[Senate Report 107-47]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 106
107th Congress                                                   Report
 1st Session                                                     107-47




                 July 27, 2001.--Ordered to be printed


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

                              R E P O R T

                         [To accompany S. 127]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 127) ``A Bill to give American 
workers and American ports the opportunity to compete in the 
United States cruise market'', having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                          PURPOSE OF THE BILL

  The bill provides American companies, American workers, and 
American ports with increased opportunity to compete in the 
United States cruise market. By doing so, it would ultimately 
give consumers greater choice in domestic cruise destinations 
and allow more Americans to visit our nation's port cities on a 
cruise vessel. The bill allows U.S.-owned foreign-built cruise 
vessels to enter the domestic market for a limited time if the 
operators agree to build replacement vessels in the United 
States. This would allow new companies to enter the domestic 
market with existing vessels and immediately increase the size 
of the U.S. commercial fleet, thus providing new jobs for 
merchant mariners.
  Further, by requiring operators to build new vessels in the 
United States, the bill would create much needed work for U.S. 
shipyards while creating a fleet of modern and efficient U.S.-
flagged cruise vessels.

                          BACKGROUND AND NEEDS

  Subject to certain limited exceptions, the provisions of the 
law known as the Passenger Vessel Services Act (PVSA) (section 
8 of the Act of June 19, 1886) and section 12106 of title 46, 
United States Code, provide that only those vessels built in 
the United States and continuously owned by U.S. citizens and 
documented in the U.S. may transport passengers in the 
coastwise trade of the United States i.e., between U.S. ports. 
The law was enacted at a time when maritime transportation was 
a significant mode of both domestic and international 
transportation. The law was intended to prevent U.S.-based 
companies from facing strong competition in the domestic market 
from maritime nations such as Great Britain. The law did not 
address ``vacation cruising'' as no market for this existed at 
that time.
  The Passenger Vessel Services Act has not been interpreted to 
restrict domestic port calls as long as the domestic port call 
is part of a trip that includes foreign destinations and the 
U.S. port calls are intermediary stops. This means that 
foreign-flagged vessels are currently entitled to make as many 
U.S. port calls as they choose, provided that these calls are 
part of an international route and that passengers who embark 
at a U.S. port do not permanently disembark at a different U.S. 
port. Additionally, the U.S. Customs Service has interpreted 
the Passenger Vessel Services Act to allow a foreign vessel to 
make as many intermediary U.S. port calls as it chooses, and 
disembark passengers at a different U.S. port, as long as the 
vessel makes a port call at a distant foreign port such as 
  One of the exceptions to the PVSA is the Puerto Rico 
Passenger Ship Act (Public Law 98-563), which allows vessels 
not qualified to engage in the coastwise trade to carry 
passengers between U.S. ports and Puerto Rico, and between 
Puerto Rico ports, if no similar coastwise trade-qualified 
vessels are engaged in that trade. Under this exception, the 
unqualified vessels must exit that trade 270 days after similar 
coastwise trade-qualified vessels enter that trade. This 
exception has not been widely used.
  Following World War II, the nature of maritime travel changed 
significantly as both domestic and transoceanic flights became 
more common and affordable. Air travel provided new competition 
for passenger vessels. With dwindling passengers, some vessel 
operators started to package ``cruising'' more as a vacation at 
sea than a mode of travel. By the mid-1970's the last regularly 
scheduled transoceanic passenger service had ceased.
  Companies sought to do something with now-empty ships. 
Cruises to a few tropical ports slowly became popular. The 
first passenger ship specifically built for warm-weather 
cruising was introduced in 1970 by Carnival Cruise Lines. From 
there, the industry grew rapidly and has boomed since the mid-
1980s when the first megaships were introduced.
  The cruise ship industry is largely a North American 
phenomenon, and more than 80 percent of the approximately seven 
million passengers traveling are North Americans. The cruise 
ship market has expanded slightly in the Mediterranean and very 
slightly in the Far East. In Europe there are a large number of 
smaller passenger vessel services operating in the domestic or 
car ferry markets, but these vessels tend to provide 
transportation rather than entertainment and tourism. In North 
America, cruise vessel operations are particularly concentrated 
in three cities: Miami departing for Caribbean, Mexican, and 
Central and SouthAmerican destinations; Los Angeles for West 
Coast Mexican and Central American destinations; and Vancouver, British 
Columbia, for seasonal Alaskan tours. Recently, however, cruises have 
increasingly departed from other U.S. ports.
  While there are numerous small to medium-sized coastwise 
trade-qualified vessels carrying passengers between U.S. ports, 
there are only two large coastwise trade-qualified cruise ships 
engaged in that trade. The S.S. INDEPENDENCE, a 46-year old 
cruise ship, and the M.S. PATRIOT, a reflagged foreign-built 
vessel, both of which operate in Hawaiian Islands. American 
Classic Voyages (ACV), which owns and operates both vessels, 
has a contract for two new large cruise vessels which will 
enter the Hawaiian market in 2003 and 2004.
  With the exception of ACV's project, growth in the domestic 
cruise ship trade has been deterred due to the higher costs of 
building and operating U.S.-flagged cruise ships and 
competition from modern, foreign-flagged cruise ships engaged 
in ``cruises to nowhere'' (departing from and returning to the 
same U.S. port) and international cruises. While many cruise 
ship operators are headquartered in the United States because 
of the size of the market, almost all operators have registered 
their ships under flag-of-convenience registries such as 
Panama, Liberia, and the Bahamas. Operating under a flag-of-
convenience provides the cheapest maritime operating structure. 
Ship operators are only required to pay registration fees, and 
do not have to pay any U.S. or flag-state taxes on income 
derived through operations.
  Safety standards on flag-of-convenience vessels are dictated 
by International Maritime Organization (IMO) safety standards 
that are agreed to by the flag state. Implementation of those 
standards is routinely delegated to private companies that 
provide inspections (commonly referred to as ``classification 
societies''). Labor relations are usually privatized, and labor 
standards are dictated by International Labor Organization 
(ILO) labor standards treaties that are agreed to on an 
international basis.
  For many years, numerous U.S. port, travel, tourism, and 
business associations, and some vessel repair shipyards have 
touted the economic benefits of U.S. port visits by modern 
cruise ships. These groups have lobbied for changes in U.S. law 
that would stimulate growth in the industry by allowing 
foreign-flagged cruise ships to enter the domestic market, 
provide incentives to build and operate U.S. flag cruise ships, 
or both. The provisions of the bill reflect the Committee's 
interest in structuring a compromise that would stimulate the 
domestic cruise market, while at the same time ensure maximum 
benefit for the U.S. maritime industry.
  The Committee would expect the Secretary to act on submitted 
applications for reflagging a vessel under the bill in a timely 
manner. The bill clearly restricts the ability of an applicant 
to transfer applications and does not confer a property right 
through the filing of applications. The bill does not set a 
time for completing the application process or receiving a 
certificate of documentation. The Committee expects that 
applicants should have a reasonable period of time to complete 
an application, given the complexity of such a task. While the 
Committee realizes that if applications are allowed to linger 
without action the market would be subject to disrupting 
uncertainties, the Committee wants to ensure that operators 
applying to the Secretary for permission to reflag a vessel 
into the domestic market are afforded ample time to complete 
negotiations on a foreign-built vessel and new U.S.-built 
  During consideration of S. 127, Senator Snowe expressed 
concern that enactment of the bill could result in the market 
being flooded with large numbers of foreign-built vessels from 
unqualified operators who cannot meet the construction 
requirements contained in the bill. The bill addresses this 
concern with language requiring all operators to meet the same 
requirements of an operator receiving a Title XI maritime loan 
guarantee. The review of all applications required under 
section 103(2)(a) of the bill would ensure that the market does 
not become flooded to the point that operators of U.S.-built 
vessels cannot compete, that shipyards are not hurt by the 
entrance of foreign-built vessels, and that parties seeking to 
enter the domestic market have the requisite expertise and 
financial strength to operate a U.S.-flagged cruise line.

                      SUMMARY OF MAJOR PROVISIONS

  The bill provides a two-year window of opportunity to 
encourage the immediate reflagging of large cruise vessels 
under the United States flag for operation in the domestic 
cruise trades. The bill would allow the Secretary of 
Transportation to issue permits for the limited operation of 
foreign-built cruise vessels in the domestic trades if 
applications are received within two years of the date of 
enactment of this legislation.
  To be eligible for reflagging and operation in the U.S. 
domestic cruise trades, a cruise vessel must have been 
delivered after January 1, 1980, displace at least 20,000 gross 
registered tons, have no fewer than 800 passenger berths, 
provide a full range of overnight accommodations, dining, and 
entertainment services, comply with the Safety of Life at Sea 
requirements for a fixed smoke detection and sprinkler system 
in the accommodation areas, and be constructed according to 
internationally accepted construction standards. This will help 
ensure that any foreign-flagged vessels that are reflagged to 
take advantage of the bill are modern and safe.
  To be eligible to enter the domestic market, the vessel must 
be owned by a person who is a citizen of the United States for 
the purposes of operating a vessel in the coastwise trade 
within the meaning of section 2 of the Shipping Act, 1916 (46 
U.S.C. app. 802) or section 12106(e) of title 46, United States 
  The bill would assist the U.S. ship repair industry by 
requiring foreign-built cruise vessels entering the domestic 
market to have all repair, maintenance, alteration and other 
work required for operation under the U.S. flag, as well as 
regular repair and maintenance work, performed in a U.S. 
  Prior to allowing a foreign-built vessel to be reflagged and 
used in the domestic market, the bill would require the 
operator of a reflagged vessel to enter into a binding contract 
with U.S. shipyards for the construction of at least one more 
vessel than the total number of vessels they will operate in 
the domestic cruise market. The contract must provide for a 
total number of passenger berths equal to or greater than the 
number operated in the domestic market by that operator. 
Additionally, the replacement vessels must be atleast 20,000 
gross registered tons and have no fewer than 800 passenger berths.
  The bill would require the first replacement vessel be 
delivered within five years of the date the foreign-built 
vessel commences operation in the domestic trade, and that each 
additional vessel be delivered within two years of the 
proceeding vessel. Foreign-built vessels are required to leave 
the domestic market two years after the replacement vessel or 
vessels are delivered.
  The bill would require the Secretary of Transportation to 
ensure that the coastwise business of a U.S.-built vessel 
operator is not harmed by the operation of a foreign-built 
vessel in the domestic market. The Secretary, after reviewing 
the proposed itineraries of foreign-built vessels in the 
domestic market, as well as taking into consideration public 
comments, is required to determine if there will be an adverse 
impact on the operation of a U.S.-built vessel. The Secretary 
is required to consider the scope of the vessel's itineraries, 
the duration of the cruise, the size of the vessel and the 
retail per diem of the vessel. If there is a conflict, the 
operator of a foreign-built vessel must change the vessel's 
itinerary in order to remove the conflict to the satisfaction 
of the Secretary.

                          Legislative History

  S. 127 was introduced on January 22, 2001, by Senator McCain. 
The bill is cosponsored by Senators Hutchison, Cleland, Boxer, 
Murkowski, Miller, Mikulski, Sarbanes, Thurmond, Feinstein, 
Inouye, Breaux, Smith and Hollings. The bill is almost 
identical to legislation passed unanimously by the Committee 
during the 106th Congress.
  During the 106th Congress, S. 1510 was introduced by Senators 
McCain, Hutchison, Feinstein, and Murkowski on August 5, 1999, 
to allow foreign-built vessels to be reflagged as U.S. vessels 
and engage in domestic commerce, and to permit limited 
employment of foreign-flagged cruise ships in domestic 
commerce. The bill as originally drafted would authorize the 
Secretary to issue permits to foreign-built passenger cruise 
vessels to operate domestic itineraries in the transportation 
of passengers in the coastwise trade under foreign or U.S.-
  The Commerce Committee held a full committee hearing on S. 
1510 on October 6, 1999. At the hearing, the committee heard 
from a wide range of the maritime industry including 
representatives of maritime labor, cruise operators, and ports. 
Many raised concerns about allowing foreign vessels into the 
domestic market under different standards than current U.S. 
operators, and potentially different rules of operation. As a 
result of these expressed concerns, but mindful of the need to 
stimulate the domestic cruise market, the Committee adopted an 
amendment in the nature of a substitute to help stimulate the 
U.S. domestic cruise industry.
  Two bills were introduced during the 105th Congress that 
would have allowed foreign-flagged vessels access to the 
domestic trade, and two bills were introduced allowing foreign-
built vessels to be reflagged for use in domestic trade under 
certain conditions. The provisions of these bills were 
patterned after the Puerto Rico exception. Senate bill 668, a 
bill to increase economic benefits to the United States from 
the activities of cruise ships visiting Alaska, introduced by 
Senator Murkowski on April 30, 1997, would have allowed 
foreign-flagged cruise ships of at least 5,000 gross tons 
displacement to transport passengers between ports in Alaska 
and between Alaska and other West Coast U.S. ports until the 
Secretary of Transportation determined that U.S.-flagged cruise 
ship service was available.
  Senate bill 803, the United States Cruise Tourism Act of 
1997, introduced by Senator Thurmond (cosponsored by Senators 
Murkowski, Chafee, and McCain) on May 23, 1997, would have 
allowed foreign-flagged cruise ships of at least 4,000 gross 
tons displacement to transport passengers between ports in the 
U.S. until the Secretary of Transportation determined that 
U.S.-flagged cruise ships were available. It would have further 
required such cruise ships to be repaired in the U.S. and would 
have allowed foreign-flagged cruise ships' alien crew members 
to extend their permits to land in the U.S.
  Senator Hutchison chaired a Surface Transportation and 
Merchant Marine Subcommittee hearing on S. 668, S. 803, and the 
domestic cruise ship trade, on October 21, 1997. 
Representatives of the Cruising America Coalition and the U.S. 
maritime industry provided testimony.
  Additionally, Senator Breaux introduced S. 2290 on July 10, 
1998. Senate bill 2290 would have authorized the Secretary of 
Transportation to allow foreign-built cruise ships into the 
domestic trade if they are U.S.-flagged and ultimately replaced 
with U.S.-built, U.S.-flagged cruise ships. Senate bill 2290 
would have also prohibited competition between U.S.-built and 
foreign-built U.S.-flagged cruise ships on the same trade 
route; prohibited foreign-built, U.S.-flagged cruise ships from 
operating between or among the Hawaiian islands; allowed 
foreign-built U.S.-flagged cruise ships to meet international 
construction standards (in lieu of U.S. standards); and allowed 
foreign-built, U.S.-flagged cruise ships to be transferred to a 
foreign registry without approval by the Secretary of 
  Senate bill 2507, the United States Cruise Ship Tourism Act 
of 1998, was introduced by Senators McCain, Thurmond, Hutchison 
and Burns on September 22, 1998. The bill would have allowed 
foreign-built vessels to be reflagged as U.S. vessels and 
engage in domestic commerce, and permitted limited employment 
of foreign-flagged cruise ships in the domestic commerce. 
Senate bill 2507 would have allowed foreign-built cruise ships, 
fewer than ten years of age and at least 20,000 gross tons and 
with accommodations for at least 800 passengers, to be 
reflagged as U.S.-flagged vessels to engage in foreign 
commerce. The bill would have limited each company that used 
the provisions of the bill to no more than three vessels, and 
would have waived certain design and safety standards provided 
that a Coast Guard-recognized classification society had 
approved the vessel. The bill also would have allowed the 
Secretary to approve foreign-flagged vessels to operate 
domestically, with certain limitations:
    Repositioning voyages.--Foreign-flagged vessels could be 
employed in the coastwise or domestic trades, two voyages a 
year, as long as the voyage did not exceed two weeks and either 
started on one coast of the United States and ended onthe 
other, or started along one coast of the United States during a voyage 
between two countries; and
    Charter voyages.--The Secretary could approve not more than 
thirty foreign-flagged vessels a year which could be chartered 
for thirty days, to a non-cruise ship-owning company, to be 
used in domestic commerce.

                            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 

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 8, 2001.
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 S. 127, the United 
States Cruise Vessel Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Deborah Reis.
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).


S. 127--United States Cruise Vessel Act

    S. 127 would authorize the Secretary of Transportation to 
issue certificates of documentation with temporary coastwise 
endorsements for foreign-built cruise vessels under certain 
conditions. (Under current law, such vessels are not eligible 
to receive coastwise endorsements, which allow ships to serve 
the domestic trade.) In order to receive the temporary 
endorsements, cruise ship operators would have to enter into 
contracts with U.S. shipyards to construct new cruise vessels. 
The Secretary would oversee an operator's choice of cruise 
routes to ensure that operators of vessels built in the United 
States are not adversely affected by the entry of foreign-built 
    CBO estimates that implementing S. 127 would have no 
significant impact on the federal budget because the costs of 
issuing vessel documents and overseeing the cruise ship market 
as required by the bill would be minimal. The bill would not 
affect direct spending or receipts; therefore, pay-as-you-go 
procedures would not apply.
    The bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    The CBO staff contact for this estimate is Deborah Reis. 
This estimate was approved by Peter H. Fontaine, Deputy 
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. 127 as reported makes no permanent change to existing 
law. It would require businesses operating foreign built 
vessels in the domestic trade to file proposed itineraries with 
the Secretary of Transportation. This is an annual reporting 
requirement limited to the time the foreign built vessel 
operates in the domestic market and is necessary to ensure that 
the foreign-built vessel does not have an adverse impact on the 
coastwise business of a U.S.-built vessel operator.
    Additionally, the bill would require the Secretary to 
review and monitor operations of foreign-built vessels within 
approved itineraries for the duration of their U.S. domestic 
    Because S. 127 does not create any permanent programs, the 
legislation would have no additional regulatory impact, and 
would result in no additional reporting requirements. The 
legislation would have no further effect on the number of 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

    This section designates the Act as the ``United States 
Cruise Vessel Act''.

Sec. 2. Definitions

    This section defines terms that may be unique to the bill 
as well as terms defined elsewhere in law.


Sec. 101. Domestic cruise vessel

  This section allows the Secretary of Transportation to accept 
applications for the issuance of a certificate of documentation 
with a temporary coastwise endorsement to foreign-built cruise 
vessels that are at least 20,000 gross registered tons with a 
minimum of 800 passenger berths; that are owned by a person 
qualified to operate a passenger vessel in the coastwise trade; 
and that provide a full range of overnight accommodations, 
entertainment, dining, and other services for their passengers.
  The vessel would also have to meet the standards for smoke 
detection and sprinkler system installation required by the 
1992 Amendments to the Safety of Life at Sea Conventions of 
1974, and be classed by and designed in accordance with the 
rules of the American Bureau of Shipping or another 
classification society accepted by the Secretary as long as it 
complies with applicable international agreements and 
associated guidelines, as determined by the country in which 
the vessel was documented immediately before becoming a U.S.-
documented vessel.
  This section allows the Secretary to accept applications for 
up to two years from the date of enactment and provides that 
the right to reflag a foreign-built vessel under an application 
may not be transferred by the applicant to any other person.

Sec. 102. Repairs requirement

  This section requires that all vessels documented under the 
bill have all repair, maintenance, and alteration performed in 
a United States shipyard.

Sec. 103. Construction requirement

  This section requires any operator who is issued a 
certificate of documentation with a temporary coastwise 
endorsement under the bill to enter into a binding contract 
with a U.S. shipyard for one more vessel than the total number 
of vessels brought into the coastwise trade by that operator 
prior to commencing operations. In order to meet this 
requirement, the operator and the yard must demonstrate to the 
Secretary of Transportation that they have the ability to both 
construct and operate the vessel prior to commencing 
  Further, it requires that the first vessel be delivered 
within 5 years and each additional vessel within two years of 
the proceeding vessel. It allows for an extension of this 
provision due to impossibility of performance. It requires that 
the foreign-built vessels leave the coastwise trade within two 
years of the delivery of the replacement vessel or vessels and 
allows the operator to reflag the vessels without the approval 
of the Secretary of Transportation.
  Finally, it requires that replacement vessels be at least 
20,000 gross tons with a minimum of 800 passenger berths.

Sec. 104. Certain operations prohibited

  This section prohibits any vessel entering the coastwise 
trade under the bill from operating as a ferry, from regularly 
carrying forhire both passengers and vehicles or other cargo, 
and from operating between or among the islands of Hawaii.

Sec. 105. Priorities within domestic markets

  This section provides priority to operate in the domestic 
market to cruise vessels built in the United States. Under this 
section the operator of a cruise vessel built in the United 
States would notify the Secretary of Transportation at least 
two full calender years before the vessel is scheduled to 
commence domestic operations.
  The Secretary is required to have the operators of all 
foreign-built vessels operating under this bill submit for 
review and public comment, in April of each year, proposed 
itineraries for the calender year beginning 20-months after the 
required submission.
  After the review period, the Secretary is required to notify 
the operator of a foreign-built cruise vessel of any 
itineraries that are not available and attempt to work out any 
disputes prior to publication of a final list of approved 
  For purposes of the review, the Secretary shall consider the 
scope of the vessel's itinerary; the ports between which it 
will operate; the duration of the cruise; the size of the 
vessel; and the retail per diem of the vessel. In conducting 
the review, if the Secretary determines that the submitted 
itinerary of a foreign-built vessel will adversely affect the 
coastwise business of a comparable U.S. cruise vessel in a 
comparable market, the U.S.-built vessels shall be given 
priority to operate.

Sec. 106. Report

  This section requires the Secretary of Transportation to 
issue an annual report on the number of vessels operating under 
a certificate of documentation granted under the bill and on 
the progress of construction of replacement vessels.

Sec. 107. Enforcement

  This section requires the Secretary of Transportation to 
revoke the temporary coastwise endorsement of a vessel if the 
operator substantially breaches the construction contract 
required by section 103(a). If such a breach is committed by 
the shipyard, the operator is required immediately to notify 
the Secretary, but may continue to operate the vessel for up to 
24 months after such notification so long as the operator can 
demonstrate to the Secretary of Transportation that it is 
making a good faith effort to execute a construction contract 
with another shipyard.

                       TITLE II--OTHER PROVISIONS

Sec. 201. Application with Jones Act and other Acts

  This section states that nothing in the bill shall impact 
current law relating to the transportation of cargo or 
passengers in domestic commerce unless specified in the bill. 
Specifically it states that nothing in the bill would affect 
the Jones Act, P.L. 87-77, P.L. 98-563, section 27A of the 
Merchant Marine Act, 1920, and section 8109 of the Department 
of Defense Appropriations Act, 1998.

Sec. 202. Glacier Bay and other National Park Service area permits

  This section requires that newly created or otherwise 
available permits to enter Glacier Bay National Park or any 
other area within the jurisdiction of the National Park Service 
be issued to U.S.-flagged vessels carrying passengers for hire. 
It does not require the creation of any new permits or impact 
current permit holders.

                        CHANGES IN EXISTING LAW

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, the Committee states that the bill as 
reported would make no change to existing law.