[Senate Report 106-111]
[From the U.S. Government Publishing Office]






                                                       Calendar No. 220
-----------------------------------------------------------------------
106th Congress                                                   Report
 1st Session                     SENATE                         106-111
_______________________________________________________________________




  Maritime Administration Authorization Act for Fiscal Years 2000 and 
                                  2001

                               __________

                              R E P O R T

                                 OF THE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                                   on

                                 S. 937



                                     

                 July 20, 1999.--Ordered to be printed

                               --------

                    U.S. GOVERNMENT PRINTING OFFICE                    
69-010                     WASHINGTON : 1999





       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       one hundred sixth 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             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi              Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA SNOWE, Maine                 JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia

                       Mark Buse, Staff Director

                  Martha P. Allbright, General Counsel

     Ivan A. Schlager, Democratic Chief Counsel and Staff Director

               Kevin D. Kayes, Democratic General Counsel

                                  (ii)



                                                       Calendar No. 220

106th Congress                                                   Report
  1st Session                    SENATE                         106-111

======================================================================




 
  MARITIME ADMINISTRATION AUTHORIZATION ACT FOR FISCAL YEARS 2000 AND 
                                  2001

                                _______
                                

                 July 20, 1999.--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. 937]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 937) ``A bill to authorize 
appropriations for fiscal years 2000 and 2001 for certain 
maritime programs of the Department of Transportation, and for 
other purposes'', having considered the same, reports favorably 
thereon with an amendment in the nature of a substitute and an 
amendment to the title and recommends that the bill as amended 
do pass.

                          Purpose of the Bill

  The bill authorizes appropriations for fiscal year (FY) 2000 
for the Maritime Administration (MarAd); amends the Merchant 
Marine Act of 1936 to codify existing regulations regarding 
Title XI; amends Title IX of the Merchant Marine Act of 1936, 
to eliminate for one year the three-year period bulk or break 
bulk vessels newly registered under the United States-flag must 
wait in order to carry government-impelled cargo; amends Title 
XII of the Merchant Marine Act of 1936, to extend the War Risk 
Insurance program through June 30, 2005; changes the 
requirement for an annual report to Congress by MarAd to a 
biennial requirement; clarifies ownership of the vessel 
JEREMIAH O'BRIEN; and requires MarAd to report to Congress on 
the status of Federal funding for maritime research and 
technology development.

                          Background and Needs

  MarAd administers various United States merchant marine 
support programs within the Department of Transportation (DOT). 
MarAd is composed of approximately 970 employees 
(includingReady Reserve Force (RRF) and United States Merchant Marine 
Academy (USMMA) staff). MarAd programs include Operating-Differential 
Subsidy (ODS), Maritime Security Fleet Program (MSP), Title XI 
guaranteed loan program, various cargo preference programs, maintenance 
of the RRF and National Defense Reserve Fleet (NDRF), and operation of 
the United States Merchant Marine Academy in Kings Point, NY.
  The Committee is aware of the request for assistance from the 
Great Lakes Maritime Academy and strongly urges MarAd to 
consider the proposal within applicable procedures and 
guidelines and provide a grant, if warranted, for the 
installation/repair of a Ship Handling/Bridge Team Management 
Simulator. Additionally, the Committee urges MarAd to carefully 
evaluate the needs of all State maritime school ships with 
regards to repair and maintenance and make available, within 
applicable procedures and guidelines, funds to meet those 
needs.
  The USMMA offers a four-year undergraduate, full scholarship 
program which leads to a Bachelor of Science degree and to a 
merchant marine license as Third Mate or Third Assistant 
Engineer or both. Graduates of USMMA must maintain their 
license for a period of at least six years. In addition, the 
students are enrolled as midshipmen and are commissioned upon 
graduation as ensigns in the United States Naval Reserve with a 
six year commitment. Further, graduates must serve aboard a 
United States-flag vessel, in a maritime related industry, or 
in the armed forces for a period not less than five years.
  The State maritime academies program assists States in the 
training of individuals for service as officers in the United 
States merchant marine. Assistance is provided to participating 
States (California, Maine, Massachusetts, Michigan, New York, 
and Texas) in the form of direct payments to the academies, 
incentive payments to cadets currently enrolled in the Student 
Incentive Payment (SIP) Program, and funding the cost of 
maintenance and repair for MarAd ships provided on loan to the 
schools for use as training ships. Certain maritime academies 
have structured themselves as regional maritime academies and 
allow out-of-state students to be considered as in-state for 
the purpose of tuition and program benefits.
  MarAd's annual discretionary appropriation does not include 
ODS contract authority costs; permanent, indefinite 
appropriations for cargo preference costs; or RRF/NDRF 
maintenance funding. The ODS program paid the cost differential 
for operating vessels under United States-flag versus the lower 
regulatory costs of operating under foreign-flag. The current 
ODS program is winding down. No new ODS contracts may be 
entered into and all existing contracts expire by 2001. RRF/
NDRF maintenance is funded by DOD and administered by MarAd 
under permanent authority.
  MSP commenced in FY 1997 and is authorized at $100 million 
annually through FY 2005, which would fund a fleet of 47 ships. 
MSP funding must be appropriated annually. Participating MSP 
operators are required to sign agreements with the Department 
of Defense to make their vessels and affiliated intermodal 
assets available for national emergencies. MarAd's operations 
and training account funds the administration and staffing of 
MarAd programs (other than the title XI maritime guaranteed 
loan program and RRF costs), the USMMA in Kings Point, NY, 
State maritime school costs associated with Federal training 
ships, training courses for merchant mariners, various 
operating programs, and research and development. The Title XI 
program supports renewed commercial shipbuilding in the United 
States
  The Committee substitute amendment removes controversial 
language from section 3 of the bill that required the Secretary 
to determine that the obligor of a Title XI loan guarantee had 
paid its actual cost of construction before releasing any 
Federally secured funds. The Committee recommends that MarAd 
evaluate carefully any actions it may undertake with regard to 
Title XI loan guarantee provisions in the bill and act to 
insure that risk to the Federal government is minimized.
  Under current law, vessels built or reconstructed in a 
foreign shipyard must be under United States registry for at 
least three years before being eligible to carry cargo under 
the Cargo Preference Act of 1954. The same limitation does not 
apply to vessels that transport military cargoes or Export-
Import Bank cargoes reserved to United States-flag vessels 
under the Cargo Preference Act of 1904 or Public Resolution 17, 
respectively.
  The Merchant Marine Act of 1936 (46 U.S.C. App. 1101) 
mandates that the United States have sufficient vessels to 
carry a ``substantial portion'' of all preference cargo (75 
percent of government impelled food aid cargo). No dry-bulk 
vessels for our preference trades have been built in a United 
States shipyard since the Federal subsidy for ship construction 
(CDS) effectively ended in 1981. As a consequence, our 
preference dry bulk fleet does not have the capacity to carry 
the current and projected food aid and has not been able to 
modernize operations with the latest equipment available for 
bulk shipping operations. This could hurt the transportation of 
food aid, particularly aid directed to Russia and the Balkan 
Nations.
  Given the long history of absence of bulk ship construction 
in United States yards and the low charter rates in our non-
preference international dry bulk trades, the Committee 
believes it is unrealistic to expect that there will be 
sufficient United States-flag dry bulk tonnage to meet the 
demand of our preference trades, or that sufficient tonnage 
will be constructed in United States shipyards at any time in 
the foreseeable future.
  Further, the Committee believes that while not ideal, this 
one-year relaxation of the three year waiting requirement is 
the best way to ensure that the United States-flag dry bulk 
fleet is of sufficient size/number to carry a ``substantial 
portion'' of our preference cargo without any long-term 
economic disadvantage to United States shipyards.
  The Committee has diverse views on various Jones Act issues, 
but all agree that this measure does not affect in any way the 
United States-build requirement contained in the Jones Act. 
Under every major merchant marine act, Congress has recognized 
that the foreign trades, where the competition operates 
foreign-built and government subsidized vessels, should be 
distinguished from the domestic trades, where the competition 
operates United States-built vessels. Moreover, neither the 
previous enactment of section615 of the Merchant Marine Act of 
1936, nor the 1997-enacted Maritime Security Program, nor other foreign 
trade foreign-build permissions has had any spill-over effect on the 
Jones Act because Jones Act issues were not addressed in those 
instances. The Committee's action in reporting S. 937, therefore, will 
have no precedential effect on the Committee's future consideration of 
Jones Act issues.
  The Committee has chosen to limit the waiver of the three 
year waiting period to one year in order to preserve building 
opportunities over the long term for United States shipyards, 
should the market for construction of new United States-built 
dry bulk ships become competitive at some future time. In the 
meantime, the Committee has carefully crafted section 4 to 
enhance job opportunities for United States shipbuilders in the 
near term. The Committee's bill explicitly provides that non-
emergency shipyard repairs and other shipyard work necessary to 
conform vessels to United States-flag standards must be 
performed in a shipyard located in the United States. Such 
shipyard repairs and conforming shipyard work will create 
employment opportunities in domestic yards that otherwise would 
not exist.
  The Committee's decision to relax temporarily the three year 
waiting period for new or reconstructed foreign-built vessels 
to become eligible to carry cargoes under the Cargo Preference 
Act of 1954 will create additional seagoing billets for United 
States merchant mariners. The acquisition of new, modern dry 
bulk vessels, will substantially improve the efficiency of the 
United States-flag fleet dedicated to the food-aid trade, and 
result in significant reductions in shipping costs and 
subsequent substantial savings to United States taxpayers. With 
major savings in transportation costs, appropriations for food-
aid programs will purchase more aid, more United States farm 
produce will be delivered, and increased food-aid relief will 
be possible for the same investment of Federal dollars.

                      Summary of Major Provisions

  The bill authorizes appropriations for the Maritime 
administration (MarAd) for fiscal year 2000 and covers two 
appropriated accounts: (1) operations and training and (2) the 
shipbuilding loan guarantee program authorized by Title XI of 
the Merchant Marine Act of 1936.
  The bill provides $79.8 millions for operations and training 
programs including $41.7 million, an increase of $7.6 million, 
for deferred capital maintenance at the United States Merchant 
Marine Academy. The Committee is concerned with the physical 
condition of the Academy, and would recommend that MarAd move 
expeditiously to address the deterioration of the property. In 
addition, $6 million is authorized for the costs, as defined in 
section 502 of the Federal Credit Reform Act of 1990, of loan 
guarantees authorized by Title XI of the Merchant Marine Act, 
1936, as amended (46 U.S.C. App. 1271 et seq.) and $3.9 million 
is for administrative expenses related to these loan guarantee 
commitments. Finally, the bill authorizes $100,000 for MarAd to 
prepare a report to Congress on the status of research and 
technology development, and to make recommendations on how 
MarAd intends to provide and oversee the necessary research to 
consider the needs for the Maritime Transportation System (MTS) 
for the 21st Century.
  The bill also provides the Secretary the authority to hold 
all bond proceeds generated under Title XI during the 
construction period in escrow. Currently, the Secretary must 
administratively establish a separate construction fund with a 
private bond agent for a portion of the bond proceeds not 
captured in escrow. This will eliminate the cost associated 
with the establishment of the separate construction fund and 
better protect the government's interest.
  Further, the measure provides the Secretary authority under 
Title XI to collect and hold cash collateral in the United 
States Treasury, under certain circumstances associated with a 
guaranteed transaction. This will relieve the obligers and the 
agency from spending the time and money associated with 
negotiating superfluous depository agreements and legal 
opinions in Title XI transactions.
  The bill also amends current law to provide a one year waiver 
of the three year period bulk and breakbulk vessels newly 
registered under the United States flag, which must wait in 
order to carry Government-impelled cargo. The wavier would be 
in effect only for one year beginning on the date of enactment. 
It is essential to provide a window through which some newer 
vessels may be able to enter the market to transport some of 
the increased food aid.
  Finally, the bill will reauthorize the War Risk Insurance 
Program through June 30, 2005, change the requirement for an 
annual report to Congress by the Maritime Administration 
detailing it's activities to a biennial report, and make clear 
the ownership status of the vessel named the JEREMIAH O'BRIEN, 
which is currently being used as merchant mariner memorial.

                          Legislative History

  S. 937 was introduced in the Senate on May 3, 1999 by Senator 
Hutchison. The bill is cosponsored by Senators McCain, 
Hollings, and Inouye. In open executive session on June 3, 
1999, the Committee considered S. 937, and ordered the 
legislation reported favorably with an amendment in the nature 
of a substitute. The amendment in the nature of a substitute 
eliminated the open-ended authorization of such sums as 
necessary for Fiscal Year 2001, eliminated language on the 
priority of the release of funds for the cost of construction, 
and included the requirement of a report on the status of 
research on maritime transportation. The House Department of 
Defense Authorization bills (H.R. 1401) includes provisions 
similar or identical to the five sections of S. 937, as 
reported, which are within the jurisdiction of the Committee. 
The Committee anticipates the Senate Armed Services Committee 
will endorse the provisions of S. 937, as reported, as the 
Senate position on the corresponding provisions in the House 
and Senate Department of Defense Authorization legislation 
during the conference with the House of Representatives on that 
legislation.

                            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 Committee provides the 
following cost estimate, prepared by the Congressional Budget 
Office:

                                     U.S. Congress,
                                Congressional Budget Office
                                     Washington, DC, June 29, 1999.
Hon. John McCain,
Chairman, Committee on Commerce, Science, and Transportation, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for Sec. 937, the Maritime 
Administration Authorization Act for Fiscal Year 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Deborah Reis.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 937--Maritime Administration Authorization Act for Fiscal Year 2000

    Summary: Assuming appropriation of the amounts authorized 
by S. 937, CBO estimates that the federal government would 
spend about $80 million, mostly over the next year, to carry 
out ongoing maritime programs. The bill would not affect direct 
spending or receipts; therefore, pay-as-you-go procedures would 
not apply. S. 937 contains no intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act 
(UMRA) and would impose no costs on state, local, or tribal 
governments.
    S. 937 would authorize the appropriation of $80 million for 
operation and training activities of the Maritime 
Administration (MARAD) during fiscal year 2000. The bill also 
would authorize $10 million for fiscal year 2000 loan 
guarantees and related administrative expenses, as already 
authorized under the Merchant Marine Act of 1936. Section 9 of 
the bill would direct MARAD to conduct a study of maritime 
research and development. The study would examine, among other 
funding issues, the relative amount of federal funding 
historically provided to maritime programs as compared to those 
of other modes of transportation. For the purpose of carrying 
out this study over the next nine months, the bill would 
authorize the appropriation of $100,000. Other bill provisions 
would have no significant effect on the federal budget. These 
include an amendment to the Shipping Act of 1936 that would 
ensure that escrow funds paid by recipients of certain 
federally guaranteed loans would be deposited into the U.S. 
Treasury.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill is shown in the following table. 
The costs of this legislation fall within budget function 400 
(transportation). For the purposes of this estimate, CBO 
assumes that the entire amount authorized for MARAD operation 
and training activities for fiscal year 2000 will be 
appropriated for that year. The estimate of outlays is based on 
historical spending patterns for MARAD. Because appropriations 
for maritime loan guarantees and related administrative costs 
are already authorized under existing law, the budgetary 
effects of S. 937 would be limited to the $80 million of 
authorized expenditures for MARAD operations and training 
programs.

----------------------------------------------------------------------------------------------------------------
                                                                      By Fiscal Year, in Millions of Dollars
                                                                 -----------------------------------------------
                                                                   1999    2000    2001    2002    2003    2004
----------------------------------------------------------------------------------------------------------------

                                        Spending subject to appropriation

MARAD Spending Under Current Law
    Budget Authority \1\........................................      72       0       0       0       0       0
    Estimated Outlays...........................................      80      12       4       0       0       0
Proposed Changes
    Authorization Level \2\.....................................       0      80       0       0       0       0
    Estimated Outlays...........................................       0      68       8       4       0       0
MARAD Spending Under S. 937
    Authorization Level \2\.....................................      72      80       0       0       0       0
    Estimated Outlays...........................................      80      80      12       4       0       0
----------------------------------------------------------------------------------------------------------------
\1\ The 1999 level is the amount appropriated for that year.
\2\ No amounts are included as proposed changes for loan guarantees subsidies or administrative costs because
  these amounts are already authorized under current law.

    Pay-as-you-go consideration: None.
    Intergovernmental and private-sector impact: The bill 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Deborah Reis.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                      Regulatory Impact Statement

  In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported:
  S. 937, as reported, would authorize appropriations to 
continue existing Maritime Administration programs and would 
make little change in current law. While most sections of the 
bill would have minimal regulatory impact, the provisions of 
section 3 of the bill would affect the Maritime 
Administration's loan guarantee program by expediting the 
approval and closing of loan guarantee applications. This 
change will save the Maritime Administration time and money in 
it's conduct of the loan program and help minimize the risk 
associated with the program.
  Because S. 937 does not create any new programs, the 
legislation will have no additional regulatory impact, and will 
result in no additional reporting requirements. The legislation 
will have no further effect on the number or types of 
individuals and businesses regulated, the economic impact of 
such regulation, the personal privacy of affected individuals, 
or the paperwork required from such individuals and businesses.

                      Section-by-Section Analysis


Section 1. Short title

  Section 1 states the short title of the proposal, the 
``Maritime Administration Authorization Act for Fiscal Year 
2000''.

Section 2. Authorization of Appropriations for fiscal year 2000

  Section 2 (1) authorizes $79,764,000 for MarAd operations and 
training activities, of which $30,930,000 is authorized for 
MarAd operations. Operations and training activities include 
the costs incurred by headquarters and region staffs in the 
administration and direction of the various MarAd programs such 
as:
          (1) Emergency planning and operations, including 
        administration of the Maritime Security Program 
        agreements, and military logistics through United 
        States ports.
          (2) Negotiation of agreements, understandings and 
        arrangements to reduce barriers that restrict American 
        access to foreign ports and markets.
          (3) Port, intermodal, and environmental activities.
          (4) Labor, education, training, and safety 
        activities.
          (5) Administration of the Capital Construction Fund/
        Construction Reserve Fund.
          (6) Monitoring compliance with cargo reservation 
        statutes.
          (7) Administration of the Operating-Differential 
        Subsidy agreements.
  Operations and training funds also include funds for the 
operation of the United States Merchant Marine Academy (USMMA) 
at Kings Point, New York, and continuing assistance to the six 
State maritime academies. Expenses for maritime training at the 
USMMA, $41,773,000, which includes an increase of $7.6 million, 
for deferred capital maintenance and expenses for financial 
assistance to the State maritime academies $ 7,161,000.
  The Omnibus Appropriations Act for Fiscal Year 1999, Public 
Law 105-277, included the American Fisheries Act. The American 
Fisheries Act tasks MarAd with new duties and responsibilities 
in determining the citizenship of certain fishing vessels. The 
measure designates MarAd as the primary agency responsible for 
ensuring that the proper citizenship requirements are adhered 
to for ownership of vessels 100 feet or greater that have, or 
are seeking, a fisheries endorsement to their documentation. In 
enforcing citizenship standards, MarAd will be required to 
rigorously scrutinize transfers of ownership or control with 
particular attention to leases, charters, mortgages, and 
financing arrangements for fishing vessels. Further, MarAd will 
need to approve qualified trustees to hold mortgages where 
vessel financing is procured through foreign lenders. $200,000 
in operations and training funds is provided for the 
implementation of MarAd's duties under the American Fisheries 
Act.
  Operations and training funds will also be used to implement 
a new administrative process to waive the United States-build 
requirement of the Jones Act for certain small passenger 
vessels, enacted in P.L. 105-383, the Coast Guard Authorization 
Act of 1998. The program is currently under development.
  Section 2(2) of the proposal contains the authorization for 
the maritime guaranteed loan program that is administered by 
MarAd under Title XI of the Merchant Marine Act of 1936, as 
amended (46 App. U.S.C. 1271 et seq.). Title XI authorizes the 
Secretary of Transportation (delegated to the Maritime 
Administrator) to enter into commitments to guarantee private 
sector debt financing for the construction or reconstruction of 
United States-flag vessels and export vessels in United States 
shipyards, and for United States shipyard modernization and 
improvement projects. Title XI loan guarantees enable ship 
owners and shipyards to borrow private sector funds on more 
favorable terms than might otherwise be available. Government 
funds are expended only in the event of a default, because the 
private sector provides total project funding.
  Federal accounting procedures enacted in the Federal Credit 
Reform Act of 1990 (2 U.S.C. 661 et seq.) require that 
estimated costs of potential defaults and administrative costs 
be appropriated before a loan guarantee commitment may be 
entered into by the Government. An authorization of $6,000,000 
for the estimated costs of loan guarantee commitments would 
enable MarAd to provide loan guarantees of $120,000,000 based 
on a 5 percent loan subsidy rate. In accordance with the 
Federal Credit Reform Act of 1990, MarAd is provided a separate 
authorization of $3,893,000 for administrative expenses for the 
entire Title XI program, to manage both the existing portfolio 
of loan guarantees and new guarantees.

Section 3. Amendments to title XI of the Merchant Marine Act of 1936

  Section 1108 of the Merchant Marine Act of 1936, permits the 
Secretary to accept and hold in escrow a portion of the 
proceeds of guaranteed funds during the construction period of 
a vessel. Shortly after enactment of section 1108, MarAd 
realized that the section did not provide for a means to 
protect all the proceeds of the guaranteed bonds from premature 
release during the construction period, i.e., it did not 
provide a mechanism to release the funds only when the 
shipowner had expended its agreed upon share of the costs of 
building the vessel and then only to the extent the shipyard 
had performed construction work. Therefore, MarAd 
administratively established a construction fund in which a 
private escrow agent would, for a fee, hold the portion of the 
bond proceeds that were not captured in the escrow fund. 
Administration of the construction fund in many cases, however, 
has proved to be costly, time consuming and burdensome to the 
agency and its customers. The amendments to section 1108 
contained in section 3(a) provide a simple remedy to the 
problem by placing all of the bond proceeds in the escrow fund.
  Section 3(b) would establish a new section 1109 of the 
Merchant Marine Act of 1936. MarAd's regulations governing a 
guarantee transaction under Title XI require that an obligor 
must establish certain reserve funds and accounts and make 
deposits therein under certain circumstances. The accounts are 
opened with a private depository, usually a commercial bank. 
MarAd is then granted security interests in such accounts as 
collateral for the guarantees. Financing statements under the 
Uniform Commercial Code are filed in applicable States or other 
action is taken in order to perfect such security interests. A 
legal opinion with respect to the perfection and first priority 
of such security interests is a necessary part of the closing 
documents.
  The laws relative to the proper granting and perfection of 
security interests vary from State to State, and MarAd must 
rely on the legal opinions of the obligor's local counsel. The 
amount of time and money spent in negotiating these legal 
opinions and the associated documentation is disproportionately 
high and impairs the efficiency of the program.
  By giving MarAd the opportunity to hold and invest its cash 
collateral in the Treasury, section 3(b) will relieve the 
obligor and the agency from spending the substantial time and 
money associated with negotiating depository agreements and 
legal opinions in Title XI transactions.

Section 4. Amendments to title IX of the Merchant Marine Act of 1936

  Section 4(a) would amend Title IX of the Merchant Marine Act 
of 1936, as amended, to create a new section 903 eliminating, 
for one year, the three-year period that bulk or breakbulk 
vessels (including heavylift vessels) newly registered under 
the United States-flag must wait, in order to carry government-
impelled cargo. This new section would remain in effect for one 
year from the date of enactment, or until enactment of the 
Organization for Economic Cooperation and Development (OECD) 
Agreement on Shipbuilding Subsidies (which would permit new 
vessels built in OECD countries to immediately carry preference 
cargoes). Present law requires a vessel that is registered 
under a foreign flag, or is foreign builtor reconstructed in a 
foreign shipyard to be under United States registry for at least three 
years before the vessel is able to carry cargo reserved to United 
States-flag vessels under the Cargo Preference Act of 1954. This 
requirement does not apply to liner vessels that receive operating 
payments under the Maritime Security Program. Bulk vessels do not 
qualify for operating payments under the Maritime Security Program and 
are subject to the three-year wait period.
  It is unlikely that a newly built foreign vessel registered 
in the United States could support itself in United States 
foreign commercial trades during the three-year waiting period 
due to presently low charter rates. Thus, there is a barrier to 
replacement and modernization of the United States-flag bulk 
fleet, which is required by statute to transport 75 percent of 
agricultural products exported under certain food aid programs. 
The youngest United States-flag self-propelled bulk vessel in 
foreign trade is 12 years old and shippers of cargo subject to 
cargo preference sometimes have a difficult time obtaining a 
United States-flag vessel. This proposed amendment provides a 
limited opportunity for newly built foreign vessels to transfer 
to United States registry and to be immediately eligible to 
carry preference cargoes. In return, the vessels must perform 
non-emergency shipyard repairs, and other shipyard work 
necessary to conform the vessel to United States flag 
standards, in a shipyard of the United States and such vessels 
shall not be granted preapproval to leave United States 
registry under section 9(e) of the Shipping Act, 1916, as 
amended on October 19, 1996. The amendment makes clear that 
these vessels shall not be entitled to any of the favorable tax 
benefits of the Capital Construction Fund under section 607 of 
the 1936 Act.
  It is anticipated that this amendment will improve the vessel 
profile of the US.-flag dry bulk fleet, add jobs for United 
States merchant mariners, and increase the percentage of United 
States foreign commerce carried in United States-flag vessels. 
These additional modern vessels will increase the competition 
for carriage of government-impelled cargoes which could result 
in substantial cost savings to the United States Government.
  Section 4(b) would amend section 901(b)(c)(2) of the Merchant 
Marine Act of 1936, so that the cargo preference year for 
determining compliance will coincide with the Federal 
Government Fiscal Year. This would simplify record keeping and 
management of the program without impact to any involved 
agencies or shippers.

Section 5. Extension of war risk insurance

  Title XII of the Merchant Marine Act of 1936, authorizes the 
Secretary of Transportation to provide policies for vessel war 
risk insurance to vessel operators, without premium, at the 
request of the Secretary of Defense whenever it appears that 
such insurance cannot be obtained on reasonable terms and 
conditions from commercial underwriters. The Department of 
Defense must be able to provide policies immediately during a 
national emergency. During Operation DESERT SHIELD/DESERT 
STORM, MarAd issued war risk insurance policies covering war 
risk hull, war risk protection and indemnity, and second 
seamen's (life insurance) under section 1205 on a total of 388 
vessels. Title XII war risk authority was also utilized during 
Operation RESTORE HOPE in Somalia and Operation RESTORE 
DEMOCRACY in Haiti, and in February of 1998 during the Iraq 
confrontation. Section 5 would extend the Secretary's current 
authority to provide vessel war risk insurance through June 30, 
2005.

Section 6. Transportation report on maritime activities

  Section 6 would change the requirement for an annual report 
to Congress by MarAd detailing its activities to a biennial 
report. This change would enable MarAd to provide a more 
comprehensive report on its ongoing maritime activities, as 
well as result in savings to the government with regard to 
publication and production costs.

Section 7. Ownership of the JEREMIAH O'BRIEN

  Section 303 of P.L. 101-595, the Federal Maritime Commission 
Authorization Act of 1990, codified at 46 U.S.C. 3302(1), 
exempted three vessels from certain inspection requirements 
under Chapter 33 of Title 46, United States Code. The ships, 
John W. Brown, Lane Victory and Jeremiah O'Brien, serve as 
merchant marine memorials. At the time the exemption was 
enacted, the first two ships were owned by private nonprofit 
corporations named in the law. The third ship was owned by the 
United States Government acting through MarAd. Section 1013 of 
P.L. 104-324, the Coast Guard Authorization Act of 1996, 
authorized conveyance of title to the Jeremiah O'Brien to a 
nonprofit corporation for use as a merchant marine memorial. 
Under this authority, the National Liberty Ship Memorial, Inc. 
received title to the ship on October 10, 1998. Section 7 would 
make clear the ownership status of that vessel.

Section 8. Maritime research and technology development

  Section 8 authorizes $100,000 for MarAd to prepare a report 
to Congress on the status of research and technology 
development in the different transportation modes. MarAd will 
be required to report on Federal funds spent on research for 
each mode of transportation and provide a description of 
current and future research proposals for our nation's maritime 
transportation system.

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, 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 material is printed 
in italic, existing law in which no change is proposed is shown 
in roman):

                           TITLE 46. SHIPPING

                    Subtitle II. Vessels and Seamen

              PART B. INSPECTION AND REGULATION OF VESSELS

                    CHAPTER 33. INSPECTION GENERALLY


Sec. 3302. Exemptions

  (a) A vessel is not excluded from one category only because 
the vessel is--
          (1) included in another category of section 3301 of 
        this title; or
          (2) excluded by this section from another category of 
        section 3301 of this title.
  (b) Except as provided in subsection (c)(3) of this section, 
a fishing vessel, including a vessel chartered part-time as a 
fish tender vessel, is exempt from section 3301 (1), (7), (11), 
and (12) of this title.
  (c)(1) Except as provided in paragraph (3) of this 
subsection, a fish processing vessel of not more than 5,000 
gross tons as measured under section 14502 of this title, or an 
alternate tonnage measured under section 14302 of this title as 
prescribed by the Secretary under section 14104 of this title 
is exempt from section 3301 (1), (6), (7), (11), and (12) of 
this title.
  (2) Except as provided in paragraphs (3) and (4) of this 
subsection, a fish tender vessel of not more than 500 gross 
tons as measured under section 14502 of this title, or an 
alternate tonnage measured under section 14302 of this title as 
prescribed by the Secretary under section 14104 of this title 
is exempt from section 3301 (1), (6), (7), (11), and (12) of 
this title.
  (3)(A) A fishing vessel or fish processing vessel is exempt 
from section 3301 (1), (6), and (7) of this title when 
transporting cargo (including fisheries-related cargo) to or 
from a place in Alaska if--
           (i) that place does not receive weekly common 
        carrier service by water from a place in the United 
        States;
           (ii) that place receives such common carrier service 
        and the cargo is of a type not accepted by that common 
        carrier service; or
           (iii) the cargo is proprietary cargo owned by the 
        owner of the vessel or any affiliated entity or 
        subsidiary.
   (B) A fish tender vessel of not more than 500 gross tons as 
measured under section 14502 of this title, or an alternate 
tonnage measured under section 14302 of this title as 
prescribed by the Secretary under section 14104 of this title, 
which is qualified to engage in the Aleutian trade is exempt 
from section 3301 (1), (6), and (7) of this title when 
transporting cargo (including fisheries-related cargo) to or 
from a place in Alaska outside the Aleutian trade geographic 
area if--
           (i) that place does not receive weekly common 
        carrier service by water from a place in the United 
        States;
           (ii) that place receives such common carrier service 
        and the cargo is of a type not accepted by that common 
        carrier service; or
           (iii) the cargo is proprietary cargo owned by the 
        owner of the vessel or any affiliated entity or 
        subsidiary.
   (C) In this paragraph, the term ``proprietary cargo'' means 
cargo that--
           (i) is used by the owner of the vessel or any 
        affiliated entity or subsidiary in activities directly 
        related to fishing or the processing of fish;
           (ii) is consumed by employees of the owner of the 
        vessel or any affiliated entity or subsidiary who are 
        engaged in fishing or in the processing of fish; or
           (iii) consists of fish or fish products harvested or 
        processed by the owner of the vessel or any affiliated 
        entity or subsidiary.
   (D) Notwithstanding the restrictions in subparagraph (B) of 
this paragraph, vessels qualifying under subparagraph (B) may 
transport cargo (including fishery-related products) from a 
place in Alaska receiving weekly common carrier service by 
water to a final destination in Alaska not receiving weekly 
service by water from common carriers.
  (4) A fish tender vessel is exempt from section 3301 (1), 
(6), and (7) of this title when engaged in the Aleutian trade 
if the vessel--
           (A) is not more than 500 gross tons as measured 
        under section 14502 of this title, or an alternate 
        tonnage measured under section 14302 of this title as 
        prescribed by the Secretary under section 14104 of this 
        title;
           (B) has an incline test performed by a marine 
        surveyor; and
           (C) has written stability instructions posted on 
        board the vessel.
  (d)(1) A motor vessel of less than 150 gross tons as measured 
under section 14502 of this title, or an alternate tonnage 
measured under section 14302 of this title as prescribed by the 
Secretary under section 14104 of this title, constructed before 
August 23, 1958, is not subject to inspection under section 
3301(1) of this title if the vessel is owned or demise 
chartered to a cooperative or association that only transports 
cargo owned by at least one of its members on a nonprofit basis 
between places within the waters of--
           (A) southeastern Alaska shoreward of the Boundary 
        Line; or
           (B) southeastern Alaska shoreward of the Boundary 
        Line and--
                   (i) Prince Rupert, British Columbia; or
                   (ii) waters of Washington shoreward of the 
                Boundary Line, via sheltered waters, as defined 
                in article I of the treaty dated December 9, 
                1933, between the United States and Canada 
                defining certain waters as sheltered waters.
  (2) The transportation authorized under this subsection is 
limited to and from places not receiving annual weekly 
transportation service from any part of the United States by an 
established water common carrier. However, the limitation does 
not apply to transporting cargo of a character not accepted for 
transportation by that carrier.
  (e) A vessel laid up, dismantled, or out of commission is 
exempt from inspection.
  (f) Section 3301 (4) and (8) of this title does not apply to 
an oceanographic research vessel because it is carrying 
scientific personnel.
  (g)(1) Except when compliance with major structural or major 
equipment requirements is necessary to remove an especially 
hazardous condition, an offshore supply vessel is not subject 
to regulations or standards for those requirements if the 
vessel--
           (A) was operating as an offshore supply vessel 
        before January 2, 1979; or
           (B) was contracted for before January 2, 1979, and 
        entered into service as an offshore supply vessel 
        before October 6, 1980.
  (2) After December 31, 1988, this subsection does not apply 
to an offshore supply vessel that is at least 20 years of age.
  (h) An offshore supply vessel operating on January 1, 1979, 
under a certificate of inspection issued by the Secretary, is 
subject to an inspection standard or requirement only if the 
standard or requirement could have been prescribed for the 
vessel under authority existing under law on October 5, 1980.
  (i)(1) The Secretary may issue a permit exempting a vessel 
from any part of the requirements of this part for vessels 
transporting cargo, including bulk fuel, from one place in 
Alaska to another place in Alaska only if the vessel--
           (A) is not more than 300 gross tons as measured 
        under section 14502 of this title, or an alternate 
        tonnage measured under section 14302 of this title as 
        prescribed by the Secretary under section 14104 of this 
        title;
           (B) is in a condition that does not present an 
        immediate threat to the safety of life or the 
        environment; and
           (C) was operating in the waters off Alaska as of 
        June 1, 1976, or the vessel is a replacement for a 
        vessel that was operating in the waters off Alaska as 
        of June 1, 1976, if the vessel being replaced is no 
        longer in service.
  (2) Except in a situation declared to be an emergency by the 
Secretary, a vessel operating under a permit may not transport 
cargo to or from a place if the cargo could be transported by 
another commercial vessel that is reasonably available and that 
does not require exemptions to operate legally or if the cargo 
could be readily transported by overland routes.
  (3) A permit may be issued for a specific voyage or for not 
more than one year. The permit may impose specific requirements 
about the amount or type of cargo to be carried, manning, the 
areas or specific routes over which the vessel may operate, or 
other similar matters. The duration of the permit and 
restrictions contained in the permit shall be at the sole 
discretion of the Secretary.
  (4) A designated Coast Guard official who has reason to 
believe that a vessel issued a permit is in a condition or is 
operated in a manner that creates an immediate threat to the 
safety of life or the environment or is operated in a manner 
that is inconsistent with the terms of the permit, may direct 
the master or individual in charge to take immediate and 
reasonable steps to safeguard life and the environment, 
including directing the vessel to a port or other refuge.
  (5) If a vessel issued a permit creates an immediate threat 
to the safety of life or the environment, or is operated in a 
manner inconsistent with the terms of the permit or the 
requirements of paragraph (2) of this subsection, the permit 
may be revoked. The owner, charterer, managing operator, agent, 
master, or individual in charge of a vessel issued a permit, 
that willfully permits the vessel to be operated, or operates, 
the vessel in a manner inconsistent with the terms of the 
permit, is liable to the United States Government for a civil 
penalty of not more than $1,000.
  (j) Notwithstanding another provision of this chapter, the 
Secretary is not required to inspect or prescribe regulations 
for a nautical school vessel of not more than 15 gross tons as 
measured under section 14502 of this title, or an alternate 
tonnage measured under section 14302 of this title as 
prescribed by the Secretary under section 14104 of this title--
          (1) when used in connection with a course of 
        instruction dealing with any aspect of maritime 
        education or study; and
          (2) operated by--
                   (A) the United States Merchant Marine 
                Academy; or
                   (B) a State maritime academy assisted under 
                section 1304 of the Merchant Marine Act, 1936 
                (46 App. U.S.C. 1295c).
  (k) Only the boiler, engine, and other operating machinery of 
a steam vessel that is a recreational vessel of not more than 
65 feet overall in length are subject to inspection under 
section 3301(9) of this title.
  (l)(1) The Secretary may issue a permit exempting the 
following vessels from the requirements of this part for 
passenger vessels so long as the vessels are owned by nonprofit 
organizations and operated as nonprofit memorials to merchant 
mariners:
          (A) The steamship John W. Brown (United States 
        official number 242209), owned by Project Liberty Ship 
        Baltimore, Incorporated, located in Baltimore, 
        Maryland.
          (B) The steamship Lane Victory (United States 
        official number 248094), owned by the United States 
        Merchant Marine Veterans of World War II, located in 
        San Pedro, California.
          (C) The steamship Jeremiah O'Brien (United States 
        official number 243622), owned by the [United States 
        Maritime Administration.] National Liberty Ship 
        Memorial, Inc.
  (2) The Secretary may issue a permit for a specific voyage or 
for not more than one year. The Secretary may impose specific 
requirements about the number of passengers to be carried, 
manning, the areas or specific routes over which the vessel may 
operate, or other similar matters.
  (3) A designated Coast Guard official who has reason to 
believe that a vessel operating under this subsection is in a 
condition or is operated in a manner that creates an immediate 
threat to life or the environment or is operated in a manner 
that is inconsistent with this section, may direct the master 
or individual in charge to take immediate and reasonable steps 
to safeguard life and the environment, including directing the 
vessel to a port or other refuge.
  (m) A seagoing barge is not subject to inspection under 
section 3301(6) of this title if the vessel is unmanned and 
does not carry--
          (1) a hazardous material as cargo; or
          (2) a flammable or combustible liquid, including oil, 
        in bulk.

           *       *       *       *       *       *       *


                       MERCHANT MARINE ACT, 1936

SEC. 208. REPORTS TO CONGRESS [46 U.S.C. APP. 1118]

  The Federal Maritime Commission and the Secretary of 
Transportation shall, by April [1 each] 1st of each odd-
numbered year, make a report to Congress, which shall include 
the results of its or his investigations, a summary of its or 
his transactions, its or his recommendations for legislation, a 
statement of all receipts under this Act, and the purposes for 
which all expenditures were made.

           *       *       *       *       *       *       *


SEC. 901. SHIPMENT REQUIREMENTS FOR CERTAIN EXPORTS SPONSORED BY 
                    DEPARTMENT OF AGRICULTURE. [46 U.S.C. APP 1241F]

  (a) Minimum Requirement Respecting Gross Tonnage Transported 
in United States-flag Commercial Vessels; Implementation.--
          (1) In addition to the requirement for United States-
        flag carriage of a percentage of gross tonnage imposed 
        by section 901(b)(1) of this Act, 25 percent of the 
        gross tonnage of agricultural commodities or the 
        products thereof specified in subsection (b) shall be 
        transported on United States-flag commercial vessels.
          (2) In order to achieve an orderly and efficient 
        implementation of the requirement of paragraph (1)--
                  (A) an additional quantity equal to 10 
                percent of the gross tonnage referred to in 
                paragraph (1) shall be transported in United 
                States-flag vessels in calendar year 1986;
                  (B) an additional quantity equal to 20 
                percent of the gross tonnage shall be 
                transported in such vessels in calendar year 
                1987; and
                  (C) an additional quantity equal to 25 
                percent of the gross tonnage shall be 
                transported in such vessels in calendar year 
                1988 and in each calendar year thereafter.
  (b) Covered Export Activity.--This section shall apply to any 
export activity of the Commodity Credit Corporation or the 
Secretary of Agriculture--
          (1) carried out under the Agricultural Trade 
        Development and Assistance Act of 1954 (7 U.S.C. 1691 
        et seq.);
          (2) carried out under section 416 of the Agricultural 
        Act of 1949 (7 U.S.C. 1431);
          (3) carried out under the Bill Emerson Humanitarian 
        Trust Act (7 U.S.C. 1736f-1 et seq.);
          (4) under which agricultural commodities or the 
        products thereof are--
                  (A) donated through foreign governments or 
                agencies, private or public, including 
                intergovernmental organizations; or
                  (B) sold for foreign currencies or for 
                dollars on credit terms of more than ten years;
          (5) under which agricultural commodities or the 
        products thereof are made available for emergency food 
        relief at less than prevailing world market prices;
          (6) under which a cash grant is made directly or 
        through an intermediary to a foreign purchaser for the 
        purpose of enabling the purchaser to obtain United 
        States agricultural commodities or the products thereof 
        in an amount greater than the difference between the 
        prevailing world market price and the United States 
        market price, free along side vessel at United States 
        port; or
          (7) under which agricultural commodities owned or 
        controlled by or under loan from the Commodity Credit 
        Corporation are exchanged or bartered for materials, 
        goods, equipment,or services produced in foreign 
countries, other than export activities described in section 901a(5).
  (c) Terms and Conditions.--
          (1) The requirement for United States-flag 
        transportation imposed by subsection (a) shall be 
        subject to the same terms and conditions as provided in 
        section 901(b) of this Act.
          (2) In order to provide for effective and equitable 
        administration of the cargo preference laws the 
        calendar year for the purpose of compliance with 
        minimum percentage requirements shall be for 12 month 
        periods commencing April 1, [1986.] 1986, the 18-month 
        period commencing April 1, 1999, and the 12-month 
        period beginning on the first day of October in the 
        year 2000 and each year thereafter.
          (3)(A) Subject to subparagraph (B), in administering 
        sections 901(b) and 901b (46 U.S.C. App. 1241(b) and 
        1241f), and, subject to subparagraph (B) of this 
        paragraph, consistent with those sections, the 
        Commodity Credit Corporation shall take such steps as 
        may be necessary and practicable without detriment to 
        any port range to allocate, on the principle of lowest 
        landed cost without regard to the country of 
        documentation of the vessel, 25 percent of the bagged, 
        processed, or fortified commodities furnished pursuant 
        to title II of the Agricultural Trade Development and 
        Assistance Act of 1954 (7 U.S.C. 1751 et seq.).
          (B) In carrying out this paragraph, there shall first 
        be calculated the allocation of 100 percent of the 
        quantity to be procured on an overall lowest landed 
        cost basis without regard to the country of 
        documentation of the vessel and there shall be 
        allocated to the Great Lakes port range any cargoes for 
        which it has the lowest landed cost under that 
        calculation. The requirements for United States-flag 
        transportation under section 901(b) and this section 
        shall not apply to commodities allocated under 
        subparagraph (A) to the Great Lakes port range, and 
        commodities allocated under subparagraph (A) to that 
        port range may not be reallocated or diverted to 
        another port range to meet those requirements to the 
        extent that the total tonnage of commodities to which 
        subparagraph (A) applies that is furnished and 
        transported from the Great Lakes port range is less 
        than 25 percent of the total annual tonnage of such 
        commodities furnished.
          (C) In awarding any contract for the transportation 
        by vessel of commodities from the Great Lakes port 
        range pursuant to an export activity referred to in 
        subsection (b), each agency or instrumentality--
                  (i) shall consider expressions of freight 
                interest for any vessel from a vessel operator 
                who meets reasonable requirements for financial 
                and operational integrity; and
                  (ii) may not deny award of the contract to a 
                person based on the type of vessel on which the 
                transportation would be provided (including on 
                the basis that the transportation would not be 
                provided on a liner vessel (as that term is 
                used in the Shipping Act of 1984, as in effect 
                on November 14, 1995)), if the person otherwise 
                satisfies reasonable requirements for financial 
                and operational integrity.
          (4) Any determination of nonavailability of United 
        States-flag vessels resulting from the application of 
        this subsection shall not reduce the gross tonnage of 
        commodities required by sections 901(b) and 901b to be 
        transported on United States-flag vessels.
  (d) ``Export activity'' Defined.--As used in subsection (b), 
the term ``export activity'' does not include inspection or 
weighing activities, other activities carried out for health or 
safety purposes, or technical assistance provided in the 
handling of commercial transactions.
  (e) Prevailing World Market Price.--
          (1) The prevailing world market price as to 
        agricultural commodities or the products thereof shall 
        be determined under sections 901a through 901d in 
        accordance with procedures established by the Secretary 
        of Agriculture. The Secretary shall prescribe such 
        procedures by regulation, with notice and opportunity 
        for public comment, pursuant to section 553 of title 5, 
        United States Code.
          (2) In the event that a determination of the 
        prevailing world market price of any other type of 
        materials, goods, equipment, or service is required in 
        order to determine whether a barter or exchange 
        transaction is subject to subsection (b)(6) or (b)(7), 
        such determination shall be made by the Secretary of 
        Agriculture in consultation with the heads of other 
        appropriate Federal agencies.

           *       *       *       *       *       *       *


SEC. 903. DOCUMENTATION OF CERTAIN DRY CARGO VESSELS.

  (a) In General.--The restrictions of section 901(b)(1) of 
this Act concerning the building, rebuilding, or documentation 
of a vessel in a foreign country shall not apply to dry bulk 
vessels and breakbulk vessels over 5,000 deadweight tons 
constructed, reconstructed, or acquired in a foreign shipyard 
within 1 year after the date of enactment of the Maritime 
Administration Authorization Act for Fiscal Year 2000 and 
before the date on which the OECD Shipbuilding Trade Agreement 
enters into force, and transferred to United States-flag 
registry under section 12105 of title 46, United States Code, 
if--
          (1) the vessels have non-emergency shipyard repairs, 
        and other shipyard work necessary to conform the vessel 
        to United States-flag standards, performed in a 
        shipyard of the United States;
          (2) the vessels comply with the standards set forth 
        in section 1137 of the Coast Guard Authorization Act of 
        1996 (46 U.S.C. App. 1187 note); and
          (3) the vessels have not been granted approval under 
        section 9(e) of the Shipping Act, 1916 (as amended by 
        section 1136(b) of the Coast Guard Authorization Act of 
        1996).
  (b) Application of Section 607.--Section 607 of this Act does 
not apply to vessels the construction, reconstruction, 
modification, or acquisition of which is described in 
subsection (a).

           *       *       *       *       *       *       *


SEC. 1108. ESCROW FUND [46 U.S.C. APP. 1279A]

  [(a) Creation.--If the proceeds of an obligation guaranteed 
under this title are to be used to finance the construction, 
reconstruction, or reconditioning of a vessel or vessels which 
will serve as security for the guarantee of the Secretary, the 
Secretary is authorized to accept and hold, in escrow under an 
escrow agreement with the obligor, a portion of the proceeds of 
all obligations guaranteed under this title whose proceeds are 
to be so used which is equal to: (i) the excess of the 
principal amount of all obligations whose proceeds are to be so 
used over 75 per centum, or 87\1/2\ per centum, whichever is 
applicable under section 1104 of this title, paid by or for the 
account of the obligor for the construction, reconstruction, or 
reconditioning of the vessel or vessels; (ii) with such 
interest thereon, if any, as the Secretary may require: 
Provided, That in the event the security for the]
  (a) Authority To Hold Obligation Proceeds in Escrow.--(1) If 
the proceeds of an obligation guaranteed under this title are 
to be used to finance the construction, reconstruction, or 
reconditioning of a vessel that will serve as security for the 
guarantee, the Secretary may accept and hold, in escrow under 
an escrow agreement with the obligor--
          (A) the proceeds of that obligation, including such 
        interest as may be earned thereon; and
          (B) if required by the Secretary, an amount equal to 
        6 month's interest on the obligation.
  (2) The Secretary may release funds held in escrow under 
paragraph (1) only if the Secretary determines that the funds 
released are needed--
          (A) to pay, or make reimbursements in connection with 
        payments previously made for work performed in that 
        construction, reconstruction, or reconditioning; or
          (B) to pay for other costs approved by the Secretary, 
        with respect to the vessel or vessels.
  (3) If the security for the guarantee of an obligation by the 
Secretary relates both to a vessel or vessels to be 
constructed, reconstructed or reconditioned and to a delivered 
vessel or vessels, the principal amount of such obligation 
shall be prorated for purposes of this subsection (a) under 
regulations prescribed by the Secretary.
  (b) Disbursement Prior to Termination of Escrow Agreement.--
The Secretary shall, as specified in the escrow agreement, 
disburse the escrow fund to pay amounts the obligor is 
obligated to pay as interest on such obligations or for the 
construction, reconstruction, or reconditioning of the vessel 
or vessels used as security for the guarantee of the Secretary 
under this title, to redeem such obligations in connection with 
a refinancing under paragraph (4) of subsection (a) of section 
1104 or to pay to the obligor at such times as may be provided 
for in the escrow agreement any excess interest deposits, 
except that if payments become due under the guarantee prior to 
the termination of the escrow agreement, all amounts in the 
escrow fund at the time such payments become due (including 
realized income which has not yet been paid to the obligor) 
shall be paid into the Fund and (i) be credited against any 
amounts due or to become due to the Secretary from the obligor 
with respect to the guaranteed obligations and (ii) to the 
extent not so required, be paid to the obligor.
  (c) Disbursement Upon Termination of Escrow Agreement.--If 
payments under the guarantee have not become due prior to the 
termination of the escrow agreement, any balance of the escrow 
fund at the time of such termination shall be disbursed to 
prepay the excess of the principal of all obligations whose 
proceeds are to be used to finance the construction, 
reconstruction, or reconditioning of the vessel or vessels 
which serve or will serve as security for such guarantee over 
75 per centum or 87\1/2\ per centum, whichever is applicable 
under section 1104 of this title, of the actual cost of such 
vessel or vessels to the extent paid, and to pay interest on 
such prepaid amount of principal, and the remainder of such 
balance of the escrow fund shall be paid to the obligor.
  (d) Investment of Fund.--The Secretary may invest and 
reinvest all or any part of the escrow fund in obligations of 
the United States with such maturities that the escrow fund 
will be available as required for purposes of the escrow 
agreement.
  (e) Payment of Income.--Any income realized on the escrow 
fund shall, upon receipt, be paid to the obligor.
  (f) Terms of Escrow Agreement.--The escrow agreement shall 
contain such other terms as the Secretary may consider 
necessary to protect fully the interests of the United States.

SEC. 1109. DEPOSIT FUND.

  (a) Establishment of Deposit Fund.--There is established in 
the Treasury a deposit fund for purposes of this section. The 
Secretary may, in accordance with an agreement under subsection 
(b), deposit into and hold in the deposit fund cash belonging 
to an obligor to serve as collateral for a guarantee under this 
title made with respect to the obligor.
  (b) Agreement.--
          (1) In general.--The Secretary and an obligor shall 
        enter into a reserve fund or other collateral account 
        agreement to govern the deposit, withdrawal, retention, 
        use, and reinvestment of cash of the obligor held in 
        the deposit fund established by subsection (a).
          (2) Terms.--The agreement shall contain such terms 
        and conditions as are required under this section and 
        such additional terms as are considered by the 
        Secretary to be necessary to protect fully the 
        interests of the United States.
          (3) Security interest of united states.--The 
        agreement shall include terms that grant to the United 
        States a security interest in all amounts deposited 
        into the deposit fund.
  (c) Investment.--The Secretary may invest and reinvest any 
part of the amounts in the deposit fund established by 
subsection (a) in obligations of the United States with such 
maturities as ensure that amounts in the deposit fund will be 
available as required for purposes of agreements under 
subsection (b). Cash balances of the deposit fund in excess of 
current requirements shall be maintained in a form of 
uninvested funds and the Secretary of the Treasury shall pay 
interest on these funds.
  (d) Withdrawals.--
          (1) In general.--The cash deposited into the deposit 
        fund established by subsection (a) may not be withdrawn 
        without the consent of the Secretary.
          (2) Use of income.--Subject to paragraph (3), the 
        Secretary may pay any income earned on cash of an 
        obligor deposited into the deposit fund in accordance 
        with the terms of the agreement with the obligor under 
        subsection (b).
          (3) Retention against default.--The Secretary may 
        retain and offset any or all of the cash of an obligor 
        in the deposit fund, and any income realized thereon, 
        as part of the Secretary's recovery against the obligor 
        in case of a default by the obligor on an obligation.

           *       *       *       *       *       *       *


SEC. 1214. EXPIRATION OF AUTHORITY TO PROVIDE INSURANCE [46 U.S.C. APP. 
                    1294]

  The authority of the Secretary to provide insurance and 
reinsurance under this title shall expire [June 30, 2000.] June 
30, 2005.

                                

