``a committee of either House to which a joint 
resolution has been referred'' means the Senate Committees on 
Commerce, Science, and Transportation and Finance, and the 
House Committees on National Security and Ways and Means.
  The term ``military vessel'' means a vessel, that according 
to its basic structural characteristics and ability, is 
intended to be used exclusively for military purposes. The 
Committee intends that any self-propelled seagoing vessel of 
100 gross tons or more and any tug of 365 kilowatts or more 
that is owned by one of the United States Armed Forces for the 
purposes of executing one or more missions of that Armed Force 
should be designated as a military vessel and excluded from 
actions taken under the Shipbuilding Agreement (smaller self-
propelled vessels, less powerful tugs, and non self-propelled 
vessels are already excluded from coverage under the 
Shipbuilding Agreement).
  The term ``military reserve vessel'' means a vessel, other 
than a military vessel, that has been constructed with national 
defense features and characteristics required by the Secretary 
of Defense for the purpose of supporting the United States 
Armed Forces in a contingency, if the vessel (without regard to 
such features and characteristics) is otherwise subject to the 
terms and conditions of the Shipbuilding Agreement. The term 
``military reserve vessel'' clarifies that national defense 
features and characteristics required for sealift, or other 
purposes, by the Secretary of Defense and included in privately 
owned vessels are excluded from coverage under the Shipbuilding 
Agreement. The construction of the remainder of the vessel is 
subject to the Shipbuilding Agreement.
  The bill, as referred to the Committee, originally did not 
include a definition of the term ``a committee of either House 
to which a joint resolution has been referred.'' The Lott-
Breaux amendments adopted by the Committee amended this section 
to include that definition.

                           Votes in Committee

                      ROLLCALL VOTES IN COMMITTEE

  In accordance with paragraph 7(c) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following description of the record votes during its 
consideration of S. 1216:
  Senator Lott offered amendments (for himself and Mr. Breaux). 
By rollcall vote of 14 yeas and 6 nays as follows, the 
amendments were agreed to:
        YEAS--14--                    NAYS--6
Mr. McCain                          Ms. Snowe
Mr. Stevens                         Mr. Hollings
Mr. Burns--                         Mr. Inouye
Mr. Gorton--                        Mr. Ford\1\
Mr. Lott\1\ -                       Mr. Dorgan
Mrs. Hutchison-                     Mr. Wyden
Mr. Ashcroft-
Mr. Frist\1\-
Mr. Abraham
Mr. Brownback
Mr. Rockefeller
Mr. Kerry\1\
Mr. Breaux
Mr. Bryan\1\

    \1\By proxy

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, Senate Report 105-84 discusses the changes 
in existing law that would result from the bill.

                               
