a mandatory U.S. flag expansion It is possible that cargo preference Several other observations on the subject of national security should be stressed before going on. Cargo preference legislation absolutely will not increase the security of foreign sources of crude oil. The most effective means of improving such security is to increase domestic energy supplies. An unnecessary diversion of national resources into U.S. flag shipping, will do little to improve our access to foreign oil and indeed could weaken it. Moreover, the successful development of additional domestic energy sources, will lessen both the need for foreign oil imports and the tankers used for their carriage. Ships under U.S. registry, built in support of a contemplated large oil import program could face the need to seek employment in foreign-to-foreign trades. It goes without saying that they must, in such an event, be fully competitive with foreign registered ships. Cargo preference legislation ignores this possibility. CARGO PREFERENCE LEGISLATION AND U.S. FOREIGN TRADE POLICY Imposition of cargo preference legislation will reverse our long-standing trade policy and encourage other nations to retaliate. The State Department has testified that: "... the reservation to U.S. flag tankers of a portion of commercial oil cargoes would be inconsistent with U.S. obligations under treaties of Friendship, Commerce and Navigation with a large number of countries, including several major maritime nations. Those treaties call for 'national' and 'most favored nation' treatment with respect to the right to carry all products that may be carried by vessel." Retaliation by other nations will not necessarily be limited to the imposition of flag preference requirements. Any move by the U.S. to restrict international commerce will further encourage other nations to impose their own trade restrictions on goods and commodities. These restrictions will place the U.S. at a disadvantage at a time when our economy is critically dependent on increasing foreign trade. Moreover, should the Congress mandate flag preference requirements on petroleum, the principle can be applied readily to other commodities. Application of such requirements, for example, to the commercial exportation of agricultural commodities would further impede international commerce and reduce U.S. competitiveness in world markets. Many other nations also have the objective of building and maintaining a viable national merchant marine. However, rather than impose discriminatory practices which would risk international repercussions, most of these nations directly subsidize, or encourage through tax incentives, the development and operation of their flag vessels. U. S. FLAG EXPANSION AND SAFETY/ENVIRONMENTAL CONSIDERATIONS Occasionally an attempt is made to justify the use of U.S. flag vessels and to promulgate cargo preference legislation on the premise that U.S. vessels can operate more safely and with less risk of pollution than foreign flag vessels. This is generally attributed to the superior training of U.S. crews and sometimes to better equipment. It must be recognized that a VLCC costs in the range of $40 to $50 million. Consequently, each U.S. owner and operator of foreign flag vessels will do all he can to assure that the men operating these vessles are the best he can obtain. He cannot afford to jeopardize such an investment or risk massive pollution by entrusting the operation of the vessel to less than the most competent men he can employ. Owners take care to assure that their foreign flag vessels meet the same demanding construction and operating standards as their U.S. flag vessels. American owned and/or operated foreign flag vessels are constructed to the stringent shipbuilding and design standards of the world's foremost classification societies, such as the American Bureau of Shipping and Lloyd's Register of Shipping. The safety equipment certificate required of most foreign flag vessels by the Safety of Life at Sea (SOLAS) Convention in 1960 must be displayed on every vessel and reviewed bi-annually after a thorough inspection by an approved authority. The ship construction certificate is handled similarly. The officers aboard these foreign flag vessels must pass difficult and comprehensive license examinations. In fact, these examinations are almost verbatim from our U.S. Coast Guard examinations in many cases. The officers in particular, and the crews must demonstrate a thorough knowledge and competence in the execution of their duties. American owned and/or operated foreign flag fleets have ongoing Company supervised Shipboard Safety Programs. In some instances, the facilities available for training are actually superior in foreign countries to those available domestically. Vessel handling simulators provide a good example. These are complex installations which simulate the bridge of a vessel under way and which allow senior officers to sharpen their ship handling techniques under highly realistic conditions. There are two such installations in Holland which are heavily booked by many vessel owners who use them for training officers of all nationalities. The U.S. has no such installation although preliminary work is proceeding with the design of one which will be eventually installed at the Kings Point Merchant Marine Academy. The collection of statistically reliable and comparable data on marine casualties is difficult, and conflicting interpretations and conclusions can often be drawn from the same data. This is well illustrated in the Department of Commerce's Draft Environmental Impact Statement which was prepared by MARAD for the tanker construction program. On Page IV-32 to 34, MARAD emphasizes that the U.S. fleet is a small contributor to the overall number of casualties and pollution-causing incidents during the period 1969-1970 which they analyzed. The statement that U.S. vessels of more than 30 MDWT are involved in only 3.39 percent of total casualties, as compared to 38.77 percent for the world fleet, simply reflects the fact that the U.S. has fewer vessels. The clear inference, however, is that the U.S. fleet has a much better casualty record. A better yardstick appears to be "Casualties per Vessel per Year" or perhaps "Oil Pollution - Causing Casualty Incidents per Vessel per Year". Table IV-2, Page IV-24 of the MARAD report shows this data. Casualties per vessel per year for U.S. flag vessels greater than 30 MDWT amount to 0.273. In the less than 30 MDWT category, the figure is 0.164. By comparison, the statistics for the world fleet are 0.155 for the greater than 30 MDWT and 0.100 for the vessels smaller than 30 MDWT. Oil pollution-causing casualty incidents per vessel per year show similar results. For vessels smaller than 30 MDWT, the figure is 0.032 for U.S. flag vessels and 0.025 for the world fleet. These data show that the U.S. fleet has ranked somewhat below the world fleet in terms of its casualty and pollution record. In summary, ships, whatever their flag, are built in basically the same way, often in very similar, if not the same, shipyards. They are inspected by the same classification societies and insured by the same underwriters. American controlled foreign flag vessels are manned by competent seafaring personnel from the traditional maritime nations of the world. These men have the same competence and meet the same standards of performance as American seamen, and deserve the first class conditions of employment they demand and receive. They are well trained men, many with years of practical experience. Therefore, any statement which claims foreign flag vessels are unsafe and hazardous from a pollution standpoint compared to U.S. vessels is without substance. CARGO PREFERENCE LEGISLATION AND JOBS Cargo preference legislation will not necessarily provide more employment for seagoing personnel than will otherwise be created from fleet expansion under the subsidy program. It is estimated that when making full use of existing and planned shipbuilding facilties for tankers, approximately 9500 more seagoing jobs will need to be filled by 1985. The 15 billion dollar added cost burden associated with fleet expansion via cargo preference translates into a cost per shipboard employee in excess of 1.5 million dollars. Current shipboard employment statistics are summarized in Figure 19. Seafaring employment on U.S. flag vessels has declined substan- fore becomes about 44 men. This figure when referenced to the total number of U.S. flag vessels (approximately 215) which could be available to support U.S. oil imports in 1985, results in a total employment gain from fleet expansion of about 9500 men. It has been pointed out elsewhere in this report, that the potential size of the U.S. flag fleet will more than likely be based on shipyard construction capability. Further, the proven success of the Merchant Marine Act in stimulating use of existing facilities as well as encouraging yard expansions, will continue. The size of the fleet therefore is not likely to be any larger under a mandatory cargo preference program than it will be under the subsidy provisions of the Merchant Marine Act. Proponents of cargo preference legislation therefore cannot legitimately claim that it will cause an increase in either shipboard or shipyard employment. It is becoming a widely accepted fact, based on recent industry contracting experiences, that there is a growing manpower shortage in the contract construction industry. This is particularly noticeable for engineers, certain skilled labor (welders, pipefitters, electricians) and equipment suppliers and fabricators. Added personnel requirements for additional shipbuilding may or may not be available. If the current tight skilled manpower situation continues into the future, as it is likely to, it could impose a limitation on shipyard productivity. Figure 20 presents a projection of the facility expansions which are likely to take place in the petroleum and allied industries between now and 1980. All of these projects will draw heavily on the labor force of skilled workers which are also employed PROJECTED U.S. CONSTRUCTION ACTIVITIES REFINERY CONSTRUCTION 1.6 MMB/D GRASS ROOTS CAPACITY 4.9 MMB/D DEBOTTLENECKING EXPANSIONS UTILITY CONSTRUCTION 340 PLANTS 1000 MW EACH CHEMICAL AND ALLIED PRODUCTS 19 PLANTS 1 BILLION LB./YR. EACH PIPELINE CONSTRUCTION ALASKAN PIPELINE ⚫ 1 MMB/D ADDITIONAL CRUDE LINES ⚫ 1 MMB/D ADDITIONAL PRODUCTS LINES CRUDE OIL TERMINALS 3 DEEPWATER PORTS SNG PLANTS • 5 FUEL/GAS REFINERIES ⚫ 17 GASIFICATION PLANTS 250 MCF/D EACH FIGURE 20 in the shipbuilding industry. The It would seem that given a choice, by the channeling of resources away from such critical U.S. energy projects. CARGO PREFERENCE LEGISLATION - CAN IT BE EASILY ADMINISTERED? HR 8193, as written, appears to be an effort to parallel the language in Section 901 of the Merchant Marine Act. This section pertains to existing cargo preference provisions which are designed for government financed exports. Serious problems arise from the attempt, in HR 8193, to adapt existing language to wholly commercial import trade. As stated elsewhere in this report, the carrying capacity of the U.S. flag fleet will be insufficient to meet the proposed statutory percentages. Even if the capacity were to exist, such tonnage must pass the test of being available at “fair and reasonable rates". At any moment in time, a precise judgment will have to be made as to what constitutes "fair and reasonable." This will require the further assessment of whether fair and reasonableness relates to the foreign flag tanker market, the protected U.S. flag tanker market created by the Bill, or even the U.S. flag protected domestic market. Considerable time will have to be taken to make these determinations each and every time a prospective charterer is faced with the need to arrange tonnage for a particular movement. There necessarily will have to be many such determinations especially when considering that the projected U.S. fleet size will fall woefully short of meeting the proposed statutory requirement. Most spot charterers cannot afford to wait while the cumbersome fair and reasonableness determination process is carried on. In fact, any delay in reaching a prompt tonnage coverage decision might mean having to forego entirely the oil cargo which the tanker was supposed to carry. Foreign cargo suppliers, especially in an oil short environment, will opt to sell to a ready buyer and not be bothered with customers who cannot make prompt supply and transportation decisions. The proposed statutory requirement, which is patterned after present cargo preference provisions pertaining to "fair and reasonable participation of U.S. flag commercial vessels in such cargoes by geographic areas", is not adaptable to the tanker import trade. Current cargo preference provisions affect government sponsored cargo and can be centrally administered. How will a cargo preference bill for the tanker industry be administered? Whether applied to each producer or each producing area or each importer, inequities are bound to arise. Moreover, there is simply no way to monitor the required U.S. flag tonnage coverage for those movements of U.S. import cargo which take place solely between two foreign ports. Yet the provisions of HR 8193 specifically include the tonnage for the crude movements behind the U.S. product imports from offshore refineries. It also includes the tonnage for the crude movements from original loading source to foreign crude transshipping points. Indeed, foreign nations can be expected to object strenuously to this provision which, because of its application to transshipping operations, would impinge directly upon the commerce of those nations. The legislation would impose discriminatory requirements on vessels trading to other nations which themselves may be signators to international agreements which have the objective of liberalizing and removing trade restrictions. In summary, cargo preference legislation poses almost insurmountable administrative problems and would do little more than weaken the U.S. petroleum and maritime industries ability to quickly respond to critical oil supply situations. NECESSARY MODIFICATIONS TO THE MERCHANT MARINE ACT It has already been stated that the need to maintain a healthy and competitive U.S. Merchant Marine must be recognized, and API supports an expansion of the U.S. flag flect as being in the national interest. However, the basic requirement for stimulating such expansion is a program which assures all U.S. shipping interests the opportunity to be fully competitive with their foreign counterparts participating in international trade. Cargo preference legislation frustrates this requirement and is a deterrent to the development of an economically viable fleet. By comparison, amending the Merchant Marine Act has far more potential for expanding the fleet while satisfying the need to remain fully competitive with foreign shipping. Amendments to the Act made in 1970 prove the point. They made CDS and ODS available to U.S. flag bulk carriers thereby enabling them to compete with foreign flag vessels. Not surprisingly, orders were placed and the fleet is expanding. Unfortunately, the Act discriminates against American tanker owners who historically have been leaders, in terms of size and technology, in the building of the U.S. fleet. Having international operations, these owners are prohibited from receiving operating differential subsidies. As a result, the Act effectively thwarts a continuing and expanding contribution toward an economically sound build-up of the U.S. tanker fleet. In addition to needed revisions, the Act must also be expanded to keep the existing U.S. fleet competitive in the world market and to provide all owners the inducement and financial capability of |