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The original documents are located in Box 14, folder "Energy - Energy Transportation
Security Act" of the John Marsh Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
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Calendar No. 991
93D CONGRESS
2d Session
}
{
REPORT
SENATE
No. 93-1031
ENERGY TRANSPORTATION SECURITY
ACT OF 1974
REPORT
OF THE
SENATE COMMITTEE ON COMMERCE
ON
H.R. 8193
TOGETHER WITH MINORITY VIEWS
TO REQUIRE THAT A PERCENTAGE OF UNITED STATES
OIL IMPORTS BE CARRIED ON UNITED STATES-FLAG
VESSELS
JULY 25, 1974.-Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
38-010 0
WASHINGTON : 1974
Digitized from Box 14 of The John Marsh Files at the Gerald R. Ford Presidential Library
CONTENTS
Page.
Description and purpose
1
Background
1
Benefits of the bill
5
National security
5
Cost impact
11
Increased employment
16
Relationship to the Merchant Marine Act, 1970
18
Environment
19
The regional and industry impact of H.R. 8193
25
International trade
29
The balance of payments benefits of H.R. 8193
32
Section-by-section analysis
34
Estimated costs
43
Record vote in committee
44
Changes in existing law
46
Text of H.R. 8193, as reported
50
Agency comments
52
Minority views of Mr. Cotton
57
Minority views of Mr. Pearson
63
(III)
Calendar No. 991
93D CONGRESS
SENATE
REPORT
2d Session
No. 93-1031
ENERGY TRANSPORTATION SECURITY ACT OF 1974
JULY 25, 1974.-Ordered to be printed
Mr. MAGNUSON, from the Committee on Commerce, submitted the
following
REPORT
Together with minority views
[To accompany H.R. 8193]
The Committee on Commerce to which was referred the bill (H.R.
8193) to require that a percentage of United States oil imports be car-
ried on United States-flag vessels, having considered the same, reports
favorably thereon with amendments and recommends that the bill
do pass.
DESCRIPTION AND PURPOSE
H.R. 8193 requires that 20 percent initially, and by June 30, 1977,
30 percent of the oil imported into the United States shall be trans-
ported on U.S.-flag commercial vessels to the extent that such vessels
are available at fair and reasonable rates. The bill will improve our
national security posture by reducing the Nation's nearly total depend-
ence on foreign-flag vessels to meet our energy transportation needs.
It will also significantly benefit the balance-of-payments position of
the United States and provide increased protection to our marine en-
vironment. By creating a fleet of modern U.S.-flag tankers, the bill
will provide thousands of jobs for American workers aboard ship and
in shipbuilding, ship repair and support industries.
BACKGROUND
It is apparent that the 1970's will be a decade of decision for the
United States. The upheavals in our economy, as well as the economies
of other nations, and the unsettled nature of international relations
indicate that basic changes are taking place which will affect our well-
being and national security for years to come. Courses we choose now
will determine the quality and security of our lives into the next
century.
(1)
2
3
In that context, H.R. 8193 might appear to be modest legislation,
(b/d) in 1952, representing 13% of our total oil consumption, to over
requiring that a percentage of petroleum imports be carried on U.S.-
4.7 million b/d in 1972, nearly 30% of our total consumption. Despite
flag ships, if such vessels are available at fair and reasonable rates.
the expected opening of Alaskan resources, imports are expected to
Yet, the Committee has become convinced during the course of its
rise further to nearly 12 million b/d by 1980, which would constitute
hearings and deliberations that enactment of H.R. 8193 will go far
50% of anticipated requirements for that year. This proportion is ex-
toward solving serious problems by encouraging the construction and
pected to remain more or less constant through 1985, when total needs
use of a substantial number of tankers under U.S. flag.
may increase to perhaps 28-30 million b/d, apart from all other
1. Previous legislative efforts
energy sources that may be developed and exploited in the meantime.
Recent events have demonstrated the problems of being dependent
The U.S. tank ship fleet has declined sharply since World War II
on foreign oil supplies. The lessons learned apply with equal force to
when there were 904 tank ships aggregating some 12.7 million dead-
transportation dependency. Consequently, we must examine the impli-
weight tons. By 1970 there were only 262 American tankers totaling
cations of the fact-That we are almost entirely dependent on foreign
7.4 million deadweight tons. This decline is more significant in light
tonnage for the importation of oil. The small quantity of oil shown
of the fact that oil imports into the United States increased dramat-
in the record as having moved in American bottoms, approximately 5
ically during the same period. The use of U.S.-flag vessels is now
percent of our waterborne imports, reflected ships diverted from the
restricted, for the most part, to the carriage of oil in the coastal trades
domestic trade (including some new vessels awaiting construction of
which has constituted a declining part of our waterborne oil move-
the Alaska pipeline) by the extraordinarily high freight rates in the
ments. Moreover, the U.S.-flag tanker fleet has not been able to sub-
foreign market during the first part of 1973.
stantially participate in the movement toward very large tanker sizes
It is obvious that this condition cannot be accepted. Not a single
that developed throughout the world, starting in the 1960's.
witness adverse to the proposed legislation purported to defend it be-
To correct these disturbing trends, Congress passed the Merchant
fore the Committee.
Marine Act, 1970 (P.L. 91-469) (the "1970 Act"), which provided
for the first time substantial Federal support for the construction and
3. Legislative history of the bill
operation of bulk carriers, including tankers. It was expected that the
On June 27, 1973, Senators Magnuson and Beall introduced S. 2089,
American tanker fleet, as a prime beneficiary of the new program,
legislation identical to H.R. 8193 which was introduced in the House of
would expand its penetration into the U.S. oil imports trade.
Representatives on May 29, 1973 by Representative Leonor K. Sullivan,
Two years ago, it became apparent that, despite the new programs,
Chairman of the House Committee on Merchant Marine and Fisheries.
tankers for U.S. registry were not being built or operated in the
Subsequently Senators Jackson and Mathias joined as co-sponsors of
numbers necessary to adequately meet our needs. As a result of its 1972
S. 2089. In the House of Representatives 226 Members introduced or
hearings on this matter, the Committee concluded that the 1970 Act
co-sponsored 46 bills identical to H.R. 8193.
was not producing the necessary number of U.S.-flag tankers and was
Over the six month period between October, 1973, and March, 1974,
being thwarted because the multi-national oil companies were system-
the House Committee on Merchant Marine and Fisheries' Subcommit-
atically diverting oil cargoes for import into the United States to
tee on Merchant Marine held 15 days of public hearings on H.R. 8193
foreign-flag tank ships, many of which are owned by foreign subsidi-
and companion measures. On March 27, 1974, the Merchant Marine
aries or affiliates of these same companies. Consequently, the Committee
reported a measure requiring that at least 50 percent of our oil imports,
Subcommittee favorably reported H.R. 8193 to the full Committee on
(with certain exceptions required because of the operation of certain
Merchant Marine and Fisheries. The bill was favorably reported by
aspects of the now defunct mandatory oil import quota system), be
the Committee on April 9, 1974. On May 8, 1974 the bill was passed by
carried on U.S.-flag vessels to the extent such vessels were available
the House of Representatives by a roll call vote of 266-136.
at fair and reasonable rates.
The Merchant Marine Subcommittee of this Committee held public
The measure was narrowly defeated on the floor of the Senate,
hearings on S. 2089 and H.R. 8193 on May 20, 21, 22, and 30, 1974.
primarily because of charges that it would (1) institutionalize the
Testimony was received from 15 witnesses which included officials
mandatory oil import quota system and (2) increase the price of oil.
from the Departments of State and Commerce, the Federal Energy
These arguments are no longer valid because the quota system has
Administration, a number of petroleum and shipping company and
been eliminated; the Committee has received testimony demonstrating
trade association representatives, as well as economics scholars and
that the price of oil will not be adversely affected by the preference
labor union officials.
legislation; and the international oil crisis has demonstrated the advis-
A number of written statements concerning this legislation were
ability of becoming transportation independent.
also submitted to the Subcommittee.
2. Continued dependence on oil imports
On June 26, and 27, 1974 the Committee considered H.R. 8193 in
executive session. During those deliberations the Committee adopted a
Despite efforts of the United States to become energy self-sufficient
number of amendments modifying the House-passed measure. These
authorities agree that our dependence on foreign sources of oil will
continue for some time. Our imports rose from 950,000 barrels a day
4
5
are all explained in detail in the Section by Section Analysis portion
of this report.
that the vessels incorporate the best available pollution prevention
Several amendments proposing exemption from the requirements
technology, including segregated ballast capacity and double bottoms,
of the bill were rejected by the Committee. These included exemption
SO as to protect our marine environment.
of the fuel and oil used for heating purposes-rejected by a roll call
BENEFITS OF THE BILL
vote of 10 to 5; exemption of aviation fuel-rejected by a roll call vote
of 12 to 3; exemption of oil imported for use as petrochemical feed-
NATIONAL SECURITY
stock-rejected by a roll call vote of 10 to 5: exemption of oil imported
for electric power generation because of environmental requirements—
During the past few years there have been alarming and rapid
rejected by a roll call vote of 11 to 3; and exemption of oil imports
changes in the status of this nation's energy supply and energy trans-
into the insular territories and possessions of the United States-re-
portation capability. Taken together, these changes have grave impli-
jected by a voice vote.
cations for the national security of the United States. The Committee
The effect of these amendments would have been to seriously reduce
is convinced that Congress must act in a decisive and positive manner
the effectiveness of the legislation in favor of special interest exemp-
to avoid a serious and chronic condition of defense unpreparedness.
tions. As explained in detail in other sections of this report, the Com-
The Energy Transportation Security Act of 1974 represents a bold
mittee concluded that there should not be any cost increases resulting
initiative by Congress to control and direct a national security factor
from the requirements of the bill and the Secretary of Commerce has
without further exacerbating those factors that are essentially beyond
ample authority to administratively grant appropriate relief to im-
our control. The Act would establish a program to insure that the
porters or persons subject to the Act on an emergency basis.
United States has the ocean-borne transportation capability to supply
The Committee also defeated, on a roll call vote of 12 to 3, an amend-
our petroleum needs in a time of international crisis.
ment to include in the bill a provision similar to the first proviso of
The Committee recognizes that in the short run we can do little about
section (1) of the Merchant Marine Act. 1936, as amended. (46
our increasing dependency on foreign oil for our domestic and defense
U.S.C. 1241 (b) (1)), which would have granted temporary waiver
needs. We support the goals of Project Independence, but despite these
authority of the proposed cargo preference requirements to the Presi-
efforts, it appears that the Department of Interior was not far wrong
dent, Congress, or the Secretary of Defense. The Committee felt that
when it estimated our oil imports would increase by 300% in the next
the Congress can respond adequately should circumstances warrant a
10 years.
temporary suspension of the bill's requirements.
In the area of energy transportation, however, the Committee feels
An amendment calling for a Federal Trade Commission investiga-
we can take a significant step to guarantee that in a period of inter-
tion of the structure. conduct, and performance of the petroleum tanker
national crisis, our nation has a sufficient number of U.S.-flag tankers
industrv was also proposed. The current anticompetitive aspects of the
to supply our armed forces and meet the needs of our basic domestic
tanker industry because of its control bv major oil companies make a
industries. Currently, the number of such vessels is totally insufficient,
compelling case for such a study of the FTC. and the Committee ex-
and we would be forced to rely on a group of foreign-flag tankers
pressed support for such an undertaking. However, the Committee felt
alleged to be under effective U.S. control (the EUSC fleet). After
that this legislation was not the appropriate vehicle for such an amend-
careful study, the Committee has determined that our control over
ment.
those foreign-flag vessels is illusory rather than actual, and our present
On June 27, 1974, the Committee voted 14-2, with 2 abstentions. in
reliance on a EUSC fleet without a sufficient nucleus of U.S.-flag
favor of the motion of the Chairman to order H.R. 8193 reported as
vessels constitutes a direct threat to the national security of the United
amended.
States.
4. Committee amendments meet opponents' objections
1. The importance of a U.S.-flag tanker fleet to our national defense
The Committee feels that the bill as reported is much stronger than
Under the Merchant Marine Act, 1936, as amended, Congress
the 1972 bill and the House-passed bill. For example. what little
charged the privately-owned civilian merchant marine with the de-
remained of the argument that the bill would result in increased costs
fense mission of serving as a "naval and military auxiliary in time of
to the consumer has been mooted because of an amendment the Com-
war or national emergency". However, the Committee recognizes that
mittee added waiving a portion ($0.15 per barrel) of the oil import
for some time to come, the ever increasing flow of foreign oil into this
license fee for crude oil imports transported on U.S.-flag vessels, and
nation will depend in a large part on the availability of foreign-flag
applving the savings from the waiver SO as to reduce ultimate con-
vessels manned by officers and crews with no allegiances to the United
sumer costs. Even before that amendment, some witnesses testified that
States. The Energy Transportation Security Act was drafted for the
the bill would actuallv produce a cost savings for consumers. Other
narrow purpose of insuring that at least a nucleus of U.S.-flag tankers
Committee improvements in this bill include (1) a requirement that
carrying a fair share of our oil imports will be under our unequivocal
a portion of vessel profits be reinvested in new vessels, (2) vessel age
control in a national emergency. To that end, the bill provides that 20
limitations that will result in utilizing new efficient tonnage rather
percent of petroleum products imported into this country be carried
than perpetuating less efficient overage tonnage, (3) a requirement
on U.S.-flag vessels, rising to 25 percent after 1975 and 30 percent
after 1977.
6
7
From the standpoint of national security the advantages of having
a sound nucleus of tankers under U.S. registry include:
The Merchant Marine Act, 1936, as amended, requires vessels
(a) Flexibility-A U.S.-flag tanker fleet can give us the flexibility
built with Construction Differential Subsidy (CDS) to incorporate
to transport oil from alternative sources if a military or political crisis
Department of Defense recommended features into their designs. Of
forecloses our access to more traditional sources.
course, this provision is of little value when the major oil companies
(b) Crew Reliability-A U.S.-flag tanker fleet will be manned by
ignore the CDS program and place most of their orders for new vessels
U.S. seamen with a long tradition of devotion to the United States
in foreign shipyards. By the middle of 1973, only 9 U.S.-flag VLCC's
and heroism in every hostile action since the Revolutionary War.
were scheduled to be built in American shipyards under the 1970 Act
(c) Defense Design Features-A modern U.S.-flag tanker fleet can
while foreign-flag shipyards had 394 pending orders, many of them
more easily incorporate design features particularly suited to serving
from the major oil companies that import oil to our shores.
the needs of our defense apparatus. When tankers are constructed in
Altogether, there were 50 tankers of 4.4 million deadweight tons
U.S. shipyards with a Construction Differential Subsidy (CDS)
on order or under construction in U.S. shipyards as of November 1,
under the Merchant Marine Act, the Department of Defense may re-
1973, of which 26 were using CDS. But the average deadweight ton-
quire that such design features be incorporated in the construction
nage for these vessels is only 87,400 dwt. compared to an average of
plan.
136,500 dwt. for 1,286 tankers being built for foreign registry in world
(d) Shipyard Capacity-To the extent American shipyards must
shipyards. Construction of more VLCC's is vital to our national secu-
expand to build a sufficient number of U.S.-flag tankers to meet the
rity since these are the vessels that can transport the largest quan-
requirements of H.R. 8193.
tities of oil over the longest distances at the cheapest prices. Likewise it
(e) Merchant Marine Development-An expanded U.S.-flag fleet
is necessary for the U.S. to expand our production of smaller tankers
will require a larger and better-trained United States Merchant Ma-
that may be used by the military in the diverse tactical situations that
rine capable of serving our maritime trade on the high seas.
arise in modern warfare.
At the Committee's hearings on H.R. 8193, Department of Com-
2. Current status of the U.S.-flag fleet
merce officials testified that the immediate prospects for increased
Progress has been made under the ship construction and operating
U.S.-flag tanker construction were excellent since there were CDS
subsidy provisions of the Merchant Marine Act of 1970, but it has be-
applications pending with the Maritime Administration for 107 tank
come very apparent in recent years that more must be done to provide
ships totaling 31.6 million deadweight tons and costing in excess of
a sufficient number of U.S.-flag tankers to transport foreign oil to our
$10 billion. The Committee does not doubt that such applications are
shores in the event of a world crisis. The Department of Defense has
pending, but we seriously question their significance to our future
estimated that we would need a tanker capacity of 12.6 million dead-
defense needs. As valuable as the CDS program is, anyone familiar
weight tons to support military operations in the event of a major
with the administration of the program and the nature of CDS appli-
emergency. The requirements for defense support industries and
cations knows that only a small percentage of these vessels will ever
essential domestic needs would raise this figure substantially.
be built.
In his testimony on H.R. 8193, before the House Committee on
In the first place there are funds available to finance only a fraction
Merchant Marine and Fisheries, Assistant Secretary of Commerce for
of such vessels. The annual CDS expenditures for all types of vessels,
Maritime Affairs, Robert J. Blackwell stated "To summarize, there
including tankers, has been less than $200 million since 1971.
is a strong demand for additional tankers to serve U.S. markets that
Moreover, many of the applications themselves are speculative.
will continue to grow well into the 1980's. If a substantial portion of
Very few applicants have settled their charter arrangements or financ-
these tankers are under the U.S.-flag, the United States can expect to
ing requirements at the time they submit their applications. Further-
derive impressive economic and national security advantages."
more, few will be successful in signing charter or financing agree-
However, as of December 31, 1973, our U.S.-flag tanker fleet con-
ments as long as the major oil companies continue to divert their
sisted of 239 vessels totaling only 7.8 million deadweight tons, less than
petroleum import cargoes to foreign-flag vessels. No matter how many
4% of the world's total tonnage. Most of the ships are small, averaging
CDS applications are on file, the fact remains that few vessels will
only 32,600 deadweight tons per ship.
be built if no cargoes are available. This legislation would solve that
Even these figures understate the gravity of the situation. since most
problem by guaranteeing that a significant percentage of oil imported
of our fleet is obsolete. At the end of 1972, there were 246 tankers
into this country be carried on U.S.-flag ships.
of U.S. registry, of which 96 were over 25 years old, 72 more were over
15 years old, and only 39 were 10 years old or newer. As of December 31,
3. The EUSC fleet
1972, the average age of our fleet was 20 years. Of the top 33 world
At present, U.S.-flag vessels carry only about 5 percent of our oil
tanker fleets, the United States has an older fleet than all but one
imports. To make matters worse, the U.S.-flag vessels are mostly
nation-Argentina.
engaged in transporting oil over the shorter, less profitable trade
The obsolecence of our fleet would be a maior factor even if we con-
routes, receiving only the crumbs of a lucrative trade monopolized
sidered only its peacetime capabilities. But the state of many of the
by the major oil companies and their foreign-flag subsidiaries.
tankers is an item of critical concern when we realize they could well
Approximately 95% of our oil imports are now carried on foreign-
be called upon to serve most of our energy transportation needs.
flag tankers, some of which are counted as part of the EUSC fleet.
8
9
In the event that a great many of these foreign-flag tankers are not
tial needs by itself. But now, our domestic fleet cannot begin to meet
available in a world crisis, we will be forced to rely on vessels sup-
our needs, particularly in the area of oil transportation. The EUSC
posedly under our effective control to meet our oil import require-
fleet began as a creature of necessity, but as world conditions have
ments. The Committee finds that the reliability and availability of
changed, SO have the demands of our national security. Today, events
the EUSC fleet under such circumstances is highly questionable. For
have forced us to reconsider our almost total reliance on foreign-flag
that reason, we have concluded that a clear need exists for more U.S.-
vessels for transporting our oil imports.
flag tankers that are unequivocally subject to our control.
a. No unequivocal control.-Since our control over the EUSC fleet
Today, the EUSC tanker fleet consists of 301 vessels with a total
is based upon domestic law, serious questions may legitimately be raised
capacity of nearly 20 million deadweight tons. The vessels fly certain
concerning the extraterritorial impact of the EUSC agreements. The
"flags of convenience", namely those of Liberia, Panama, and Hon-
Committee has noted with interest that the Administration's opposition
duras. The tankers are owned by foreign subsidiaries and affiliates
to requiring greater reliance on U.S.-flag tankers has not been matched
of the large multi-national oil companies. The basis of our supposed
by confidence in our potential control over foreign-flag vessels now
control over the EUSC ships is section 902, Merchant Marine Act,
transporting our oil imports. In response to questions submitted by
1936, as amended (46 U.S.C. 1242) under which the government is
Congressman Frank M. Clark, Chairman of the Subcommittee on
authorized to requisition or purchase for government service any
Merchant Marine of the House Committee on Merchant Marine and
vessel owned by a citizen of the United States in the event a national
Fisheries; Robert J. Blackwell, Assistant Secretary of Commerce for
emergency is declared. Under section 1201 of the Merchant Marine
Maritime Affairs; sounded these words of caution against relying on
Act, 1936, as amended (46 U.S.C. 1283) the Secretary of Commerce
the EUSC fleet: "As I noted in my testimony, there is no basis in in-
is authorized to issue U.S. interim war risk insurance to EUSC fleet
ternational law for 'effective control'. For this reason the availability
owners.
of EUSC vessels remains essentially a promise which, like any prom-
The policy of effective control was developed in the early days
ise, may or may not be fulfilled when it becomes due."
of World War II before America entered that conflict. Acting at the
Witnesses from the American Petroleum Institute and the Federa-
request of the United States government, American companies made
tion of American Controlied Shipping maintain that our govern-
available their Panamanian, Honduran and Venezuelan flag ships for
ment does have sufficient authority to gain control over the EUSC
the purpose of resupplying Great Britain and France with material
vessels in an emergency. But the Committee has found the legal author-
vital to their war effort. Such trade was barred to American-flag ships
ity for such contention meager, at best, especially in light of the estab-
by the Neutrality Act of 1939. The government actually encouraged
lished principle of international law that allows only the country of
U.S. owners to transfer their vessels to Panamanian registry for the
registry to seize a vessel on the high seas. Under certain circumstances,
purpose of resupplying the allies while still maintaining technical neu-
it appears that any nation may seize a foreign-flag vessel when it is in
trality. After the war, the government was anxious to dispose of the
that nation's territorial waters. However, tankers spend most of their
huge wartime fleet and encouraged many operators to buy these ships.
useful lives on the high seas. Moreover, most of the EUSC vessels
wartime fleet and encouraged many operators to buy these ships.
never enter our territorial waters at all, since they serve European or
Thus, the concept of effective U.S. control was born under circum-
Far Eastern countries exclusively. The Committee feels that in a crisis,
stances unique to a particular period in our history. At that time, the
circumstances could well arise where we would be forced to wait for
U.S.-flag fleet was strong and versatile. We could afford a policy of
EUSC tankers to enter our waters if they chose while our critical
encouraging foreign registry for a limited number of American-
petroleum needs went unmet.
owned vessels, particularly when the success of our own preparations
Some have claimed that the nations offering "flags of convenience"
for war depended on a continued state of neutrality and resupply of the
would never exercise their right under international law to control
existing allied resistance.
vessels of their registry. However, the Government of Liberia issued
After the United States entered World War II, the national se-
a prociamation on November 2, 1973 which put this theory to rest.
curity justification for the EUSC concept ceased to exist. There was
President William Tolbert issued an executive order prohibiting any
no longer the need to maintain the facade of neutrality by shipping
vessels flying a Liberian flag from participating in the carriage of
supplies to our allies on foreign bottoms. Yet, the concept did not die,
arms to the Middle East, regardless of the ownership. President Tol-
and, in fact, the EUSC fleet grew and prospered while our own fleet
bert's decree, occurring at a time when our country was involved in the
withered away as more and more vessels were transferred to foreign
resupply of Israel, was perfectly valid under the principle of inter-
registries.
national law which states that the nation of registry controls the vessel
In 1941 there were 88 EUSC tankers totaling 952,000 deadweight
and not the nation of the vessel's owner.
tons. By 1948 there were 141 vessels with a total deadweight tonnage
Aside from the purely legal questions of international law, there are
of 1,950,000 dwt. The EUSC fleet continued to grow until in 1972 there
other practical factors that cast serious doubt on the availability of the
were 282 EUSC tankers totaling over 18 million deadweight tons.
EUSC vessels in a crisis. Not the least of these is the fact that almost
Originally the EUSC vessels represented a surplus capacity over
all the officers and crews of these vessels are foreign nationals whose
and above a strong U.S.-flag fleet fully capable of meeting our essen-
loyalty to the United States may be negligible. The record contains
S. Rept. 1031 O 74 2
10
11
incidents where foreign crews have refused to sail or sailed under
Under H.R. 8193. our nation would, at least, have a nucleus of
violent protest with cargo bound for our military forces in South
U.S.-flag tankers available to seek out alternate sources of supply in a
Korea or South Vietnam.
national emergency.
Testifying before the Special Subcommittee on Sea Power of the
c. Availability of the EUSC ressels.-Many of the EUSC vessels
House Committee on Armed Services towards the end of the Vietnam
supposedlv at our immediate disposal are not even employed in U.S.
conflict (October 8, 1968), Admiral Lee Ramage stated "These ships
foreign trade. The Committee has noted that in 1971 onlv 20 percent
(EUSC vessels) cannot really be counted on.
In every case we
of our waterborne petroleum imports were carried on these tankers
have to poll the crew to see if they are all going into the war zone, and
while the rest were employed in shipping vitally needed petroleum to
if one doesn't then we cannot use them."
Western Eurone and Japan. According to Assistant Secretary of Com-
A similar view was expressed in 1969 by Captain Richard J. Godek
merce Blackwell, "It appears unlikelv that in an emergency the U.S.
in Defense Department testimony before the House Appropriations
could exercise its ontion to withdraw very manv of these tankers from
Committee: "So long as there are adequate numbers of American
this service without creating serious economic and political conse-
ships, there should be no logistical problems. If the magnitude of the
quences. Further, anv withdrawal of tankers from Europe could have
military effort exceeds the capability of American ships and combat
an adverse impact on the netroleum supplies which would support
supplies have to be moved by ships other than of American registry,
military and civilian needs of the European countries of NATO
the probability of personnel refusals to sail ships to support an
alliance."
unpopular military operation appears to be substantial."
Assistant Secretarv Blackwell's fears are now more than theoretical.
In answer to these criticisms, the Federation of American Controlled
When the Suez Canal was closed in June of 1967, we found it necessary
Shipping representing the EUSC owners has claimed that 85 percent
to call upon the EUSC tankers. but only a few were available. Accord-
of the officers and 67 percent of the unlicensed crew on these vessels
ing to Admiral Ramage. "We went to the owners of the U.S.-controlled
are from friendly West European nations. While we have no doubt
tankers and asked them to offer as manv tankers as thev could. We got
that our alliance with Western Europe remains strong and viable,
a total of around 130. and when we screened these ships, ascertained
it should be no secret to the EUSC owners that oil shortages are more
their location, sizes. conditions of the offered ships, we found there
critical in those nations than they are in this country. Given a volatile
were only about 11 which we could immediately use."
crisis where a world-wide shortage of oil is a prime element, who is
to say a West European crew would willingly deliver a cargo of crude
4. Summary as to national security
oil to the United States military when the security of their own nation
After careful consideration of the testimonv presented to the Com-
was directly threatened? We cling to a slender reed when we assume
mittee and events of the recent past that have been called to our atten-
the patriotism of foreign seamen manning EUSC vessels is somehow
tion. we have concluded that tankers of U.S. registry are the most
less fervent than that of our own seamen.
reliable vessels to meet our energy transportation needs.
b. The leverage of petroleum suppliers.-Recent events have indi-
Furthermore, we have concluded that H.R. 8193 will provide a suf-
cated that the countries controlling the world's oil may be willing in
ficient number of U.S.-flag shins engaged in the foreign trade of the
certain circumstances to use their strategic advantage to make our
United States to form a nucleus of oil transportation capability in an
EUSC fleet worthless. Countries that offer "flags of convenience"
emergency.
need oil, too, SO we can expect that in a period of tension, such nations
Finallv. we have rejected the claims of those who feel we can simply
may be forced to obey orders to restrict the operations of vessels under
relv on effective U.S.-controlled vessels when our national security
their registry, subject to the approval of the oil-producing nations.
is threatened. These shins. with their foreign officers and crews, are
Even more threatening than that, however, is the vulnerable posi-
dispersed all over the globe and only a few are engaged in transporting
tion of the oil companies themselves. Without questioning the patriot-
oil to our shores. To make matters worse, we probably lack authority
ism of the United States citizens who operate these companies from
under international law to seize these ships on the high seas or in an-
home offices in this country, it is to be expected that their corporate
other country's territorial waters.
interests may not always coincide with the interests of our national
security. Most recently, the oil companies importing oil to our country
COST IMPACT
from Arab nations were ordered to embargo shipments to the United
States and stop supplying our military forces in Europe with needed
During the Committee hearings on this legislation. no other issue
petroleum products. Since the Arab countries know these same oil
prompted as much conflicting evidence as the probable cost im-
companies own most of the EUSC tankers supplying our needs, the
pact of H.R. 8193 on the A merican consumer. After carefully analyz-
Arabs themselves could well assume effective control over these vessels
ing the testimony and exhibits submitted bv the various witnesses, the
by threatening a cut-off of product to any or all of these oil majors.
Committee has concluded that there should not be any increase in the
In this connection, we take note that the Arab countries have formed
prices of oil attributed to the enactment of the Energy Transportation
their own ocean transportation company and are now building tankers
Security Act.
with the announced goal of requiring that at least 40 percent of Arab
That conclusion is strengthened by an amendment the Committee
oil exports be carried on ships of the Arab company.
added which waives $0.15 per barrel of the oil import fee when crude
12
13
oil is carried on U.S.-flag vessels, provided the cost savings are passed
First, the oil companies recently revised their cost estimate upward
on to the ultimate consumer. This amendment will reduce the overall
based.on the impact of inflation, but it appears the revision should have
costs of U.S.-flag shipping below that for foreign-flag vessels on many
been downward. The U.S. inflation rate that will affect the construc-
trade routes, even when offsetting factors not directly related to ship-
tion and operation of U.S.-flag tankers is high due to general economic
ping costs are disregarded.
factors, but, as noted above, not nearly as high as that in other coun-
During its deliberations on H.R. 8193, the Committee was mind-
tries of the world. We fully expect the gap between construction
ful of the tremendous increases that have occurred in oil prices over
recent months. To be sure, a portion of the increase may be attributed
and operating costs of foreign-flag and U.S.-flag vessels will decrease
rather than increase over the years.
to higher prices charged by oil producing countries for their product
Second, the oil companies relied heavily on the impact of foreign
and a small portion is due to slightly increased demand. However,
evidence suggests that a large portion of the increase has led to huge
government retaliation in response to passage of H.R. 8193. The pos-
sibility of such retaliation is speculative at best, and as is explained in
profits for the major oil companies which, with only one exception,
oppose this bill as being too costly to the consumer. During the first
other sections of this report, other nations are already reserving car-
three quarters of 1973, the seven largest oil companies operating in
goes for ships of their national registry without reference to the suc-
the United States increased their profits by 46 percent although they
cess or failure of this legislation.
sold only 6 percent more of their products than the year before. Dur-
Third, the oil companies based their cost estimate on the supposition
ing the fourth quarter, Standard Oil of California increased its prof-
that a captive, non-competitive market would be created for U.S.-flag
its by 194.5 percent, Phillips Petroleum by 127.5 percent, Texaco by
vessels and such vessels could charge a captive market premium. This
70 percent, and Exxon, the world's largest company, by 59 percent.
seems a strange argument for those who now own a near monopoly on
Given these levels of profitability in a period when the rest of
transportation of our oil imports and whose pricing practices for that
the United States is locked in an energy crisis, we are understand-
transportation are questionable, at best. In any case the use of the term
"non-competitive" is erroneous. There will be free entry and free com-
ably skeptical about the professed concern of the major oil companies
petition among all U.S.-flag carriers, subject to reasonable rate lim-
for the pocketbooks of the American consumer.
We agree with those witnesses who cited figures to show that much
itations fixed by the Secretary of Commerce. Moreover, H.R. 8193
of the oil price increase had not been tied to increasing costs of pro-
would reserve only 20 percent of our oil imports for vessels of U.S.
duction or levels of demand. The Committee has been forced to con-
registry, with the percentage rising to 25 percent after 1975 and
30 percent after 1977. Foreign-flag vessels owned by the oil companies
clude that the major oil companies are charging the highest price
would be available to carry the rest. The oil companies have now cap-
traffic will bear under a system of government regulation that has not
tured a much greater percentage of the market for their own foreign-
dealt adequately with their nearly unlimited discretion in this area.
flag tankers, yet they do not talk of a captive market premium under
1. Cost estimates
current conditions.
The Committee received a wide variety of estimates during its hear-
Finally, opponents of the bill have apparently failed to recognize
ings as to the cost of this legislation to the consumer of oil products.
that U.S. tankers in the VLCC class are nearly equal in operating costs
The oil companies opposing the bill estimated a cost increase of $0.79
to foreign-flag vessels of that size, particularly when such vessels are
per barrel in 1975 while an economist testifying in support of the leg-
given their fair share of long-term charters and more distant trade
islation estimated a cost savings of $0.68 a barrel in 1975.
routes. Since many of the ships expected to be built in response to the
The Committee noted that the Maritime Administration, while testi-
enactment of this legislation will be VLCC's, we can expect the total
fying in opposition to the legislation, estimated the cost increase under
cost differential to be less.
this bill to be $0.0035 per gallon for 1974, a figure SO small as to be in-
An economist testifying in support of the bill quantified the benefits
significant when compared to the high prices Americans are now pay-
of increased employment, balance-of-payment credits, elimination of
ing at the fuel pump. For 1975 the estimate was $0.004 per gallon; for
transfer pricing, and more effective taxation of oil company profits
1980 $0.006 per gallon; and for 1985, $0.0084 cents per gallon. However,
under the proposed program, which more than offset any cost differen-
the Committee questions whether the accelerating Marad estimate
tial now existing. We have dealt with each of these factors more thor-
for years to come adequately accounts for the proportionately higher
oughly elsewhere in this report, but it is worth noting here that this
inflation rate in foreign countries. Moreover, the Marad estimates
analysis seems far less speculative and more persuasive than many of
do not take into account the expected cost savings from superports.
the arguments used by the oil majors to reach their conclusions. The
Government estimates project at least a 20% savings when superports
conclusion reached under this broader analysis was that the American
are in operation.
consumer would experience a real savings of $0.68 a barrel on imported
As for the higher cost estimates submitted by the major oil com-
oil if H.R. 8193 were enacted into law.
panies, we have concluded they are based upon self-serving assump-
2. Transfer pricing and a cost monitoring system
tions that are unlikely to occur, and that no cost increase should
Throughout its deliberations on this legislation, the Committee was
result.
genuinely dismayed at the lack of candid information on the true
prices charged for trans-oceanic petroleum shipping. While relying
14
15
heavily on estimated increases in consumer prices if H.R. 8193 becomes
conceded by oil company witnesses, under the system of pricing using
law, the major oil companies and other opponents of the bill never
AFRA rates, it makes no difference what registry a vessel is (includ-
revealed facts and figures about their current pricing practices, even
ing United States) since the vessels are priced on an index basis rather
though this issue was repeatedly raised by numerous witnesses at the
than on the basis of their own cost.
hearings on this legislation.
This legislation will discourage excessive use of transfer pricing
Proponents of the bill went virtually unanswered when they charged
by establishing a cost monitoring system for trans-oceanic freight
that prices that American consumers now pay for oil transportation
rates. U.S.-flag ships need only be used if their rates are fair and rea-
bear little, if any, relation to the cost of that transportation service.
sonable. To determine the fairness of trans-oceanic rates, the Secre-
We know that the major oil companies have wholly-owned foreign
tary of Commerce must make periodic investigations of the actual cost
subsidiaries which, in turn, own the foreign-flag ships used to import
of such shipping. For the first time, the American consumer will have
the parent companies' oil to the United States. We also know that at
the opportunity to compare the price they are paying for oil trans-
this time the cost of shipping oil on U.S.-flag vessels may be slightly
portation with accurate and current cost figures, and judge for them-
higher in most instances. However, what we do not know is whether
selves whether the huge oil company profits are justified.
the price the American consumer is paying for oil transportation on
3. Tax savings
vessels owned by the oil companies actually reflects the lesser costs of
constructing and operating the tankers of foreign registry.
Once accurate cost figures for trans-oceanic shipping are systemat-
Cost figures are totally irrelevant to any discussion of the consumer
ically made available by the Secretary of Commerce, we can expect
impact of this bill unless the oil companies can give us proof that cost
more accurate determinations of the proper price the oil companies
savings will mean lower prices at fuel pumps in the United States. No
may charge themselves for shipping. We believe that price may be
such evidence has been forthcoming, but we do have substantial evi-
substantially less in most instances than the AFRA rate now used.
dence to the contrary.
Consequently, the amount of profit the oil companies are now able to
repatriate tax free will be less.
The Committee realizes, first of all, that when a major oil company
charters a vessel from one of its subsidiaries to import a load of oil, the
This is important to the American consumer since nearly all of
purchase price is paid when an accountant makes a bookkeeping entry
them are taxpayers who must pay the portion of the overall Federal
transferring the price from one account to another. That price is then
tax bill not paid by the oil majors. Some witnesses at our hearings
passed on to the American consumer. If the amount of such a transfer
attempted to quantify the amount of savings to the consumer due to the
reflected only the costs of wages, capital recovery, bunkers and port
increased ability of the Federal government to tax shipping profits,
charges, insurance, maintenance, and other miscellaneous costs, plus a
but we feel the resulting figures are speculative since much depends
on the reaction of the Internal Revenue Service to the new informa-
reasonable profit, then the oil company analysis of increased consumer
costs might be valid. However, we suspect the oil companies charge
tion. Nevertheless, the Committee feels substantial savings are possible.
In a letter to the Chairman of the Subcommittee on Merchant
themselves much more than that amount and pass much more than that
Marine, the Director of the IRS expressed reservations about use of
amount on to the American consumer as a component of higher oil
prices.
the AFRA rate by the oil majors, and noted that it is hampered by a
To understand why, one must realize that profits made by the foreign
lack of information about transfer pricing practices. Under the fair
subsidiaries are taxed at a lower rate than those of the domestic
and reasonable rate provisions of H.R. 8193, full and accurate cost
parent company or they are taxed not at all. Moreover royalties paid
data will be available under certain circumstances from the Secretary
to foreign governments for the purchase of oil are often disguised as
of Commerce SO that fresh determinations may be made about the
tax payments that mav be credited against repatriated income from
legitimacy of using the AFRA rate for the purposes of repatriating
foreign subsidiaries. Thus, the Internal Revenue Code actually en-
excess profits from foreign subsidiaries tax free.
courages the oil majors to transfer windfall profits to foreign sub-
4. Fee waiver
sidiaries by a process of transfer pricing and the American consumer
Finally, the Committee adopted an amendment allowing a waiver of
must pay the bill.
$0.15 per barrel of the oil import fee when crude oil is carried on U.S.-
The Internal Revenue Service does require the oil companies to show
flag vessels, provided the cost savings are passed on to the ultimate
the price they charge themselves was determined "at arm's length",
consumer. The amendment eliminates much of the cost advantage of
but they have been able to meet this requirement by charging the
importing oil on tankers of foreign registry by providing a cost cushion
average freight rate assessment or AFRA rate. AFRA rates are com-
for U.S.-flag tankers. In some instances, shipping by U.S.-flag will
piled by averaging all freight rates paid in a given month. including
produce a savings (without reference to transfer pricing arguments).
spot and short term charters over shorter distances. Since the oil com-
In his energy message of April 18, 1973, President Nixon termi-
panies usually charter their vessels over a longer term and for the
nated the oil import program as of May 1, 1973. Instead, crude oil
long routes, the AFRA rates can be far in excess of the actual shipping
importers must pay as of that date a set license fee for each barrel of
costs. Moreover, the companies purchase manv of the components of
imported crude. The fee will rise in a series of steps from $0.101/2
the AFRA rate, such as bunkerage. from themselves at cost. This
per barrel as of May 1, 1973 to $0.21 per barrel starting May 1, 1975.
contributes to the overstatement of actual shipping costs. As has been
16
17
The amendment added by the committee provides for a rebate of
The Maritime Administration estimates that the incremental em-
$0.15 per barrel of the oil import fee. Thus, a U.S. vessel carrying
ployment generated by the construction of new ships necessary to
crude oil under H.R. 8193 would pay only $0.06 of this fee, compared
carry 30% of U.S. oil imports by 1985, considering the constraints
to $0.21 for a foreign-flag vessel as of May, 1975.
imposed by present shipyard capacity, would be about 225,000 man-
Following is an example of the application of the fee waiver on
years providing about $4 billion to the U.S. economy in the form of
crude imports from Venezuela and North Africa.
wages. This is in addition to the current Marad program providing
340,800 man-years of employment with $36.1 billion in wages.
Crude imports from
Crude imports from
Put in another way, witnesses estimated that each of the 103 tankers
Venezuela
North Africa
needed to fulfill the requirements of the bill by 1985 would account for
U.S. flag
Foreign flag
U.S. flag
Foreign flag
246 new jobs per year in shipbuilding, ship repairs, and support in-
dustries. In addition, each of the new vessels will provide 55 new jobs
Oil cost
$10.10
$10.10
$10.05
$10.05
Transportation
.59
.49
.77
.65
per year in operations. Thus, these witnesses concluded that the legis-
Oil import fee (May, 1975)
.06
.21
.06
.21
lation could provide new jobs a year by 1985, a tremendous boost to
Total
10.75
10.80
this country's sagging maritime employment posture.
Savings passed on to the consumer
.05
0
.03
0
The Committee feels strongly that the men and women of America's
Sources: U.S. Department of Commerce Data, 1974, Oil and Gas Journal, Apr. 29, 1974.
labor force should be allowed a fair participation in the bonanza ex-
pected to accrue to the oil companies as a result of our increased re-
5. Summary as to cost impact
liance on imported oil. We are convinced much of the vessel owners'
After studying the testimony and estimates submitted with regard
flight to foreign flags may be attributed to an unjustified reluctance
to the cost impact of H.R. 8193 on the American consumer, the Com-
to deal with organized labor in the maritime trade. As much as any
mittee concluded that there should be no cost increases. In most cases
sectors of American labor, the maritime unions have placed a pre-
the fee waiver provision now contained in the bill will offset any cost
mium on continuity of operations. There have been some brief work
differences for oil imports transported on U.S.-flag and foreign-flag
stoppages at contract time, but these are insignificant compared with
tankers, providing a cost savings to the consumer in many instances.
the disintegrating labor relations in many of the foreign-flag fleets,
most notably the Japanese fleet. While it is true American seamen are
INCREASED EMPLOYMENT
paid more than the near subsistence wages paid the crews on many of
the foreign-flag vessels, crew wages were never directly placed at
Even the strongest opponents of H.R. 8193 agree that it will pro-
issue in the hearings on this legislation. This is probably because crew
vide thousands of jobs for American workers aboard ship, in ship-
costs have become a negligible factor on modern, highly-automated
yards, and in numerous support industries. Many countries of the
tankers. The TT Brooklyn, a new 225,000 ton tanker with a speed
world have a shortage of maritime labor. Witnesses have reported that
of 18 to 22 knots, carries a crew of 27 men. On the other hand the old
Greece, a nation with strong seafaring traditions, has trouble finding
14,000-ton, T-2 tankers of World War II fame carried a crew of from
young men who are willing to sign on as crew members. Some of the
37 to 45.
Scandinavian countries have had to import Hong Kong seamen for
Of course, with all the new technology in the shipping industry,
vessels registered under their flags because of sagging crew enlist-
greater skills and technical expertise are required to operate the mod-
ments. However, in the United States we do have a substantial num-
ern tanker. Fortunately, the skill of our American seamen is un-
ber of well-trained but unemployed seamen, stranded by the exodus of
surpassed by any others in the world and we have several merchant
vessels from the U.S. flag. The Committee feels one of the most posi-
marine academies, State, Federal, and privately-operated to insure
tive benefits of this bill will be the substantial increase in maritime and
that trained personnel are always available. The Committee expects
maritime related employment for U.S. citizens.
that if H.R. 8193 becomes law most of these skilled graduates can
As of December 31, 1972, foreign affiliates of U.S. companies owned
find jobs. As it stands now, we are wasting much of this talent, since
419 foreign-flag tankers. The Maritime Administration has estimated
many are forced to seek employment outside their chosen profession,
that if each of those ships were operated under U.S.-registry and em-
or are unemployed.
ployed U.S. crews, there would be 17,179 new jobs for American sea-
Finally, the Committee has considered and rejected the Administra-
men. The hypothetical U.S. crews would earn $43.4 million in wages
tion's contention that increased employment in the maritime industry
and fringe benefits each month. Moreover, if each of the 101 foreign-
should be accomplished solely by use of the subsidy program enacted
flag ships now on order or under construction for U.S. companies or
in 1970 as amendments to the Merchant Marine Act, 1936. The accom-
their foreign affiliates were crewed by Americans, there would be 4,141
plishments of the CDS and ODS programs have been significant.
new jobs and $10.4 million in wages each month for U.S. seamen. This
However, more needs to be done to insure that our skilled seamen par-
bill would not recapture all those lost jobs and wages, but it would
ticipate in the oil transportation industry.
brighten the dismal maritime employment record that we now have.
The Administration suggests we increase employment in the mari-
time industry by using our tax dollars for subsidies, to the exclusion
18
19
of any other program. We feel, however, that this end can better be
any restrictions whatsoever. These have included elimination of the
achieved by legislatively requiring that operators use American labor,
foreign-flag holding prohibition for operating differential subsidy con-
rather than relying exclusively on expenditures from the Federal
tractors and other suggestions that would overturn protections care-
Treasury. This bill would accomplish that by requiring that an in-
fully built into the statute over the years to prevent abuses. However,
creasing percentage of oil imports be carried on U.S. flag tankers,
even if their suggestions were adopted, it is questionable whether oper-
built by American shipyard workers, and crewed by American seamen.
ation of U.S.-flag vessels would be as attractive to the multi-national
oil companies as their foreign-flag operations currently are. In re-
RELATIONSHIP TO THE MERCHANT MARINE ACT, 1970
sponse to a question, one representative of such a company candidly
The Merchant Marine Act, 1970, which was overwhelmingly adopted
referred to foreign-flag shipping as a "taxless world." It is a world in
by the Congress, recognized the need for more emphasis on the crea-
which these companies are subject to no sovereignty but their own. Cer-
tion of a bulk cargo fleet to carry raw materials and petroleum. The
tainly, there should be little Congressional interest in duplicating that
Act represented broad recognition of the vital importance to our
very favorable set of circumstances for the multi-national oil com-
national security and commerce of creating a U.S.-flag tanker fleet.
panies in the United States.
However, the Act did not fully take into account the tremendous
Nothing in this bill or report is intended to affect the issues under
increase that would occur in our oil imports. Nor did it assure the
judicial review in Maritime Subsidy Board Docket S. 244, American
availability of cargoes to United States-flag vessels, a prerequisite
Maritime Association V. Peterson currently pending before the U.S.
necessary to foster the construction of such a fleet.
Court of Appeals.
Substantial progress has been made under the Merchant Marine
The Committee intends that the Secretary undertake immediate
Act, 1970. Over thirty new tankers have been contracted for under
rulemaking regarding the relationship between Titles V and VI of the
its provisions and it is anticipated that these vessels will play a sig-
Merchant Marine Act, 1936, as amended (46 USC 1151 et seq.) (46
nificant role in carrying the cargoes provided by this bill. The purpose
USC 1171 et seq.) and the provisions of H.R. 8193. The Committee
of H.R. 8193 is to supplement and reinforce the Merchant Marine Act,
has explored various alternatives ranging from elimination or adjust-
1970, to assure that the Congressonal objectives expressed in that Act
ment of assistance under those titles when preference cargo is carried
are attained, and to provide the United States with a tanker fleet ca-
to providing such assistance in full. While leaving the final determina-
tion to the Secretary in the rulemaking proceeding, the Committee is
pable of meeting the needs of its security and commerce.
concerned that the availability of ODS and CDS for some vessels and
Several of the opponents of H.R. 8193, and most notably the multi-
national oil companies, have argued that enactment of H.R. 8193 would
not others might negatively impact the stimulation of tanker construc-
be inconsistent with the Merchant Marine Act, 1970. While "support-
tion which is the major objective of this bill, because enterpreneurs not
receiving ODS and CDS might fear a competitive disadvantage at
ing" the objective of a larger United States-flag tanker fleet as neces-
some future date when demand for tankers might level off or begin
sary in the interests of our national security and commerce, these oil
to decline. Thus the Secretary, in his rulemaking proceeding, might
companies and their affiliates stress that the vehicle for attaining
consider methods for equalizing any unfair competitive advantage
that objective should be the 1970 Act, rather than enactment of H.R.
8193. Indeed, a fundamental contradiction was noted in the implicit
between those U.S. flag vessels with ODS or CDS and those without
especially when there are future changes in transportation demands.
primary argument advanced by these witnesses that the foreign-flag
In general, H.R. 8193 will supplement and complement the 1970
fleet presently carrying oil imports is fully adequate and safe, but
Act and assure that the United States attains a secure energy trans-
that it is in the best interest of the United States to foster development
of a substantial U.S.-flag fleet for the carriage of crude oil by using
portation fleet capable of carrying a minimum percentage of its re-
quirements as was intended in the 1970 Act.
the 1970 Act.
While paying substantial lip service to the 1970 Act, the record of
ENVIRONMENT
the multi-national oil companies with respect to that Act, is in gen-
eral, not very impressive. With some exceptions, they have refused to
One of the primary benefits resulting from the enactment of the
let the charters necessary to construct U.S.-flag vessels, and have per-
Energy Transportation Security Act will be the increased protection
sisted in building, registering and manning their vessels in foreign
afforded our marine environment.
countries. They have been unswerving in the pursuit of foreign tax
There is a continuing and growing concern in the United States
and cost advantages, even though subsidies have been available under
over the risks facing our waters, coastlines and sea-life from the car-
the 1970 Act intended to create parity between the U.S. and foreign
riage of oil in tankers. As the United States accelerates its reliance on
costs of constructing and operating vessels.
imported oil, the potential for damage will likewise increase. Not only
The most frequent response of the multi-national oil companies to
will the probability of accidents in our ports and harbors be higher as
the 1970 Act has been to demand a variety of changes that would, in
the total number of tankers increases, but intentional pollution of the
effect, make the Act tantamount to a system of cash grants without
20
21
marine environment from normal tanker operations, which already
lution from Ships," was underscored by Chairman Warren Magnuson.
said:
accounts for more than half of the oil pollution problem will similarly
increase.
The outcome of this Conference is critically important to
It is significant, therefore, that the Committee make a special effort
the environmental condition of our vessel transportation sys-
to incorporate effective and broad environmental protection measures
tem. The content of these standards will directly affect the
in this bill. H.R. 8193, as amended, goes further than any maritime
amount of oil intentionally discharged from vessels into the
legislation yet enacted to insure that America's marine environment
world's oceans and the potential pollution, both accidental
will be protected against both intentional and accidental oil pollution.
and intentional, in our coastal waters.
As noted above, approximately half of all oil pollution is caused by
The new Convention which does not take effect until ratified by the
the intentional discharge of oil into the water as part of the normal
participating countries, rejected the United States proposal to make
tank cleaning operations of the vessel. After discharging its cargo at
mandatory the use of double bottoms to effect segregated ballast. The
a refinery, a tanker must take in sufficient sea water into her cargo
position advanced by the United States representatives to the Conven-
tanks to facilitate handling at the berth, to insure proper propeller
tion, led by Russell Train, Administrator, Environmental Protection
immersion and to provide suitable sea-keeping characteristics. The
Agency, was that double bottoms would make a significant contribu-
amount of sea water or ballast that a tanker takes aboard at the un-
tion to the protection of the marine environment because:
loading point depends on weather conditions, the distance and route of
1. The double bottom has an incremental cost increase which is half
the necessary ballast voyage, the vessel's displacement and the light
that of the next best approach;
ship weight of the vessel.
2. A double bottom tanker with an inner bottom has no bottom
The ballast water, which was put directly into the cargo tanks upon
structural members within it and has its pump suctions below that of
cargo discharge, becomes oily ballast when it comes into contact and
the tank bottom, making it easier and more efficient to pump out the
mixes with the oil that adheres to the tank surfaces or rests in shallow
tanks;
puddles at the bottom of the tanks. The ballast water, including the
3. The double bottom tanker is able to turn around more quickly
oily ballast, must be disposed of before the tanker can reload.
because there is less sludge in the tanks;
The most common method of disposal-and the method of H.R. 8193
4. The frequency of tank cleaning and the time spent in port are
as amended would eliminate for U.S.-flag tankers-is to first wash
reduced by the efficiency and protection of double bottoms, thereby
down the cargo tanks and then pump the cleaning residue and oily
decreasing operating costs; and
ballast overboard. The result intentional oil pollution.
5. As concluded by the Coast Guard, the use of double bottoms to
This legislation requires that U.S.-flag tankers contracted for con-
achieve segregated ballast could reduce operational or intentional pol-
struction after December 31, 1974, or delivered after December 31,
lution by 95 percent, accidental pollution by 35 percent and total pol-
1978, be constructed and operated using the best available pollution
lution by 67 percent.
prevention technology including a segregated ballast double bottom
In his article, Supertankers, appearing in New Yorker Magazine,
system.
Noel Mostert notes that "There is no enforceable international law
The segregated ballast double bottom system has long been ad-
against dumping oil at sea that such laws depend " . upon the
vocated by the United States Coast Guard as the best means for elimi-
zeal of individual members." In this regard, it is significant but not
nating intentional oil pollution. Under the authority given to it by the
suprising that the United States, as evidenced by its advocacy of the
Ports and Waterways Safety Act (Public Law 92-340), the United
double bottom concept and the rejection of the concept by other mari-
States Coast Guard undertook a review of the various design alterna-
time nations, was unsurpassed in its zeal to protect the marine en-
tives for achieving pollution abatement. Its report, as presented by
vironment of the world.
Rear Admiral W. F. Rea, III, Chief, U.S. Coast Guard Office of
And it is equally noteworthy that the Senate Commerce Commit-
Merchant Marine Safety to the House Merchant Marine and Fisheries
tee amended H.R. 8193 to incorporate the proposals advanced by U.S.
Committee Coast Guard and Navigation Subcommittee on June 6,
officials from the Environmental Protection Agency and the Coast
1973, concluded:
Guard representing our government at last year's IMCO Convention.
ships incorporating the segregated ballast double bot-
The Committee has concluded that if our country is in fact going
tom feature were definitely the best alternative from a pollu-
to preserve and protect its marine environment, then it will have to
tion abatement/cost point of view.
act unilaterally, since the rest of the world's maritime nations appar-
ently are unwilling to adopt strict standards. It is also a fact that the
The United States Government submitted the double bottom concept
standards and safeguards necessary to eliminate effectively intentional
to the International Conference on Marine Pollution of the Intergov-
oil pollution are expensive and would, in and of themselves, place
ernmental Maritime Consultative Organization (IMCO) in October,
1973. The importance of this international meeting, whose task was to
U.S.-flag vessels at a competitive disadvantage in the world shipping
market.
develop a new "International Convention for the Prevention of Pol-
The decision reached by the Committee as being the fairest and most
practical was to compensate the U.S.-flag tankers for the expensive
S. Rept. 1031 O 74 3
22
23
safeguards through the reservation of a percentage of America's oil
imports for U.S.-flag tankers. This method has been recognized by the
(OECD) demonstrate that when compared to OECD fleets, including
U.S. Maritime Administration of the Department of Commerce al-
the United States, losses for Liberian-flag vessels are twice as high
though Marad testified in opposition to H.R. 8193. In a report en-
and three times as high for Panamanian vessels.
titled Environmental Improvement of the Maritime Administration
This is in spite of the fact that average age for Liberian vessels
Construction Program, prepared pursuant to the stipulated settlement
was only 8.7 years, compared to 12.0 years for OECD vessels. Further-
of Environmental Defense Fund, Inc., et al v. Peterson, et al. (1972),
more, according to the OECD study,
The Maritime Administration stated:
A large part of the Liberian shipping, particularly tankers
One final approach which should also be discussed as a
and bulk carriers, is employed permanently on long hauls and
potential solution to the implementation of desired pollution
spends relatively little time in congested waters in comparison
with considerable sections of the fleets of OECD member
abatement features is the use of cargo preference.
countries which are employed in their domestic trades.
Marad further stated,
These factors, according to the OECD, should combine to lower
The advantage of such an approach would be that the U.S.
the Panamanian- and Liberian-flag vessels accident rates, but they
oil import needs could be satisfied and the U.S. tanker trade
have not.
fleet would be environmentally upgraded.
The American oil companies who own and operate flag of con-
It is important for us to enact vessel construction and operating
venience tankers have argued in their opposition to H.R. 8193 that
standards to protect the environment, but to make such standards
their foreign-flag ships are among the best equipped and most modern
effective, we must also insure that ships meeting the standards carry
in the world and that it would be poor economic policy to construct
America's cargo. Nothing is accomplished when the government re-
an unsafe tanker.
quires U.S.-flag tankers to employ specific pollution abatement
Assuming that this is true, it is also a fact that as stated in Super-
devices if almost all of our oil imports are transported on foreign-
tankers, "ships are only as good as the men who run them, and here
flag tankers over which we have virtually no control.
the record [of the flag of convenience vessels] is not impressive."
Only if a foreign-flag offender of an environmental law puts into a
In February, 1970, the first sizable oil spill in North America oc-
U.S. port can he be penalized under our national laws. If the tanker
curred when the Liberian-flag tanker, Arrow, ran ashore in Che-
dumps oil and then proceeds into international waters, the only re-
dabucto Bay, Nova Scotia, discharging 10,000 tons of oil. A three
course is to make a complaint to the nation whose flag the violating
member commission of inquiry, led by Dr. P. D. McTaggart-Cowan,
vessel flies. But, as stated in Supertankers,
executive director of the Science Council of Canada, found that the
ships had been "operating with almost none of its navigation equip-
a large proportion of the world's tankers fly one or an-
ment serviceable.' The commission said none of the crew had any
other of the so-called flags of convenience, and the masters of
navigational skills except the master but that "there are even doubts
any of these ships who choose to dump sludge are probably
about his ability," In addition, the officer on watch at the time of
not much concerned about punishment at their home ports-
the accident, the ship's third officer, had no license. In its final report,
in Panama, Honduras, Lebanon, or Cyprus.
the commission said,
The enactment of H.R. 8193 as amended, and the resultant use of
We are well aware of the fact that no form of transporta-
U.S.-flag tankers to carry a portion of our oil imports, would
tion can be 100 percent safe but from the record available
significantly reduce the threat to our marine environment from acci-
to us the standard of operation of the world's tanker fleets,
dental pollution. The most catastrophic tanker accident occurred in
particularly those under the flags of convenience, is SO ap-
early 1967, when the Torrey Canyon, a 118,285 dwt. Liberian-flag
palling and SO far from the kind of safety which science,
tanker owned by the Barracuda Tanker Corporation (an affiliate of
engineering and technology can bring to those who care, that
Union Oil Company of California) and leased to a subsidiary of
the people of the world should demand immediate action.
British Petroleum, and crewed by Italians, ran onto rocks off the Sicily
Isles with devastating results for the adjacent coasts of the English
In October, 1970, two fully laden tankers, the 77,648 dwt. Pacific
Channel.
Glory and the 110,108 dwt. Allegro, both flying the Liberian flag
As noted in Supertankers, most accidental oil spills have resulted
and carrying 170,215 tons of crude oil between them, collided off the
from ships that have collided or gone aground and that,
Isle of Wright. On both, the third officers were on watch at the time;
the Allegro's third officer had no certificate whatever. Two engineers
A very large number of mistakes seem to be made by ships
on both ships also had no certificates.
flying one or other of the flags of convenience.
In August, 1972, two Liberian-flag supertankers, the 95,608 dwt.
The United States now receives over half of its oil imports in the
American-owned Oswego Guardian and the 100,613 dwt. Greek-
flag of convenience vessels of Panama and Liberia. Figures compiled
owned Texanita collided in the Indian Ocean. An inquiry showed that
by the Organization for Economic Cooperation and Development
both ships were traveling at full speed through extremely dense fog
and that, although the two vessels had observed each other on radar,
24
25
neither reduced speed. In addition, the Texanita made only two at-
taining pollution abatement requirements of H.R. 8193. It would be
tempts to plot the course of the approaching ship and the Oswego
contradictory for the United States to encourage deepwater ports
Guardian made no attempt whatsoever. Immediately after the col-
but then have them used exclusively by mammoth foreign-flag tankers
lision, the master of the Oswego Guardian ordered his ship away from
with poorly trained crews and few or no pollution control devices.
the scene at full speed, making no attempt to pick up survivors from
Secretary of the Interior Rogers C. B. Morton, in a letter to Con-
the Texanita which had broken in two. In all, thirty-two men died
gress in April, 1973, stated that if the United States does not receive
with the Texanita.
its oil in U.S. tankers "that comply with U.S. requirements, oil will
Noel Mostert, in Supertankers, states that,
probably be imported in foreign-flag tankers that are built and oper-
Even where well-qualified men are commanding ships of
ated to much lower standards.'
The enactment of H.R. 8193 as amended would assure the citizens
the highest standards, as was the case with the Torry Canyon,
the masters' judgment, responsibility and seamanship can
of our country that at least a percentage of our oil imports were being
be impaired in the long run by terms of service that would
carried on tankers employing the safest and strictest manning and con-
not be tolerated on any ship flying the American flag or the
struction standards of any vessels in the world, and in a manner con-
flag of any of the other major maritime powers.
sistent with the overwhelming national desire to protect and preserve
our nation's marine environment.
He goes on to point out that between October, 1970, and April, 1971,
ten tankers carrying some 300,000 tons of crude oil among them were
THE REGIONAL AND INDUSTRY IMPACT OF H.R. 8193
involved in serious accidents in the English Channel area alone, and
that half of them were Liberian.
1. Introduction
The U.S. Coast Guard is not able to regulate these foreign-flag
During the hearings on this legislation and in subsequent delibera-
vessels as strictly as it does the U.S. fleet. In a letter to the Committee,
tions, the Committee systematically reviewed not only the bill's many
the U.S. Coast Guard indicated that it has little control over the
benefits and strengths, but also its potential effect on the major geo-
activities or standards aboard these flag of convenience and other
graphical sections of the nation and various industries that are par-
foreign-flag vessels. In this reply the Coast Guard points out:
ticularly dependent on some imported oil products.
As a practical matter, there is, at present, no way for the
As is noted in more detail in the section of this report entitled "Cost
Coast Guard to assess the standards used by foreign govern-
Impact", the effect on consumer prices of using U.S.-flag vessels will
ments to measure the level of crew competency as compared
be negligible. The Maritime Administration of the Department of
with U.S. standards
Commerce, which opposed the bill, stated that the impact would be
The Coast Guard's reply also indicates that it has "no jurisdiction
to increase prices by $0.0035 per gallon, possibly growing to as much as
$0.008 in the future. Even if these figures were correct, and persuasive
over the manning on foreign vessels" or the inspection of foreign ves-
economic testimony presented to the Committee indicated that to the
sels, which is a requirement that U.S. vessels must meet.
contrary a consumer saving would result, such a cost would be more
In contrast. U.S.-flag vessels are manned by crews which are
than justified by the favorable impact of the bill on national security,
highly trained and stringently and frequently tested by the United
balance of payments, environmental and employment. Nonetheless, as
States Coast Guard. Adding to this and the already strict Coast
is discussed elsewhere in this report, the Committee amended the bill to
Guard construction standards, the provisions of H.R. 8193 as amended
provide a waiver of $0.15 per barrel of import license fees on crude
make U.S.-flag tankers among the most environmentally safe vessels
imports carried on U.S.-flag vessels provided that the Secretary of
in the world.
the Treasury determines that this cost saving is passed on the the ulti-
In addition to requiring that U.S. vessels which will carrv oil under
mate consumer. Thus, any conceivable argument that the bill could
this legislation be constructed using the best available pollution tech-
disadvantage the consumers of any particular region, or adversely
nology to eliminate intentional pollution, the legislation also serves
affect any industry has been mooted.
to decrease accidental pollution in our waters.
We are confident that the bill we have acted upon is legislation that
Specifically, the legislation excludes from its provisions U.S.-flag
will benefit the entire nation, without injury or added cost to any part
vessels older than 20 vears or reconstructed vessels beyond their eco-
of the nation or its industry.
nomic lives. In SO doing, tankers with deteriorating equipment and
poor safeguards will be systematically replaced by U.S.-flag tankers
2. Impact on various regions
containing the equipment necessary to protect our environment.
(a) Northeast United States.-As is discussed elsewhere in this re-
Finally, the Committee has noted with approval that Congress is
port, the Northeast United States, because it imports proportionately
rapidly moving toward the enactment of legislation authorizing the
more oil than the rest of the nation, will be the prime beneficiary of
construction of deepwater ports off the coasts of the United States.
the increased security and other benefits of H.R. 8193. Also, located
The Committee believes that such ports. which free our coastlines and
in the Northeast are three major tanker shipyards and a fourth is
harbor areas from direct threats of pollution, can achieve even greater
planned for the site of the old Boston Naval Yard. Much of the ship
environmental results if utilized by U.S.-flag supertankers con-
construction generated by H.R. 8193 will thus take place in Northeast
27
26
(c) General Statement.-The only witness before the Committee
shipyards. Thousands of new jobs will be created for Northeastern
to specifically raise the issue of the disparate economic effect of H.R.
maritime trades.
The same is true for ship crews and the U.S. companies involved in
8193 on various regions of the nation was Under Secretary of Com-
this trade. Because their homes and companies are concentrated in the
merce John K. Tabor. He noted that the 17 states in PAD District I,
Northeast, the economic benefits of the bill will tend to be expended
"imported more than 70 percent of all U.S. petroleum imports."
Yet as the Committee noted above, the fee waiver amendment added
in this region. Traditionallv. the Northeast United States has bene-
to this legislation has the effect of concentrating the savings from
fited first from a healthier U.S.-shipping industry.
Because consumers in the Northeast are SO heavily dependent on im-
the use of U.S.-flag tankers in those very areas, such as PAD I, that
are large importers. Hawaii, another major oil importer, would be in
ports, and imported residual fuel in particular. they must relv to a
greater extent on the major oil companies to supply their needs. There-
an equally strong position to benefit from the enactment of H.R. 8193.
The Committee requested further data from Secretary Tabor on
fore, H.R. 8193 will be of particular advantage to Northeast consumers
exactly how the fuel prices in the various sections of the nation would
by providing a U.S. shipping canability to serve as an alternative to
be effected by H.R. 8193. The Secretary sent the Committee a reply
the foreign-flag fleet of the major oil companies, thus insuring trans-
which reiterated his testimony and was unresponsive to the particular
portation of oil to this region of the United States in the event of an
questions which we raised.
emergency. The bill will also set in motion a price monitoring system
Finally, the Committee has repeatedly attempted to make the point
to determine the fair price for shipping which could result in a saving
that it is for the very reason that the New England and East Coast
to the consumer.
Furthermore. this bill will substantially reduce the Northeast's total
states are SO dependent on imported oil that H.R. 8193 must be enacted.
Almost all of the oil for this region is now imported on high risk,
dependence on foreign-flag ships owned by the major oil companies.
Experience has shown that this dependence can indeed be costly to
unreliable foreign-flag tankers. In a future crisis it is the Northeast
the Northeast consumer as was the case when Standard Oil of Cali-
which will be in the most exposed position should a blacklisting of
U.S. ports occur. For this reason, the Northeast, which is more im-
fornia refused to honor commitments to North Eastern Petroleum
port dependent than other parts of the nation, will benefit substan-
Corporation to supply Libvan oil to NEPCO. According to estimates
bv Senators Church and Case in a hearing before the Subcommittee
tially more from assured shipping services, which H.R. 8193 would
on Multi-National Corporations of the Senate Foreign Relations Com-
provide.
mittee. this refusal by Standard Oil of California required NEPCO to
3. Industry impact
enter into costly spot charter arrangements for ships to procure Libvan
(a) America's farm industry is one of the nation's most essential
oil. resulting in an increased cost to the consumer of about $50 million.
export industries. The Committee, in its consideration of H.R. 8193,
And with the environmental safeguards under the Act, it will
carefully reviewed all aspects of this legislation to be positive that
mean that at least the U.S. vessels serving the New England area are
nothing in this legislation would adversely affect this vital industry.
as safe and free from the danger of oil pollution as possible.
We are convinced that U.S. farmers will in fact benefit from H.R.
(3) Territories.-The territories and possessions, including the
8193.
Virgin Islands, Guam and American Samoa. were excluded from the
United States farmers would benefit from the potential market of
bills' definition of the United States. In each case. the Committee
U.S. vessels available at attractive rates to carry farm commodities
wished to avoid the possibility that oil shipped into these areas from
as backhauls to Europe and other points in the return voyage to oil
foreign sources might be required to be carried in U.S. ships, even
producing nations. Since U.S. flag vessels will have earned their pri-
though it was not destined for ultimate shipment to the United States.
mary revenue on the foreign to the United States voyage carrying oil,
This would have been inconsistent with the Committee's intent that a
they will be able to charge rates on the backhaul sufficient only to cover
percentage of oil shipped through midpoints be carried on U.S. ships
their voyage costs. While not all U.S. vessels will be able to carry dual
only when the oil is ultimately destined for the United States.
cargoes, many operators may do SO to increase their return. At the
However, by excluding these areas from the definition of the United
present time, U.S. farmers have little opportunity to use U.S.-flag
States, U.S. vessels would still have the opportunity to carry oil into
vessels, because these vessels are not available or are engaged in other
these areas for refining or transshipment. and on to the United States.
trades. They are restricted mainly to foreign-flag vessels who look
when that was the oil's ultimate destination. This is due to the fact
upon U.S. farm exports as their main profit producing cargo. Thus,
that if these islands are mid-point for oil shipments to the United
the passage of H.R. 8193 would enhance the export market for U.S.
States. they are treated like any other intermediate point under the
farm commodities.
bill.
In addition, because U.S. farm industries are major users of im-
To have totally exempted refineries located in the territories and
ported oil and petroleum derivatives, U.S. farmers would also benefit
possessions from the requirements of the bill, as was suggested to the
from the bill's provision which would require that the savings from
Committee, would have given them an undue preference over other
the waiver of $0.15 per barrel of import license fees for crude oil
refiners and also would have created a serious deficiencv and loophole
carried on U.S.-flag vessels be passed on to ultimate consumers. By
in the national security protections afforded by the bill.
28
29
passing through this saving to the end user, the farmer, H.R. 8193
of the type experienced during the Arab oil embargo, must
could produce a tangible saving to farmers over the current system in-
be assured of a secure and uninterrupted flow of oil imports.
volving largely foreign-flag vessels.
In the event of another cut-off of supply to the United
(b) The petrochemical industry is another industry that has made
States, alternate sources of supply will have to be reached
claims for special consideration from the Committee under H.R. 8193.
quickly so as to minimize disruptions to our nation. Foreign-
The Committee did not feel that the case for exempting these produc-
flag and foreign-manned vessels, over which the United
ers was a strong or compelling one.
States has no control, cannot be relied upon to act and respond
At present, only a small fraction of oil imports are for the direct
in our best interests. Only U.S.-flag vessels, which are manned
consumption of the petrochemical industry. Most of the oil the indus-
by American citizens and under the control of our country,
try consumes is from domestic sources. This industry is dominated by
can be shifted from source to source and from route to route,
a number of large and highly competitive companies, among them
all in furtherance of the well-being of the United States.
several chemical manufacturers and the major oil companies. None of
these companies requires special consideration.
In conclusion, the Committee has no reason to believe that the bill
For small petrochemical producers, the same recourse is available as
will have undue adverse impact on any region or industry in the coun-
for small refiners under H.R. 8193. At any time when a petrochemical
try.
INTERNATIONAL TRADE
producer feels that he is not being fairly treated under the Act, he can
appeal to the Secretary and ultimately to the Courts, under the terms
The Committee has devoted much attention to the question of what
of the Administrative Procedure Act.
effect, if any, the Energy Transportation Security Act will have on
(c) Some public utilities are large users of imported oil, partic-
United States international trade. After a great deal of deliberation,
ularly low sulphur crude oil. Some of these receive their crude in large
the Committee concluded that H.R. 8193 is consistent with existing
shipments from distant oil sources such as Indonesia.
national and international trade policies and practices.
The fact that the utilities must depend on low-sulphur oil imports is
The Committee believes that the enactment of H.R. 8193 is necessary
by itself no justification for special consideration under this bill. Every
to ensure that the U.S. flag merchant marine and the interests of
type of oil import is covered by H.R. 8193 and in the future it is likely
the United States will be protected in light of the growing interna-
that low-sulphur imports will decline as public utilities take advantage
tional trend towards government control, management and participa-
of production from Alaska, thus reducing their needs for foreign
tion in the field of international shipping. This development has
imports.
manifested itself in a wide range of laws, policies and agreements,
Some public utilities have also contended that their imports are car-
including bilateral, pooling and trade sharing arrangements between
ried on foreign vessels they have hired on long-term charters because
nations, cargo preference and flag restrictions, and the practices of the
of requirements imposed by foreign governments that vessels of their
multinational corporations dominating the world's economy.
own registry be used. This is a curious argument from persons who
International precedents.-The precedent for reserving all or part
oppose a similar American preference. For companies in this situation,
of a nation's trade for its flag vessels has been set time and time again
it will be necessary to merely switch charter parties, SO that a portion
by many nations. These nations have recognized that their interests
of their foreign-flag vessels which they have fixed for long periods are
can be strengthened through the maintenance of a strong merchant
relet to other charterers, to the extent U.S. vessels are available for
fleet. This realization has, for example, led to the following actions by
comparable periods. If this is impossible, then the utility would have
nations of the world
an additional recourse to Department of State for assistance and to
Argentina requires 50 percent of all its cargo under international
the Secretary of Commerce for exemption under the administrative
procedures. Utilities in the position of being tied to the use of
commercial agreements to be shipped on its flag vessels;
Brazil requires 50 percent of its coffee and cocoa to be transported on
foreign-flag tankers demonstrate why H.R. 8193 must be enacted to
break the foreign stranglehold on U.S. oil import trades.
Brazilian-flag vessels;
Chile reserves 50 percent of its export-import trade for its vessels:
With respect to utilities, the most persuasive statement in connection
Morocco requires 40 percent of its imports and 30 percent of its
with the bill was made by the National Association of Rural Electric
exports to move on its vessels;
Cooperatives:
Pakistan requires that 50 percent of its trade with the United States
The electric utility market is dependent on imported oil for
be carried on Pakistan vessels; and
a good deal of its primary energy requirements. As such, any
Peru requires 20 percent carriage of Peruvian vessels, with the per-
disruption in the normal flow of this supply creates problems
centage rising to 50 percent.
not only for industry but for the nation as a whole.
The recently concluded "Code of Conduct for Liner Conferences,"
It is for precisely this reason that the enactment of the
developed in the United Nations' Conference for Trade and Develop-
Energy Transportation Security Act is a matter of vital im-
portance. The United States, if it is to avoid economic chaos
30
31
ment, requires that liner cargo be shared on a 40-40-20 basis between
Free Trade.Similarly, the Committee rejected the argument ad-
vessels of the exporting and importing nations and third flag vessels.
vanced by the legislation's opponents that H.R. 8193 is a violation,
A number of major maritime nations supported this agreement.
on the part of the United States of the principle of "free trade" and
In addition to these general cargo reservation measures which reflect
should therefore not be enacted into law. However, exceptions have
the growing belief that trading nations should participate in the car-
been made dating to the turn of the century where national security is
riage of their trade, several nations have taken action with specific
involved, for example, 100% of military cargoes must move in U.S.-
reference to oil.
flag ships.
Spain requires that all its oil imports be carried on its flag vessels;
It is true that the United States has traditionally been committed
Algeria requires a 50 percent carriage clause in its export contracts
to the concept that vessels of all nations should be able to compete for
for both oil and liquefied natural gas;
the carriage of cargo. It is also true, as outlined above, that the prac-
Venezuela recently enacted legislation providing for an eventual 50
tices of many other nations to guarantee their flag vessels some of their
percent carriage of its oil on its flag vessels;
international trade, has rendered the frée trade concept in shipping
France has enacted a fleet size law which guarantees to the French
increasingly less meaningful. It is impossible, however, for the United
fleet the equivalent of two-thirds of her oil imports;
States flag vessels to compete with vessels supported by their respec-
Japan, which is almost 100 percent dependent on oil imports, has a
tive governments or with vessels owned and used by the multinational
national policy of carrying at least 50 percent of these imports on its
oil companies.
flag vessels.
In fact, the United States has itself acted, with the approval of those
The Committee took careful note of the argument raised by the
now opposing this legislation, in a manner that at first seems to be
opponents of H.R. 8193 to the effect that the action taken by France
inconsistent with the so-called free trade concept. The United States-
and Japan, for example, do not constitute cargo preference, and should
Soviet Union Trade Agreement of 1972 is one such example.
not be considered as precedent setting measures by major nations. The
This agreement included a bilateral shipping arrangement among
Committee concluded that regardless of what the measure is called,
its provisions. It provided that United States and Russian vessels
whether it be a cargo preference law, a fleet size law or a national
would be entitled to 33 percent each of the trade between these nations,
policy, it is the effect that is important. The Committee further con-
with the remainder going to third-flag vessels. It was designed to pro-
cluded that the means taken to achieve the desired goal of reserving
vide the merchant fleet of each nation the opportunity to participate
cargo for a national fleet must be suited to the particular and unique
equally and substantially in the carriage of all cargoes moving by sea
economic circumstances of each country.
between the two countries.
In Japan, for example, the economy is managed in a way much dif-
The bilateral shipping agreement with the Soviet Union has been
ferent from the United States. There, the cohesiveness and coopera-
hailed as "landmark" by the Department of Commerce, an opponent
tion of all branches of the economy make a national policy coupled
of H.R. 8193. The State Department, which opposes H.R. 8193 because
with economic incentives a practical and workable means for achieving
it violates "free trade," did, however, support the U.S.-U.S.S.R. bi-
the desired result. Goals are set for each industry in Japan, and the
lateral shipping agreement. When asked to explain the apparent con-
whole economy is geared to each segment reaching its goal.
tradiction, the State Department expressed the opinion that the reali-
Because of the peculiar characteristics of a foreign nation's economy,
ties of dealing with the Soviet Union necessitated some form of an
these devices may prove far more effective than H.R. 8193, in channel-
agreement to ensure that we participate in the carriage of this cargo.
ing a nation's cargo into its own vessels. In the United States economy,
The Committee took special note of the State Department's reason-
many of the same measures would not be effective.
ing and concluded that the same reasoning should be applied in this
On the other hand, the Committee noted that H.R. 8193 is needed
case. And the realities of the situation necessitate some form of protec-
for the very reason that our own national policy together with eco-
tion for the U.S.-flag fleet to ensure that it participates in the car-
nomic incentives has not worked to provide cargo for the U.S. mer-
riage of our oil imports. For reason's previously mentioned, the most
chant fleet. The policy embodied in the Merchant Marine Acts of 1936
efficacious means of obtaining the objectives is enactment of H.R.
and 1970 and the subsidy provisions of the 1970 Act, while leading to
8193.
the construction of new ships, have not resulted in the use of U.S.
Finally, with respect to "free trade," the Committee recognized that
ships to carry a significant portion of America's oil imports.
enacting H.R. 8193 would have the practical effect of creating a free
Today, while U.S. cargo opportunities grow, the U.S. fleet's share
trade situation in that no-oil company U.S.-flag tankers would be
of this trade hovers at five percent. This realization, coupled with the
able to compete on an open basis for a percentage of the oil coming-
fact that there is no immediate prospect for improvement because the
to the United States. For the first, time, the virtual oil industry
owners of the cargo-the multinational oil companies-prefer to em-
monopoly over oil production, refining, transportation, and marketing
ploy foreign-flag shipping, makes the enactment of H.R. 8193 the only
would be broken. À new, competitive force would be involved in the
practical solution to the problem of obtaining cargo for U.S.-flag
crucial business of providing the United States with vitally needed oil
ships. The economic inducements which have proven effective in other
imports. The Committee feels that independent tanker competition
nations simply do not and will not work in an economy such as are
with the major oil companies would be a healthy development for the
based upon competition and individualistic enterprise.
U.S. fleet and U.S. oil consumers.
32
33
Retaliation.-The Committee has concluded that there is no basis in
ment to alter U.S. monetary or fiscal policies or without the need of
fact for believing that H.R. 8193 would precipitate similar action on
instituting national policies that would further disrupt the interna-
the part of other nations.
tional financial situation. H.R. 8193 provides the means to reduce the
As noted earlier, many of the world's nations, including most of the
balance of payments deficit now being created by the use of foreign-
developing nations of the world that are rich in raw materials needed
flag tankers, which carry approximately 95% of U.S. oil imports. Be-
by industrialized nations, have already acted to reserve cargo for their
cause of increasing oil imports, the payments deficit produced by our
national fleets. Inaction in this regard on the part of the United States
nearly exclusive use of foreign-flag tankers is SO severe that it has
has not deterred this world trend. Rather, it has only had the effect
thrown shipping as a whole into deficit, despite the major advances
of putting our own merchant fleet at a severe competitive disadvantage
made by the U.S. liner fleets in penetrating U.S. trade.
in the world shipping market, thereby threatening the very existence
of the merchant marine.
1. Direct balance of payments savings
The Committee noted that the Arab oil exporting nations have al-
In May 1974, the U.S. fuel bill which had been steadily rising as the
ready formed the Arab Maritime Transport Company for the express
effects of the oil embargo dissipated, stabilized at $2.3 billion a month.
purpose, as stated in Seatrade magazine, of having "a fleet large enough
If this rate is maintained throughout the year, this nation will have
to carry 40 percent of Arab crude exports." The Committee concluded
an oil import bill of over $27 billion for 1974, a figure three times higher
that if the United States is going to have leverage to deal with these
than that for last year. The Department of Interior has indicated the
countries, it is best to have a law on the books which reflects to the ex-
figure will continue to grow well into the 1980's.
porting nations the express commitment on the part of our govern-
Since the negative impact of this foreign oil bill on our balance of
ment for the use of U.S.-flag tankers to carry a portion of our oil
payments has been staggering, the Committee was naturally impressed
imports.
by the Department of Commerce estimate indicating that this bill
Other nations in the world have shown that they will act in a manner
would lead to a balance of payment savings in the oil transportation
they believe to be in the best interests of their national shipping policy,
segment of $3.1 billion between 1975 and 1985. Over the life of the
without any regard to what others might think. The Committee strong-
first generation of ships constructed under the bill, the savings would
ly believes that it is time for the United States, in a matter as vitally
be in excess of $11.5 billion. The Commerce Department figures are
related to national security as energy, to likewise act to make its policies
contained in an excerpt from a Maritime Administration chart shown
below
and goals a reality and to not submit to impractical and outdated
theories and doctrines.
BALANCE-OF-PAYMENTS IMPACT FROM SUBSTITUTING U.S.-FLAG FOR FOREIGN-FLAG VESSELS
The Committee was skeptical of the fear expressed by the opponents
of this legislation that its enactment would result in retaliation against
IIn millions of 1973 dollars]
the United States. The Committee rejected this argument, noting that
H.R. 8193,2
no opponent of H.R. 8193 was able to provide any evidence of retalia-
100 percent
constrained
foreign
tion by any nation against those countries which already reserve large
by shipyard
Year
carriage
H.R. 8193'
capacity
shares of their cargo for their flag vessels than H.R. 8193 would pro-
vide. The Committee concluded that there was no reason to believe
1975
798. 8
165. 9
1980
1,517.6
405. 1
288.7
otherwise with respect to the United States, especially when consider-
1985
2,094.5
580. 5
579.4
ing the dependency of other nations on trade with this country. Where
Cumulative, 1975-85
16, 267. 5
4,285.5
3,132.8
Cumulative over life of ships in operation in 1985³
41, 889. 2
11,608.1
11,588.2
vital national security considerations are involved, the United States
should not allow its national policies to be determined by fears of the
1 Assumes that required new U.S. shipping capacity is available.
reactions of other nations, particularly when they are as speculative as
2 Assumes foreign-owned, foreign-flag, and foreign-constructed vessel.
3
Assumes the use of 4 yards to construct VLCC's, and 1 yard to construct 90,000 DWT tankers.
is here the case.
Thus, by passing the Energy Transportation Security Act, Congress
One witness found this estimate inconsistent with Commerce De-
has the opportunity to act in a manner consistent not only with our
partment figures on the cost of shipping oil by foreign-flag and
previously stated national policies but with the trend developing today
projected oil imports. He stated the total balance of payment saving
in the field of international shipping as well. It will provide the first
could be double that of the estimate.
U.S. initiative in an area vital to the nation's security at a time when
the survival of the U.S. fleet is already endangered by the nationalistic
2. Supplemental balance of payment benefits
shipping policies of other nations.
Finally, the Committee is convinced that this legislation will make
available several supplemental balance of payment gains in related
THE BALANCE OF PAYMENTS BENEFITS OF H.R. 8193
shipping areas. Because the U.S. fleet will be larger and operate in
more trades due to H.R. 8193, it will be able to take advantage of op-
The Committee was deeply impressed with the opportunity provided
portunities not present today.
by H.R. 8193 to significantly alter the payments position of the United
The U.S.-Soviet Trade Agreement has already demonstrated how
States on oil import transactions without any corresponding require-
a cargo promotion program can produce side benefits. In this case,
34
35
U.S. vessels carrying grain to Russia were able to obtain backhauls of
Lakes-St. Lawrence Seaway. This is consistent with the provisions of
oil from the Mediterranean area.
section 809 of the 1936 Act, as amended in 1970, (46 U.S.C. 1213),
Similarly, under H.R. 8193, the construction of versatile U.S. ves-
which accord Great Lakes ports independent status as a fourth sea-
sels such as OBO's will be encouraged, SO that after carrying oil im-
coast for purposes of assuring that Federal financial assistance to the
ports to the United States, American vessels can offer attractive back-
maritime industry is provided on an equitable basis for the benefit of
haul rates to U.S. farm and bulk product exporters. Now most of these
all port areas in the United States.
products are carried on foreign-flag vessels.
It should be noted that the section is not primarily a cargo routing
Because U.S. vessels will rely on oil imports for their main revenue,
statute. It does not require that cargo move through the nearest range
the rates they can charge for backhauls will be near their break-even
of ports. Rather, it simply means that the nearest range of ports is
level. In contrast, foreign-flag vessels, many of which are dependent
where the shipping agency initially looks to determine U.S.-flag avail-
on U.S. farm exports for their main revenue source, must allow for
ability. Whether or not there is a U.S.-flag vessel at the nearest range
substantial return in figuring their rates. Thus, the U.S. fleet may be
of ports, the agency can still route the cargo through any range of
able to capture a share of the backhaul business, benefiting U.S. farm-
ports it chooses based on normal factors determining cargo routing,
ers and bulk exporters and the balance of payments. While no exact
such as rates, sailing schedules, etc. The section only means that
figures are available, it is likely that revenues from these backhaul
cargo will not be diverted from a range of ports solely because a U.S.-
cargoes for U.S. ships could exceed several hundred million dollars
flag vessel is not available there, but is available elsewhere.
a year by 1980, all of which would have formerly gone to foreign-flag
For purposes of this section, a range of ports is a seacoast, i.e.,
vessels and crews, to the detriment of the U.S. balance of payments.
Atlantic, Pacific, Gulf and Great Lakes.
As was noted above, the section is not intended to be a cargo routing
SECTION-BY-SECTION ANALYSIS
statute. Whether or not a U.S.-flag vessel is available at the nearest
range of ports, the shipping agency can still route the cargo through
SEC. 1. Section one of the bill provides the Act may be cited as the
"Energy Transportation Security Act of 1974".
any port it chooses based on normal factors governing routing. Of
SEC. 2. This section is a Committee amendment. It does not re-
course, it is intended that if a U.S.-flag vessel is available at the range
of ports over which the cargo actually moves, whether or not such a
late to oil imports but rather to existing preference cargoes under
vessel is available at the nearest port range, it will be given the statu-
section 901 (b) (1) of the Merchant Marine Act, 1936, as amended, (46
U.S.C. 1241 (b) (1), which are largely export cargoes.
tory preference in carrying the government generated cargos subject
to section 901 (b).
The section is intended to correct a long-standing grievance of the
Great Lakes region. Under section (b) of the Act, government
SEC. 3. This section is the heart of the Energy Transportation Secu-
agencies are required to take steps to assure that at least 50 percent of
rity Act of 1974. It outlines the basic requirements to use U.S.-flag
commercial vessels for the importation of oil; provides for the increase
certain government generated cargoes are transported on privately
owned United States-flag commercial vessels "to the extent such vessels
of the U.S.-flag percentage over time upon certain findings by the
are available." There is currently no regularly scheduled U.S.-flag
Secretary of Commerce; establishes certain procedural safeguards for
vessel service between the Great Lakes and other continents to which
persons subject to the Act; defines the oil imports subject to the Act,
the subject cargoes move. Therefore, U.S.-flag vessels are infrequently
and sets forth certain requirements with respect to U.S.-flag com-
"available" at ports on the Great Lakes. Under various administration
mercial vessels that will participate in the carriage of the cargoes sub-
interpretations, cargoes originating in the Great Lakes area are there-
ject to the Act. It also sets forth a requirement to comply with the Act
fore diverted to other ranges of ports (Atlantic, Gulf and Pacific)
and the regulations thereunder, and provides for annual reports by
solely because U.S.-flag vessels are not available on the Great Lakes
the Secretary of Commerce to the Congress on the implementation of
the provisions of the Act.
but are available at these other ranges of ports.
This section is intended to end this problem which long has been
As passed by the House of Representatives, H.R. 8193 was basically
viewed by the Great Lakes region as discriminatory. Under this sec-
an amendment to section 901 (b) (1) of the Merchant Marine Act,
1936, as amended. The Committee revised this to make the new Act a
tion, the shipping agency would look to the range of ports nearest to
the point where the equipment, materials or commodities being
new section 901 (d) rather than amend existing section 901 (b) (1).
shipped are manufactured, in order to initially determine whether
This was done to provide more clarity in drafting: it also has the
U.S.-flag vessels are "available". If a U.S.-flag vessel were not avail-
effect of avoiding certain provisions in section 901 (b) (1) that should
able at that range of ports (i.e., Great Lakes-St. Lawrence Seaway
be applicable to the government-generated cargoes subject to that
ports), the agency would be free to use foreign flag vessels at that
section, but which should not have application to the oil imports cov-
ered by the Energy Transportation Security Act.
range of ports.
Another important purpose of the amendment is to encourage U.S.-
Paragraph (1) of new subsection (d) set forth the basic cargo pref-
flag operators to provide service to Great Lakes ports, thereby fur-
erence requirement that a quantity equal to not less than 20% of the
thering the objectives of the Merchant Marine Act, 1936, to assure
gross tonnage of all oil transported on ocean vessels for import into
U.S.-flag service on all essential trade routes including the Great
the United States be carried on U.S.-flag commercial vessels, and nro-
36
37
vides that the Secretary of Commerce shall take such steps as are
Under the bill, it is intended that the fair and reasonable rates
necessary to assure that result. While H.R. 8193 as passed by the
established for U.S.-flag commercial vessels will be the highest rate
House of Representatives did not specifically name the Secretary of
at which the government can require the use of the vessel. In other
Commerce as the official responsible for administering the bill, the
words, the Secretary may not require a shipper to use a U.S.-flag
Committee has revised the bill to SO indicate. It was clear from the
vessel at more than a fair and reasonable rate.
legislative history that this result was intended by the House and by
Subject to assuring compliance with the statutory requirement, the
all the parties testifying on the bill. Further, since the Act is a means
Committee intends that generally the Secretary shall restrict admin-
of promoting the U.S. Merchant Marine, and since the Secretary of
istrative intervention in market decisions to the extent possible
Commerce is charged with that responsibility, it seems clear that this
and will give as large a role as possible to the free market and
is where the responsibility for administering this Act should reside.
competition. It is anticipated that as soon as H.R. 8193 is enacted,
The requirement for using U.S.-flag commercial vessels applies not
the Secretary will promulgate regulations imposing carriage require-
only to direct shipment from the original point of production, but to
ments on importers and will establish procedures for periodic report-
both (or all) legs of a voyage where indirect shipment occurs, i.e. from
ing and proof of compliance with such regulations. In these reports,
the point of production to and from any intermediate points used for
the importer would either demonstrate compliance or assert that no
storage, refining, processing, packaging, unloading, or reloading of oil.
U.S.-flag commercial vessels were available. In the latter case, the
The language of the bill, in this regard, was slightly revised by the
importer would have the burden of showing that there was physically
Committee for purposes of clarity, but has the same intention as the
no ship available; that any available ship did not meet the require-
bill that was passed by the House of Representatives.
ments of a U.S.-flag commercial vessel under subsection (d) (4) (B)
In another technical revision, the Committee modified the language
(e.g., that it was not U.S. built) ; or that the available U.S.-flag com-
in this section to provide that the requirement applies to "oil trans-
mercial vessel was not available at fair and reasonable rates. Once
ported on ocean vessels
for import into the United States". This
the Secretary has more experience and cost data on vessels subject
differs slightly from the language in the House passed bill: "oils im-
to the Act, he might also consider publishing guideline rates, if he
ported into the United States on ocean vessels." The purpose of this
deems it advisable to do SO.
amendment was to assure that oil transported on vessels for import
As a practical matter, the Secretary's determinations of fair and
into the United States, but which may ultimately enter the United
reasonable rates are likely to be more frequently required on short
States other than on vessels, is covered by the bill e.g. oil transported
term than on longer term arrangements. The latter are more likely
to Canada by vessel that subsequently enters the United States by
to be negotiated between shipper and carrier and normal competitive
pipeline.
market factors will likely be determinative, subject to compliance with
Paragraph (1) also provides that the 20% requirement to transport
the preference requirement. To the extent that intermediate and long-
oil on privately owned United States-flag commercial vessels only ap-
term arrangements can be encouraged by the Secretary, this will reduce
plies "to the extent that such vessels are available". In this context, the
some of the problems involved in making fair and reasonable rate
fact of whether a vessel is "available" is a factual determination to be
determinations. This would also appear to be in accord with the
made in each given instance. Unlike the provisions to be discussed later
policy of this Act, and the Merchant Marine Act, 1970, since such
relating to the increase in the U.S.-flag percentage after 1975 and 1977,
charters would provide vessel operators the assurances of cargo needed
it does not relate to an overall determination by the Secretary as to
to revitalize and expand the U.S. flag merchant fleet.
the adequacy of the fleet to carry a given percentage of our oil imports.
In any event, in determining fair and reasonable rates, it is antici-
Thus, in this provision, the importer or person subject to the Act, in
pated that the Secretary will take into account the interest of con-
the event that he asserts that a U.S.-flag commercial vessel was not
sumers as well as the need to revitalize and expand the U.S. tanker
available for his specific shipments and that he has therefore not com-
fleet in accord with the purposes and policies of this Act.
plied with the 20% requirement, has the burden of demonstrating that
Paragraph (1) of subsection (d) also provides that the Secretary
fact to the satisfaction of the Secretary.
is "to ensure fair and reasonable participation of such vessels and such
Paragraph (1) of subsection (d) also provides that U.S.-flag com-
transportation from all geographical areas in which such oil is pro-
mercial vessels need only be used to the extent they are available at
duced or refined or both". Here again, the Secretary has considerable
"fair and reasonable rates for such vessels". Longstanding administra-
flexibility. One means by which he could assure such fair and rea-
tive interpretation has established that fair and reasonable rates are
sonable participation by geographic area would be to define a num-
to be determined based on capital and operating costs of vessels and
ber of geographic areas (e.g. Persian Gulf, Indonesia, Mediterranean,
must be set at a rate which returns the efficient operator a reasonable
West Africa, Caribbean and South America) from which U.S. imports
profit. Since this bill clearly anticipates, and indeed requires, a suitable
are, directly or indirectly, carried, and to apply the applicable per-
replacement program for vessels, rates under the bill should clearly
centage to each such area. Another means suggested during the
take into account the need to provide adequate profits to finance re-
Committee's consideration was the adoption of a "barrel-mile" or
placement vessels.
"ton-mile" standard. While such a method could be adopted by the
Secretary, and would give importers or persons subject to the Act,
38
39
more flexibility, it would also require adoption of safeguards by the
Secretary to assure that it would not result in a fleet of U.S.-flag com-
modified pursuant to regulations issued by the Secretary of Com-
merce and be used in connection with reporting and compliance under
mercial vessels different in numbers, types, or sizes of vessels from
what would otherwise result. For example, the adoption of such a con-
the new Act. Further, experience with several of the areas subject to
cept, without safeguards, could well result in an abuse in the form of
the prior preference laws, which have involved assuring compliance
all the Act's requirements being covered by a very few ultra large crude
of commercial interests with the statutory mandate, including private
carriers utilized on long hauls. This is not in accord with the policy of
shipments under loans and guarantees of the Export-Import Bank,
the Act which is to create a broadly representative fleet capable of
and shipments under different foreign aid programs managed by the
carrying a designated percentage of all our oil imports from all sources
Departments of Agriculture and State, should be valuable in admin-
and to all destinations in the United States to which oil is normally
istering the new subsection.
imported. Thus, for example, if a barrel-mile concept were adopted,
The legislative history of H.R. 8193 contains a number of sugges-
tions which the Secretary may consider as helpful in administering
the Secretary would probably have to apply the designated percentage
the new Act. Although the Committee rejected the suggestion of mak-
requirements separately to the various kinds of oil covered by the bill
(e.g. crude, residual fuels and heating fuels, and clean products) in
ing credits for the use of U.S.-flag vessels transferable because it
order to assure that the United States obtained a balanced fleet of
viewed this as being subject to abuse, a suggestion that the Secretary
crude and different sized product carriers necessary to service its needs
establish a limited system of carry-forwards for the obligation to use
during a national emergency.
U.S.-flag vessels (e.g., three months) would seem to have consider-
able merit, since it would allow a person subject to the Act a short
Finally, the first paragraph of subsection (d) provides for increases
in the percentage of oil imports to be transported on U.S.-flag com-
make-up period before being subject to sanctions. Similarly, a limited
mercial vessels to not less than 25% for any period beginning after
system of carry-backs of credits for using U.S.-flag ships might facili-
tate administration.
June 30, 1975 and 30% beginning after June 30, 1977, provided that the
Secretary finds six months prior thereto that the tonnage of privately
Finally, administration of the new Act should be made somewhat
simpler by the fact that the number of companies whose operations
owned U.S.-flag commercial vessels, including vessels on order
will fall under the new law is relatively small. The exemption for
and scheduled to be ready for commercial service, will be ade-
small refiners leaves only about 40 refining companies within the bill,
quate to carry such quantities. This provision, while established in
not all of which import significantly by sea. Others figuring as im-
principle in the bill passed by the House of Representatives, was some-
porters, including utilities, petrochemical companies, terminal oper-
what modified by the Committee. The intent of the language as modi-
ators and the like, raise the total number of subject companies to
fied by the Committee is that the Secretary shall annually, after the
dates specified, review the adequacy of available tonnage until the per-
only about 140, judging from recent importing data. The Secretary
of Commerce is, moreover, empowered to invoke the assistance of
centum requirements are reached. This is important not only to permit
other affected agencies of government in carrying out his functions.
a build-up of the fleet, but also if the absolute level of oil imports
diminish in the future. Also, the provisions adopted by the Committee
Paragraph (2) of subsection (d) provides that the Secretary may
provides for lesser increases in the U.S.-flag percentages in the event
by rule establish a system of reasonable classification of persons and
that inadequate tonnage is available for the 25% and 30% levels, but is
imports subject to the provisions of the subsection. It also provides
available for levels above the basic 20%, for example, 23%.
a system of judicial review for persons aggrieved. The paragraph
is not intended to preclude the applicability of the Secretary's general
As will be discussed in more detail hereafter, the bill provides the
Secretary of Commerce considerable flexibility and discretion in the
rule-making authorities under the Merchant Marine Act, 1936, as
amended, and indeed such authorities will be fully applicable to
means by which he is to obtain the Congressionally determined man-
date in subsection (d) (1). While the Secretary is required to establish
amended Section 901 (d).
The Committee recast this provision somewhat, eliminating a pref-
a system of cargo preference whereby the designated percentages of
atory clause ("That with respect to the percentage of petroleum and
our oil imports are carried on U.S.-flag vessels, he is given considerable
petroleum products required to be imported in United States-flag
discretion in determining the exact type of regulations required, the
commercial vessels") which might seem to imply an administrative
persons who will be made subject to the Act, and means of reporting
and enforcing compliance. Although administration of the new Act
power to modify the minimum statutory percentage.
It is under this paragraph that the Secretary may grant full or
will surely not be free from complexities, various existing tools at the
Secretary's disposal, coupled with long experience in administering
partial exemptions to importers or persons subject to the Act from the
cargo preference requirements established in H.R. 8193. During the
similar provisions of the existing cargo preference statute, should
facilitate the new Act's administration. For example, the Office of Oil
course of the Committee's hearings, several groups, including petro-
and Gas in the Department of Interior and the Bureau of Customs
chemical producers, utilities importing low-sulphur crude, territorial
refineries, small refiners, independent refiners and others who asserted
have developed systems of documentation for licensing of oil im-
special circumstances or peculiar hardships, sought exemption from
ports. Indeed, the current forms for documentation require informa-
the Act's requirements. Other than small refiners with capacities not
tion as to the vessel on which imports are carried, as well as its flag
of registry. Presumably, these forms of documentation could be
exceeding 30,000 b/d, the Committee did not believe that any of these
groups made a persuasive case for legislative exemptions. The pro-
40
41
vision adopted by the Committee in section 5, waiving $0.15 of the
the same items as the bill passed by the House, but allows the main
import license fee for crude oil carried on U.S.-flag vessels makes it
text to be simplified to the single word "oil".
even less likely that such a case could be made. However, under para-
(b) This paragraph, by way of a definition, sets forth the require-
graph (2) of subsection (d) these interests or any other person able
ments which a vessel must meet in order to qualify for the carriage of
to show special circumstances and good cause, or peculiar hardship,
cargoes under H.R. 8193. The paragraph thus defines "privately
could be administratively exempted. Just as in the case of the legis-
owned United States-flag commercial vessels" as (1) built in the
lative exemption for small refiners, the statutorily designated per-
United States, (2) if at any time documented under the laws of any
centages of overall imports (including any imports exempted) to be
foreign nation, then documented under the laws of the United States
carried by U.S.-flag commercial vessels would be unaffected.
for not less than the three previous years, (3) not more than 20 years
Other word changes in this section are designed to bring the right
old (or reconstructed and within its extended economic life as deter-
to an administrative hearing and judicial review into closer conform-
mined by the Secretary of Commerce), (4) the subject of a capital
ity with modern practice under the Administrative Procedure Act.
construction fund agreement under section 607 of the Merchant Marine
Paragraph (3) is a Committee amendment. It authorizes the Secre-
Act, 1936, as amended (46 U.S.C. 1147), which provides that the vessel
tary to grant credits toward the fulfillment of the requirements in
shall be replaced at the end of its economic life, and includes a manda-
paragraph (1) in the case of oil transported by privately owned
tory deposit schedule to finance such replacement, and (5) if con-
U.S.-flag commercial vessels, over 100,000 deadweight tons, between
structed after specified dates (all contracts after December 31, 1974
foreign ports, until such time as an oil discharge facility, capable
or deliveries after December 31, 1978), incorporating the best avail-
of discharging fully laden vessels of over 200,000 deadweight tons,
able pollution prevention technology, and specifically segregated bal-
is in operation on any coast of the United States. This provision
last capacity and double bottoms.
was made necessary by the fact that there are currently no port facil-
The purpose of these provisions is to assure that the preference
ities in the United States capable of discharging full-laden very
afforded shall be efficacious in procuring new construction rather than
large crude carriers and ultra large crude carriers of the type now
merely extending the economic life of existing tonnage, and at the
being built under the Merchant Marine Act. 1970, and, presumably,
same time to assure that all new construction shall proceed in full
more of which will be built. A somewhat analogous authority for the
consciousness of the highest demands of environmental protection.
Secretary to permit foreign-to-foreign carriage for vessels built
The bill as reported by the Committee requires that the vessels be
with construction differential subsidy under Title V of the Merchant
built in the United States in order to qualify. This was done because
Marine Act, 1936, as amended (46 U.S.C. 1151-1161) or utilizing
the Committee believes that generation of business for domestic ship-
capital construction funds under section 607 of the Act, is contained
yards, and the employment opportunities and balance of payments
in section 905 of the Act (46 U.S.C. 1244). However, in this instance,
benefits resulting therefrom, are important secondary benefits of H.R.
the Secretary's authority terminates as soon as the first oil discharge
8193. However, in order to prevent abuses and monitor the perform-
facility. capable of discharging fully laden vessels of over 200,000
ances of U.S. shipyards under the new Act, a requirement for annual
deadweight tons, is in operation on any of our coasts. Credit for such
review of shipyard performance is set forth in paragraph (6) and
foreign-to-foreign carriage is to be available only to the extent that
will be discussed hereafter.
the percentage cargo preference requirements of the Act are not met
This paragraph also provides that if at any time a vessel has been
without such credits by available U.S.-flag vessels.
documented under the laws of any foreign nation, it must wait three
Paragraph (3) also contains safeguard language to assure that
years after being documented under the laws of the United States
this special authority provided the Secretary will not be permitted
before it is eligible to participate in the carriage of preference cargoes
to result in abuse by encouraging the construction, operation, or
under H.R. 8193. A similar requirement is set forth in existing law in
maintenance of a fleet of privately owned U.S.-flag commercial vessels
section 901 (b) for cargoes covered by that section, and is intended
different in numbers, types, or sizes of vessels than the fleet that would
to prevent easy transfers to or from United States registry to suit the
otherwise result from this Act. The reasons for this language are
convenience of a vessel's owner or operator.
similar to those set forth in connection with the discussion of the
The requirement that an eligible vessel be (a) not more than 20 years
"barrel-mile" concept earlier in this report.
old, or (b) reconstructed and within its extended economic life is a
Paragraph (4) of subsection (d) contains the definitions of terms
Committee amendment. It is intended to assure that H.R. 8193 will
used in the Act, including the commodities covered and the ships
accomplish its purpose of creating a modern expanded fleet of U.S.-
eligible to participate. The Committee modified the House-passed bill
flag vessels rather than merely perpetuating overage tonnage. Deter-
by creating a separate paragraph for definitions, both for drafting
minations as to what constitutes reconstruction and whether a vessel
clarity and to incorporate certain substantive modifications of the
is within its economic life are within the discretion of the Secretary
House bill.
of Commerce, and it is anticipated that he will utilize that discretion in
(a) The House term "liquid petroleum and liquid petroleum prod-
accord with the policy heretofore noted.
ucts" has been altered to "oil", which is then defined as crude oil, un-
The requirement that an eligible vessel be subject to a capital con-
finished fuels, gasoline, kerosene, aviation fuels, naphtha, cracking
struction fund agreement is likewise a Committee amendment and,
stocks, distillate heating oil, diesel oil, and residual oils. This covers
again, is intended to assure that the purposes of H.R. 8193 are ef-
42
43
fectuated; in this instance, by requiring reinvestment of profits in
the implementation of the provisions of this subsection and their effec-
U.S.-flag merchant vessels.
tiveness. The report is to include a study of the adequacy and avail-
It should be noted that it is intended that the Secretary shall have
ability of shipyard facilities and an assessment of the reasonableness
considerable flexibility under this provision, for example, in determin-
of the performance of American shipyards with respect to prices
ing a suitable replacement program. It is not intended that such a re-
charged and delivery dates for the construction and reconstruction of
placement program necessarily require the re-creation of carbon copies
vessels carrying H.R. 8193 cargoes. While the Secretary has broad dis-
of depositing vessels under section 607 (46 U.S.C. 1147), since that
cretion in determining what standards he will utilize to assess "reason-
would involve needless rigidity and could result in requiring the con-
ableness", presumably, with respect to costs, the percentage standards
struction of obsolete or otherwise commercially undesirable vessels.
set forth in section 502 of the 1936 Act (46 USC 1152) will provide
Rather, it is intended that the Secretary have broad discretion and
some guidance for purposes of his report.
flexibility in determining suitable replacement programs in accord
Sec. 4. This section provides that H.R. 8193 will not apply to any
with the policies of H.R. 8193 and section 101 of the Merchant Marine
refiner whose total refinery capacity (including the refinery capacity
Act, 1936, as amended (46 U.S.C. 1101).
of any person who controls. is controlled by or is under common con-
Finally, while the statutory provisions of section 607 (46 U.S.C.
trol with such refiner) does not exceed 30,000 barrels per day. This is
1147) (including for example, treatment of qualified and non-quali-
a provision which was adopted by the House of Representatives and is
fied withdrawals, ceilings on deposits and required deposits, etc.)
intended to eliminate certain administrative difficulties that such re-
will apply, it is recognized that the purposes and needs under the
finers might experience in complying. As is noted elsewhere in this re-
instant provision are somewhat different than those governing sec-
port, the exemption of this group should substantially simplify ad-
tion 607 generally, and will probably require the promulgation of
ministration of H.R. 8193, but will have no impact on the statutorily
separate and distinct regulations by the Secretary under this general
mandated percentages contained in the bill. The Committee has added
rule making authority.
a provision that the exemption shall not apply if the imports for such
Finally, a requirement is set forth that vessels carrying cargoes
refiner during any year exceed his rated refining capacity. The purpose
under H.R. 8193, and constructed after the dates noted above, shall
of this amendment is to preclude exempt refiners from importing on
be constructed and operated using the best available pollution pre-
a large scale for non-exempt refiners, whose own imports would be sub-
vention technology, and shall be equipped with segregated ballast ca-
ject to the Act. The exemption is intended for imports used in the small
pacity and double bottoms. The difficulties encountered in achieving
refinery itself, and not to create a loophole for evasion of H.R. 8193.
effective environmental protection standards for tankers are discussed
Sec. 5. This section is a Committee amendment. It provides that
elsewhere in this report. Enactment of legislation such as H.R. 8193
license fees payable pursuant to Presidential proclamation for imports
is one of the few means by which U.S.-flag vessels can effectively be
of crude oil imported into the United States shall be reduced by $0.15
required to adopt pollution prevention technology more costly than
per barrel for a period of five years from the date of enactment of
that agreed to internationally. Of course, in requiring new tech-
H.R. 8193, if the Secretary of the Treasury determines that the crude
nologies, the Secretaries of Commerce and Transportation will have to
oil is transported on privately owned United States-flag commercial
take into account economic feasibility and cost-effectiveness, but need
vessels, and the amount resulting from non-payment of such license
not be strictly governed by the minimum standards that other nations
fee is passed on to ultimate consumers. It is the Committee's belief that
find acceptable.
this amendment obviates any possible impact on consumer prices
Paragraph (3) (c) defines the United States as meaning the several
resulting from the use of U.S.-flag commercial vessels as is discussed
states, the District of Columbia and the Commonwealth of Puerto Rico.
in more detail in the section of this report dealing with that issue.
Paragraph (5) sets forth the requirement that each department,
Under the section, the person claiming reduction of the import license
agency or other instrumentality of the United States take appropriate
fee will not only have to demonstrate that the crude oil was trans-
action to assure compliance with obligations under H.R. 8193 and the
ported on U.S.-flag commercial vessels, but must demonstrate to the
regulations issued thereunder by the Secretary of Commerce. It also
satisfaction of the Secretary of the Treasury that the savings is or
provides that citizens of the United States and persons subject to the
will be passed on to ultimate consumers of the oil. Presumably, such
jurisdiction of the United States shall comply with obligations by the
persons will have an incentive to do SO since waiver of the license fee
law and any applicable regulations issued by the Secretary. Failure to
will provide him a competitive advantage in ultimately selling to
comply with such regulations would subject the violator to the provi-
consumers.
sions of section 806 (d) of the Merchant Marine Act, 1936, as amended
In a final change, the Committee amended the title of the bill to
(46 USC 1224). By implication, it might also subject the violator to
more adequately reflect its purpose.
private enforcement in the form of a suit for damages, e.g., in an
instance where an importer or person subject to H.R. 8193 refused the
ESTIMATED COSTS
tender of an available U.S.-flag commercial vessel at fair and reason-
able rates, and did not meet the percentage requirements imposed upon
Pursuant to section 252 of the Legislative Reorganization Act of
him by regulations promulgated under H.R. 8193.
1970 (Public Law 91-510), the Committee estimates that the cost of
Paragraph (6) of subsection (d) requires the Secretary to review,
implementing H.R. 8193 will be less than $1 million per year.
evaluate, and report annually to the Congress and the President on
In responding to an inquiry by Senator Cotton, Under Secretary of
44
45
Commerce John K. Tabor estimated that 150 additional personnel
3. Amendment offered by Senator Cotton to exempt any oil imported
would be required by the Maritime Administration to administer the
into the United States by or for direct or indirect delivery and sale to
cargo preference program at a cost of $3 million per year. However,
the Secretary envisioned a complicated rate-making process which
producers, converters, and fabricators of petrochemicals (as such term
is defined in the Federal Energy Administration Act of 1974), from
the Committee does not believe to be necessary. By minimizing admin-
istrative intervention into market decisions and by utilizing the ex-
the cargo preference requirement.
pertise and existing documentation and reporting systems of the
Yeas-5
Nays-10
Office of Oil and Gas in the Department of the Interior and the Bu-
Hart
Magnuson
reau of Customs in the Department of the Treasury, the Committee
Cotton
Hartke
is confident that the costs of administering this legislation will be con-
Pearson
Cannon
siderably less than the Department of Commerce estimate.
Griffin
Long
Stevens
Moss
RECORD VOTE IN COMMITTEE
Hollings
Inouye
In compliance with sections 133 (b) and (d) of the Legislative Re-
Tunney
organization Act of 1946, as amended by P.L. 91-510, the following
Stevenson
is a tabulation of votes cast in Committee:
Beall
1. Amendment offered by Senator Cotton to exempt residual fuel
4. Amendment offered by Senator Cotton to exempt oil (including
oil to be used as fuel and No. 2 fuel oil from the cargo preference
low sulfur residual fuel oil) imported into the United States which is
requirement.
required by law because of environmental considerations for electric
Yeas-5
Nays-10
power generation, from the cargo preference requirement.
Hart
Magnuson
Yeas-3
Nays-11
Inouye
Hartke
Cotton
Magnuson
Cotton
Cannon
Pearson
Hartke
Pearson
Long
Griffin
Hart
Griffin
Moss
Cannon
Hollings
Long
Tunney
Moss
Stevenson
Stevens
Hollings
Beall
Inouye
Stevenson
2. Amendment offered by Senator Cotton to exempt aviation fuel
Stevens
from the cargo preference requirement.
Beall
Yeas-3
Nays-12
5. Amendment offered by Senator Cotton to provide for a waiver
Cotton
Magnuson
provision identical to the provision in the first proviso to section 901
Pearson
Hartke
(b) (1) of the Merchant Marine Act, 1936, as amended (46 U.S.C.
Griffin
Hart
1241 (b) (1)).
Cannon
Yeas-3
Nays-12
Long
Cotton
Magnuson
Moss
Pearson
Hartke
Hollings
Griffin
Hart
Inouye
Cannon
Tunney
Stevenson
Long
Moss
Stevens
Beall
Hollings
Inouye
Tunney
Stevenson
Stevens
Beall
46
47
6. Motion offered by Senator Magnuson to order the bill reported as
able participation of United States-flag commercial vessels in such
amended.
cargoes by geographic areas: Provided, That the provisions of this
Yeas-14
Nays-2
Not recorded-2
subsection may be waived whenever the Congress by concurrent resolu-
tion or otherwise, or the President of the United States or the Secretary
Magnuson
Cotton
Griffin
of Defense declares that an emergency exists justifying a temporary
Pastore
Pearson
Baker
waiver of the provisions of section 901 (b) (1) and SO notifies the appro-
Hartke
priate agency or agencies: And provided further, That the provisions
Hart
of this subsection shall not apply to cargoes carried in the vessels of the
Cannon
Panama Canal Company. Nothing herein shall repeal or otherwise
Long
modify the provisions of Public Resolution Numbered 17, Seventy-
Moss
third Congress (48 Stat. 500), as amended. For purposes of this section,
Hollings
the term "privately owned United States-flag commercial vessel" shall
Inouye
not be deemed to include any vessel which, subsequent to the date of
Tunney
enactment of this amendment, shall have been either (a) built outside
Stevenson
the United States, (b) rebuilt outside the United States, or (c) docu-
Cook
mented under any foreign registry, until such vessel shall have been
Stevens
documented under the laws of the United States for a period of 3
Beall
years: Provided, however, That the provisions of this amendment shall
not apply where, (1) prior to the enactment of this amendment, the
CHANGES IN EXISTING LAW
owner of a vessel, or contractor for the purchase of a vessel, originally
constructed in the United States and rebuilt abroad or contracted to
In compliance with subsection (4) of rule XXIX of the Standing
Rules of the Senate, changes in existing law made by the bill as re-
be rebuilt abroad, has notified the Maritime Administration in writing
ported are shown as follows (existing law proposed to be omitted is
of its intent to document such vessel under United States registry, and
enclosed in black brackets, new matter is printed in italic, existing law
such vessel is SO documented on its first arrival at a United States port
in which no change is proposed is shown in roman)
not later than 1 year subsequent to the date of the enactment of this
amendment, or (2) where prior to the enactment of this amendment,
the owner of a vessel under United States registry has made a contract
MERCHANT MARINE ACT, 1936, AS AMENDED
for the rebuilding abroad of such vessel and has notified the Maritime
SEC. 901. (a) Any officer or employee of the United States traveling
Administration of such contract, and such rebuilding is completed and
on official business overseas or to or from any of the possessions of the
such vessel is thereafter documented under United States registry on
United States shall travel and transport his personal effects on ships
its first arrival at a United States port not later than 1 year subse-
registered under the laws of the United States where such ships are
quent to the date of the enactment of this amendment.
available unless the necessity of his mission requires the use of a ship
(2) Every department or agency having responsibility under this
under a foreign flag: Provided, That the Comptroller General of the
subsection shall administer its programs with respect to this subsec-
United States shall not credit any allowance for travel or shipping ex-
tion under regulations issued by the Secretary of Commerce. The Sec-
penses incurred on a foreign ship in the absence of satisfactory proof of
retary of Commerce shall review such administration and shall an-
the necessity therefor.
nually report to the Congress with respect thereto.
(b) (1) Whenever the United States shall procure, contract for, or
(c) That notwithstanding any other provision of law, privately
otherwise obtain for its own account, or shall furnish to or for the
owned American shipping services may be utilized for the transporta-
account of any foreign nation without provisions for reimbursement,
tion of motor vehicles owned by Government personnel whenever
any equipment, materials, or commodities, within or without the United
transportation of such vehicles at Government expense is otherwise
States, or shall vance funds or credits or guarantee the convertibility
authorized by law.
of foreign currencies in connection with the furnishing of such equip-
(d) (1) The Secretary of Commerce shall take such steps as are
ment, materials, or commodities, the appropriate agency or agencies
necessary to assure that a quantity equal to not less than 20 per centum
shall take such steps as may be necessary and practicable to assure that
of the gross tonnage of all oil transported on ocean vessels (whether
at least 50 per centum of the gross tonnage of such equipment, materials
transported directly from the original point of production or indi-
or commodities (computed separately for dry bulk carriers, dry cargo
rectly from such point to and from any intermediate points used for
liners, and tankers), which may be transported on ocean vessels shall
storage, refining, processing, packaging, unloading, or reloading of
be transported on privately owned United States-flag commercial ves-
oil) for import into the United States shall be transported on privately
sels, to the extent such vessels are available at the range of ports nearest
owned United States-flag commercial vessels (to the extent that such
the point where such equipment, materials, or commodities are manu-
vessels are available at fair and reasonable rates for such vessels),
factured or produced at fair and reasonable rates for United States-
and to insure fair and reasonable participation of such vessels in such
flag commercial vessels, in such manner as will insure a fair and reason-
transportation from all geographical areas in which such oil is pro-
duced or refined or both. With respect to any period beginning after
48
49
June 30, 1975, the quantity of such oil required to be transported on
their economic lives (as determined by the Secretary of Com-
privately owned United States-flag commercial vessels shall be equal
merce), and with respect to which the owner or lessee thereof has
to not less than 25 per centrum of the gross tonnage of all oil trans-
entered into a capital construction fund agreement with such
ported on ocean vessels for import into the United States, and for any
Secretary pursuant to which such vessel shall be replaced at the
period beginning after June 30, 1977, such quantity shall be equal to
end of its 20 year life, or at the end of its extended economic life
not less than 30 per centum of such gross tonnage: Provided, That
in case of reconstruction, and such agreement includes a manda-
(1) the Secretary of Commerce finds and determines 6 months prior
tory deposit schedule to finance such replacement: Provided, That
thereto, in the exercise of his sole discretion, that the tonnage of pri-
any such vessel in excess of 20,000 deadweight tons, the construc-
vately owned United States-flag commercial vessels, including vessels
tion of which is contracted for after December 31, 1974, or the
on order and scheduled to be ready for commercial service by such date,
delivery of which is made after December 31, 1978, shall be con-
will be adequate to carry such quantity; and (2) in the event that such
structed and operated using the best available pollution prevention
tonnage is not found to be adequate to carry such quantity, there shall
technology, and shall be equipped with a segregated ballast ca-
be carried on such vessels the basic 20 per centum requirement together
pacity determined appropriate by the Secretary of Transporta-
with any excess over such requirement, but not to exceed the applicable
tion which shall be achieved in part by fitting, throughout the
per centum requirement, for which such Secretary finds that adequate
cargo length, a double bottom of a minimum height of one-
tonnage will be available.
fifteenth of the beam or such other appropriate height as deter-
(2) The Secretary of Commerce may by rule establish a system
mined by the Secretary of Transportation; and
of reasonable classification of persons and imports subject to the pro-
"(O) 'United States' means any of the several States, the Dis-
visions of this subsection, and such Secretary shall treat all persons in
trict of Columbia, the Commonwealth of Puerto Rico.
the same such classification in substantially the same manner. If any
"(5) Each department, agency, or other instrumentality of the
person alleges (A) that he has been incorrectly classified under any
United States which is affected by any obligation imposed under this
such rule; (B) that there is no reasonable basis in fact for any such
subsection, and any officer or employee thereof, shall take all appro-
classification; or (C) that as a consequence of any agency action, he
priate action to assure compliance with such obligation and with regu-
is or may be treated substantially differently from any other person
lations which shall be issued by the Secretary of Commerce to imple-
in the same classification, such person may request, and, upon a rea-
ment and enforce the provisions of this subsection. Each citizen of the
sonable showing, obtain, a hearing in accordance with section 554 of
United States and each person subject to the jurisdiction of the United
title 5, United States Code. Upon an agency decision, such person
States shall comply with such obligation and any applicable regula-
may request judicial review in the United States Court of Appeals for
tion issued by such Secretary under this subsection.
the District of Columbia. The scope of such review shall be governed
'(6) The Secretary of Commerce shall review, evaluate, and report
by section 706 of title 5, United States Code.
annually to the Congress and the President on the implementation of
(3) The Secretary of Commerce is authorized to grant credits to-
the provisions of this subsection and the effectiveness of such provi-
ward the fulfillment of the requirements of paragraph (1) of this sub-
sions. Each such report shall include, but not be limited to, a study of
section in the case of oil transported by privately owned United States-
(1) the adequacy and availability of construction and reconstruction
flag commercial vessels, over 100,000 deadweight tons, between foreign
facilities in the United States for the vessels needed to meet the provi-
ports until such time as an oil discharge facility, capable of discharg-
sions of paragraph (1) of this subsection. and (2) the reasonableness
ing fully laden vessels of over 200,000 deadroeight tons, is in operation
of the prices charged and delivery dates for the construction and re-
on any coast of the United States: Provided, That the Secretary of
construction of such vessels."
Commerce shall take all reasonable steps to assure that the authority
SEC. 4. The provisions of this Act shall not apply to any refiner
provided in this paragraph not encourage, directly or indirectly, the
whose total refinery capacity (including the refinery capacity of any
construction, operation, or maintenance of a fleet of privately owned
person who controls, is controlled by, or is under common control with
United States-flag commercial vessels different in numbers, types, or
such refiner) does not exceed 30,000 barrels per day: Provided, That
sizes than the fleet that would otherwise result.
the total quantity of such oil imported by or for such refiner does not
(4) As used in this subsection-
in any year exceed the rated refining capacity of such refiner.
(A) 'oil' means crude oil and the following products refined
SEC. 5. License fees payable pursuant to Presidential proclamation
or derived from crude oil: unfinished fuels. gasoline, kerosene,
for imports of crude oil imported into the United States shall be re-
aviation fuels, naphtha, cracking stocks, distillate heating oil,
duced by 15 cents per barrel for a period of 5 years from the date of
diesel oil, and residual oils;
'(B) 'privately owned United States-flag commercial vessels'
enactment of this Act if the Secretary of the Treasury determines-
are vessels of United States registry (or if at any time documented
(a) such crude oil is transported by privately owned United
States-flag commercial vessels; and
under the laws of any foreign nation, then documented under the
(b) the amount resulting from the nonpayment of such license
laws of the United States for not less than the three previous
fees is passed on to the ultimate consumers of such crude oil in
years), built in the United States, which are not more than 20
years old or which have been reconstructed and are not beyond
whatever form it is when ultimately consumed.
50
51
TEXT OF H.R. 8193, AS REPORTED
554 of title 5, United States Code. Upon an agency decision, such per-
son may request judicial review in the United States Court of Appeals
AN ACT To regulate commerce and strengthen national security by requiring
for the District of Columbia. The scope of such review shall be gov-
that a percentage of the oil imported into the United States be transported
erned by section 706 of title 5, United States Code.
on United States-flag vessels
(3) The Secretary of Commerce is authorized to grant credits
That this Act may be cited as the "Energy Transportation Security
toward the fulfillment of the requirements of paragraph (1) of this
Act of 1974".
subsection in the case of oil transported by privately owned United
SEC. 2. Section 901 (b) (1) of the Merchant Marine Act of 1936 is
States-flag commercial vessels, over 100,000 deadweight tons, between
amended by inserting after the words "to the extent such vessels are
foreign ports until such time as an oil discharge facility, capable of
available", the following: "at the range of ports nearest the point
discharging fully laden vessels of over 200,000 deadweight tons, is in
where such equipment, materials, or commodities are manufactured or
operation on any coast of the United States: Provided, That the Sec-
produced".
retary of Commerce shall take all reasonable steps to assure that the
SEC. 3. Section 901 of the Merchant Marine Act, 1936, as amended (46
authority provided in this paragraph not encourage, directly or indi-
U.S.C. 1241), is amended by adding at the end thereof the following
rectly, the construction, operation, or maintenance of a fleet of
new subsection:
privately owned United States-flag commercial vessels different in
(d) (1) The Secretary of Commerce shall take such steps as are
numbers, types, or sizes from the fleet that would otherwise result.
necessary to assure that a quantity equal to not less than 20 per centum
"(4) As used in this subsection-
of the gross tonnage of all oil transported on ocean vessels (whether
(A) 'oil' means crude oil and the following products refined
transported directly from the original point of production or indi-
or derived from crude oil: unfinished fuels, gasoline, kerosene,
rectly from such point to and from any intermediate points used for
aviation fuels, naphtha, cracking stocks, distillate heating oil,
storage, refining, processing, packaging, unloading, or reloading of
diesel oil, and residual oils;
oil) for import into the United States shall be transported on pri-
'(B) 'privately owned United States-flag commercial vessels'
vately owned United States-flag commercial vessels (to the extent
are vessels of United States registry (or if at any time documented
that such vessels are available at fair and reasonable rates for such
under the laws of any foreign nation, then documented under the
vessels), and to insure fair and reasonable participation of such ves-
laws of the United States for not less than the three previous
sels in such transportation from all geographical areas in which such
years), built in the United States, which are not more than 20
oil is produced or refined or both. With respect to any period beginning
years old or which have been reconstructed and are not beyond
after June 30, 1975, the quantity of such oil required to be trans-
their economic lives (as determined by the Secretary of Com-
ported on privately owned United States-flag commercial vessels shall
merce), and with respect to which the owner or lessee thereof
be equal to not less than 25 per centum of the gross tonnage of all oil
has entered into a capital construction fund agreement with such
transported on ocean vessels for import into the United States, and for
Secretary pursuant to which such vessel shall be replaced at the
any period beginning after June 30, 1977, such quantity shall be equal
end of its 20 year life, or at the end of its extended economic life
to not less than 90 per centum of such gross tonnage Provided, That
in case of reconstruction, and such agreement includes a manda-
(1) the Secretary of Commerce finds and determines 6 months prior
tory deposit schedule to finance such replacement: Provided,
thereto, in the exercise of his sole discretion, that the tonnage of pri-
That any such vessel in excess of 20,000 deadweight tons, the
vately owned United States-flag commercial vessels, including vessels
construction of which is contracted for after December 31, 1974,
on order and scheduled to be ready for commercial service by such date,
or the delivery of which is made after December 31, 1978,
will be adequate to carry such quantity; and (2) in the event that such
shall be constructed and operated using the best available pollu-
tonnage is not found to be adequate to carry such quantity, there shall
tion prevention technology, and shall be equipped with a segre-
be carried on such vessels the basic 20 per centum requirement to-
gated ballast capacity determined appropriate by the Secretary
gether with any excess over such requirement, but not to exceed the
of Transportation which shall be achieved in part by fitting,
applicable per centum requirement, for which such Secretary finds
throughout the cargo length, a double bottom of a minimum height
that adequate tonnage will be available.
of one-fifteenth of the beam or such other appropriate height as
" (2) The Secretary of Commerce may by rule establish a system
determined by the Secretary of Transportation; and
of reasonable classification of persons and imports subject to the pro-
"(C) 'United States' means any of the several States, the Dis-
visions of this subsection, and such Secretary shall treat all persons in
trict of Columbia, the Commonwealth of Puerto Rico.
the same such classification in substantially the same manner. If any
"(5) Each department, agency, or other instrumentality of the
person alleges (A) that he has been incorrectly classified under any
United States which is affected by any obligation imposed under this
such rule; (B) that there is no reasonable basis in fact for any such
subsection, and any officer or employee thereof, shall take all appro-
classification; or (C) that as a consequence of any agency action, he
priate action to assure compliance with such obligation and with reg-
is or may be treated substantially differently from any other person
ulations which shall be issued by the Secretary of Commerce to imple-
in the same classification, such person may request, and, upon a
ment and enforce the provisions of this subsection. Each citizen of the
reasonable showing, obtain, a hearing in accordance with section
52
53
United States and each person subject to the jurisdiction of the United
with the ultimate purpose of S. 2089, an expanded United States-flag
States shall comply with such obligation and any applicable regula-
tanker fleet.
tions issued by such Secretary under this subsection.
We believe however that there are off-setting disadvantages in the
(6) The Secretary of Commerce shall review, evaluate, and report
bill which warrant serious consideration. The United States has now
annually to the Congress and the President on the implementation of
entered a period of domestic shortages in both crude oil and refined
the provisions of this subsection and the effectiveness of such provi-
petroleum products. For the forseeable future the Nation will be heav-
sions. Each such report shall include, but not be limited to, a study of
ily dependent on petroleum imports from multiple sources through-
(1) the adequacy and availability of construction and reconstruction
out the world. Given the existing and prospective narrow balance be-
facilities in the United States for the vessels needed to meet the provi-
tween world oil supply and demand, any action which might impede
sions of paragraph (1) of this subsection, and (2) the reasonableness
the access of all prospective importers, both large and small, to foreign
of the prices charged and delivery dates for the construction and re-
oil supplies, could impact adversely on the supply and demand bal-
construction of such vessels."
ance in the United States, with deleterious effect on the economy and
SEC. 4. The provision of this Act shall not apply to any refiner whose
well-being of the populace.
total refinery capacity (including the refinery capacity of any person
S. 2089 would appear to require that a foreign refinery from which a
who controls, is controlled by, or is under common control with such
domestic importer sought to purchase products would be required to
refiner) does not exceed 30,000 barrels per day: Provided, That the
obtain a portion of its feedstock supply by means of United States-
total quantity of such oil imported by or for such refiner does not in
flag vessels. Such a requirement might be attainable by the larger,
any year exceed the rated refining capacity of such refiner.
fully integrated oil companies in connection with long-term fixed-
SEC. 5. License fees payable pursuant to Presidential proclamation
quantity contracts, but it appears highly unlikely that foreign re-
for imports of crude oil imported into the United States shall be re-
finers other than those whose primary market is the United States,
duced by 15 cents per barrel for a period of 5 years from the date of
could or would be inclined to routinely employ higher-cost United
enactment of this Act if the Secretary of the Treasury determines—
States-flag tankers against the possibility of short-term or seasonal
(a) such crude oil is transported by privately owned United
purchases by United States customers. The result could be the denial
States-flag commercial vessels; and
of otherwise available foreign oil supplies, particularly to the smaller
(b) the amount resulting from the nonpayment of such license
non-integrated importers upon whom we are critically dependent at
fees is passed on to the ultimate consumers of such crude oil in
the margin, and the further deterioration of the supply situation in the
whatever form it is when ultimately consumed.
United States. This nation is already encountering oil shortages which
may grow larger in the next few years, and those shortages have im-
AGENCY COMMENTS
pacted adversely on the ability of the Department of Defense to pro-
vide fuel support to the military departments and civil agencies of the
GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE,
Government. We believe enactment of S. 2089 would aggregate this
Washington, D.C., October 9, 1973.
situation.
Hon. WARREN B. MAGNUSON,
The enactment of legislation which would restrict the exercise of a
Chairman, Committee on Commerce,
free market in the employment of tankers in international trade would
U.S. Senate, Washington, D.C.
establish a precedent for similar legislation by other seafaring nations
DEAR MR. CHAIRMAN: This is in response to vour request for the
as well as oil producing nations. The resultant compartmentalizing of
views of the Department of Defense on S. 2089, a bill "To require that
the international tanker fleet could adversely affect the ready avail-
a percentage of United States oil imports be carried on United States-
ability of tankers in time of tension or war and would thus be inimical
flag vessels."
to the security of the United States.
The purpose of the bill is to restrict a portion of the ocean trans-
We believe that the Merchant Marine Act of 1970 provides an
portation market to the employment of United States-flag tankers to
adequate instrument for the development of a fleet of United States-
encourage the development of a larger United States-Hag tanker fleet.
flag tankers, without the disadvantages which would result from
The growing dependence of the United States on foreign oil is a
enactment of S. 2089.
matter of great concern to the Department of Defense. That depend-
For the reasons set forth above the Department of Defense opposes
ence poses a threat to the security and well-being of the Nation in
enactment of S. 2089.
the event that foreign oil should be denied at some future date, whether
The Office of Management and Budget advises that there is no objec-
for political, economic or militarv reasons. One of the key factors in
tion to the presentation of this report for the consideration of the
ensuring the continued availability of foreign oil is an adequate and
Committee and that enactment of S. 2089 would not be in accord with
reliable tanker fleet, with assured availability in time of political or
the Program of the President.
economic stress, or in time of war. United States-flag vessels with
Sincerely,
American crews are of course the most reliable source of ocean trans-
L. NIEDERLEHNER,
port, and on that ground the Department of Defense is in agreement
Acting General Counsel.
54
55
GENERAL COUNSEL OF THE TREASURY,
OFFICE OF THE SECRETARY OF TRANSPORTATION,
Washington, D.C., October 18, 1973.
Washington, D.C., December 18, 1973.
Hon. WARREN G. MAGNUSON,
Hon. WARREN G. MAGNUSON,
Chairman, Committee on Commerce,
Chairman, Committee on Commerce,
U.S. Senate, Washington, D.C.
U.S. Senate, Washington, D.C.
DEAR MR. CHAIRMAN: Reference is made to your request for the
DEAR MR. CHAIRMAN This is in response to your request for Depart-
views of this Department on S. 2089, "To require that a percentage
mental comments on S. 2089, a bill "To require that a percentage of
of United States oil imports be carried on United States flag vessels."
United States oil imports be carried on United States-flag vessels."
The proposed legislation would amend section 901 (b) (1) of the
This bill would amend Section 901 (b) of the Merchant Marine Act
Merchant Marine Act of 1936, as amended, (46 U.S.C. 1241), to
of 1936 to insure that at least 20% of the gross tonnage of all pe-
require that U.S. flag commercial vessels carry 20 percent of the gross
troleum and petroleum products imported into the United States on
tonnage of all petroleum and petroleum products imported into the
ocean vessels shall be transported in privately owned United States-
United States on ocean vessels, to the extent such vessels are available
flag vessels. The bill would require that the amout of oil SO carried to
at fair and reasonable rates. The gross tonnage requirement would
be 25% by June 30, 1975, and 30% by June 30, 1977. if the Secretary
increase to at least 25 percent after June 30, 1975 and at least 30
of Commerce determines that there will be adequate United States
percent after June 30, 1977.
tonnage available to carry those quantities of oil.
The bill is contrary to the traditional U.S. position favoring inter-
The impact of the bill on this Department would be at the secondary
national free trade for private shipping and its passage might be
level of responding with an adequate commercial vessel safety program
expected to provoke similar actions by other countries, especially oil
in the event that enactment of the legislation results in an increase
producing countries.
in tanker vessel construction in the United States. The primary im-
Enactment of the bill would have an immediate effect on costs for
pact would be upon programs administered by the Department of
imported oil since crews of U.S. flag vessels are two to three times
Commerce. We, therefore, defer to Commerce as to the merits of the
more costly than foreign crews. These increased costs would be borne
legislation.
by consumers.
The Office of Management and Budget advises that while there is
While we recognize the importance of having a strong domestic
no objection to the submission of this report for the Committee's con-
shipping industry, we do not feel that this proposed legislation will
sideration, enactment of S. 2089 would not be in accord with the pro-
improve upon the Federal aid already enacted for the maritime
gram of the President.
industries. The four most important of these aids are operating-
Sincerely,
differential subsidy, construction-differential subsidy, various
J. THOMAS TIDD,
cabotage laws, and tax subsidies administered through the Federal
Acting General Counsel.
tax system. Provisions of the Merchant Marine Act of 1970 call for a
sizable increase in the form of construction subsidies and yet there
exists considerable uncertainty over how much construction may take
place, when it might be completed and now much it might cost. Current
estimates are that 300 new vessels or their productive equivalent may
be built over the next ten years.
In consideration of the limited capacity of U.S. shipyards, the pres-
ent utilization of U.S. flag tankers, and the projected increases in
tanker capacity needed to carry imported and Alaskan oil through
1985, it seems unlikely that U.S. flag carriers operating at full capac-
ity would be able to achieve a 20 percent carriage rate. We, therefore,
conclude that the bills would have little positive effect in the U.S.
maritime industry at this time, but that there well may be severe
negative impacts concerning our ability to maintain an uninterrupted
flow of imported oil.
For these reasons, the Department is opposed to the enactment of
S. 2089.
The Department has been advised by the Office of Management and
Budget that there is no objection to the submission of this report to
your Committee and that enactment of the proposed legislation would
not be in accord with the program of the President.
Sincerely yours,
EDWARD C. Schmultz,
General Counsel.
MINORITY VIEWS OF MR. COTTON
I oppose vigorously the bill, H.R. 8193, which carries the short title
the "Energy Transportation Security Act of 1974".
The most vital point, in my opinion, to which the Senate should be
alerted at the very outset is that with the bill, H.R. 8193, we are em-
barking upon a new and probably endless course by virtue of the prec-
edent it would set in extending by Federal statute a cargo preference
requirement to other than government-owned or government-financed
cargoes, to privately-owned commercial cargoes of oil and products
refined or derived from oil. The significance of this precedent is ad-
dressed in greater detail later in these views, but because of its im-
portance I wish to emphasize it at the outset.
WHOSE "SECURITY" IS AT STAKE?
Essentially, the basic issue presented by this legislation, as charac-
terized by the grossly misleading short title to the bill-the "Energy
Transportation Security Act of 1974"-is just whose "security" is at
stake-the maritime unions or the major international oil companies?
Press accounts of this bill, not without some justification, have char-
acterized it as a battle between competing special interests. On the one
hand, there are the proponents of the legislation, consisting largely
of seafaring maritime unions and other maritime interests who have a
substantial economic stake in its passage and enactment. On the other
hand, there are the opponents, consisting of the major international
oil companies and those American citizens operating tanker vessels
under foreign registry with lower operating costs, avoiding both
United States taxation and bargaining with American seafaring labor
unions. Both of these special interest groups have been characterized
as wearing "black hats"! Yet, it is the public interest which is being
subsumed in the heat of battle between these two special interest
groups, and which, in my opinion, will ultimately have to bear the
cost of whichever group emerges as the victor in this arena of battle.
For myself, my principal concern is the public interest, especially
that of my constituents in the State of New Hampshire, and its sister
New England States, which lack petroleum refining capacity and
which are heavily dependent upon oil imported from foreign sources
and refined for consumption in the markets in that region. I hold no
brief for either of the two special interest groups.
First, insofar as concerns the domestic seafaring unions and domestic
maritime interests, the Congress passed and the President signed into
law the Merchant Marine Act of 1970 as a vehicle to bring into exist-
ence a competitive American Merchant Marine. And, for the first
time under the provisions of that Act, we provided for both construc-
tion-differential and operating-differential subsidies for privately-
owned United States commercial tanker vessels. Exemplifying the
(57)
58
59
vigor of the expenditure of public funds resulting from implementa-
faring personnel. On the contrary, it would require stringent stand-
tion of that 1970 Act is the fact that during the 5 years preceding
ards for vessels to qualify for the proposed oil import cargo prefer-
its enactment there was appropriated $500 million to provide construc-
ence which are even higher than those required under existing law to
tion-differential subsidies for privately-owned United States-flag com-
qualify for the preference to carry government-owned or government-
mercial vessels, whereas in the ensuing 5 years after the date of
financed cargoes It would, for example, require that the vessel be built
enactment of the 1970 Act, appropriations for construction-differential
in the United States, while at this time American shipyards have such
subsidies have almost tripled to some $1.5 billion ! In addition to this,
a heavy backlog of orders that tanker vessels presently contracted
the government presently subsidizes wages, including fringe benefits,
for construction will not be able to be delivered until 1978 or there-
for American seamen on the magnitude of in excess of 70% of such
after.
total wage cost. For example, of an average annual salary for an
According to estimates made by the Department of Commerce, which
American licensed merchant marine officer amounting to $53,000, the
assume realistic constraint on shipyards, H.R. 8193 would create ap-
American taxpayer pays $38,319 of this amount; for unlicensed Ameri-
proximately 2,200 incremental man-years of seafaring employment
can seamen of a total annual wage cost of $26,000, the American
and 143,200 incremental man-years of shipyard and support industry
taxpayer pays $18,928. All H.R. 8193 would serve to accomplish is
employment through 1980, or a total of approximately 145,400 incre-
to compound further the cost burden on the American taxpayer in
mental man-years of employment through 1980. The realistic cost of
his role as a consumer of oil and refined oil products.
this program is very difficult to estimate, since it would be certain to
As for the major international oil companies and those American
have a strong inflationary effect on the U.S. shipbuilding industry.
citizens who operate tanker vessels under foreign registry, it was these
But, the excess demand for new tanker tonnage, given the fact that
groups who over a period of several years consistently imposed an
our shipyards are already operating at high capacity levels, would bid
unwarranted cost burden upon the citizens of the New England and
up the cost of ships built to meet the needs of the program contem-
Midwestern States with their vigorous support for the then existing
plated by H.R. 8193, and also those to be built under the existing mari-
oil import quota program, and who vigorously opposed each and every
time program, without this added cargo preference legislation. Under
attempt by myself and fellow New England colleagues to obtain relief,
the most optimistic assumption (i.e., no impact on shipbuilding costs
however minimal, from this onerous burden. And, these are the same
resulting from H.R. 8193), the combined minimum cost of construc-
groups who have enjoyed and continued to enjoy special privileges
tion-differential subsidy (not taking into account the double bottom
under the provisions of our tax laws, especially with regard to the
requirement which could add 5-11% to tanker vessel costs) and oper-
earnings of vessels under foreign registry.
ating-differential subsidy through 1980 to produce this incremental
Certainly no one should feel any compulsion whatsover to pause for
seafaring, shipyard, and support industry employment is estimated to
one moment of reflection upon any alleged "plight" of either of these
be approximately $800 million! In other words, the minimum average
two special interest groups. But, each and every one of us should be
cost to the American taxpayer will be about $5,500 per man-year of
deeply concerned about the plight of the American citizen in his dual
employment, which is almost one-half the median income of $12,051
role as a taxpayer and as a consumer if misguided legislation, such as
for all American families in 1973!
H.R. 8193, should ever be enacted into law. It is for this forgotten
Thus, in the final analysis, the recipient of the biggest employment
group-the American public-for whom I am deeply concerned and
benefit from H.R. 8193 is the shipbuilding industry which least needs
for whom I intend to do all in my power to insure that the bill, H.R.
it; the seafearers, who need it most, would receive the smallest benefit!
8193, meets the fate which it so richly deserves-a resounding defeat!
This estimated minimum cost will be compounded further by the
administrative costs associated with the complex program required by
WHO IS THE TRUE BENEFICIARY OF H.R. 8193 WITH REGARD TO EMPLOYMENT
H.R. 8193. The Under Secretary of Commerce has stated that "Based
OPPORTUNITIES AND AT WHAT COST TO THE AMERICAN TAXPAYERS?
on an estimated requirement of at least 150 additional personnel to ad-
minister the complicated cargo preference program, administrative
The proponents of H.R. 8193 will advocate strenuously that this
expenses for salaries, space and related costs would be approximately
legislation is needed to assist the poor American seamen because the
$3 million per year." (Emphasis supplied)
major international oil companies which control the bulk of the world
I think that the American taxpayer and the American consumer no
tanker fleet refuse to register such vessels under the United States flag
longer should be called upon to bear the burden of costs such as this
in order to avoid negotiating with American seamen. But, even if
which clearly are not in the public interest, but rather constitute an
H.R. 8193 is enacted into law, it will assist only that segment of the
unwarranted raid upon the funds of the American Treasury
American maritime industry, namely the shipbuilding industry,
which is experiencing a business boom second only to that experienced
WHAT EFFECT WILL H.R. 8193 HAVE UPON DEVELOPING COMPETITIVE
during World War II. It will be of little assistance whatsoever to any
AMERICAN SHIPPING UNDER THE MERCHANT MARINE ACT OF 1970?
American seafaring personnel because, as the legislation presently
is drafted, it virtually precludes any transfer of that foreign flag
I have supported in the past, legislative programs and appropria-
tanker tonnage to United States registry which might thereby afford
tions to promote the American Merchant Marine. I fully intend to do
near-term employment opportunity to under-employed American sea-
SO in the future, unless legislation such as H.R. 8193 is enacted into
60
61
law, in as much as it provides not one "bite at the apple" of Federal
2. Mr. Shannon J. Wall, President, National Maritime Union of
assistance, but two and possibly three bites, which should outrage the
America, AFL-CIO:
sensibility of any legislator in the Congress of the United States.
Mr. DUPONT. Let me ask a second question.
For example, I was a vigorous supporter for enactment of the
If this is good for all oil, why is it not good for chromite
Merchant Marine Act of 1970, which since its enactment has served
and Volkswagens, and Swiss watches?
as a vehicle of generous public support for the promotion of the Amer-
Why not require everything that comes into the United
ican Merchant Marine. But, that Act was enacted with the objective
States to have 30 percent of it come in on American-flag
of building a competitive merchant marine. H.R. 8193 could only serve
ships?
to provide an opiate to our merchant marine, providing competition
Mr. WALL. I think we have to take one step at a time. Let
not with other foreign shipping companies, but rather among Amer-
us see if we can get the 20 percent on the tankers.
ican shipping companies. Its only incentive to such American-flag
Mr. DUPONT. So this is the first time you are coming up,
operators would be to employ their least efficient vessels in the cargo
and you intend to come back and ask us to extend it to other
preference trade based as it is upon "fair and reasonable" rates for
products?
other privately-owned United States-flag commercial vessels. In this
Mr. WALL. The United States is dependent on its importa-
connection, perhaps the greatest admission against self-interest was
tions from overseas, and I would see no reason why all com-
the following comment by an avid proponent of H.R. 8193 in response
modities could not be 80 treated.
***
(Emphasis supplied.)
to a written interrogatory submitted by me:
(Ibid. at pages 408-409.)
*** When you ask whether "operators will be able to com-
Thus, this same imprudent precedent, if adopted for oil imports,
pete effectively", it must be remembered that the bill ex-
might be imposed upon agricultural exports at this most inopportune
cludes foreign-flag competition for the cargo reserved, for
point of time in our Nation's history when it is being called upon to
which American operators would therefore be competing
supply a substantial portion of the food needs of the world. Such ac-
with other American operators, at a level of expenses
tion could result in a substantial adverse effect upon our balance of
pitched to American standards.
payments, at the very crucial moment when we are seeking with our
agricultural exports to offset a growing trade imbalance resulting from
WHERE WILL THE PRECEDENT OF H.R. 8193 LEAD US?
increased costs for imported petroleum. Moreover, our farm economy,
with total fuel needs estimated at about 15% of our total daily rate of
The most serious infirmity with H.R. 8193, as a matter of public
consumption, will be required to pay the increased fuel costs resulting
policy, and the one which I sought to emphasize at the very outset of
from H.R. 8193, which, according to estimates by the National Coun-
these views, is that if enacted it will represent the first time that the
cil of Farm Cooperatives, will increase by "at least $175 million per
United States government has extended a statutory cargo preference
year". This increased cost, of course, ultimately would be paid by the
requirement to other than government-owned or government-financed
American consumer!
cargoes, to privately-owned cargoes. And, this, in the words of at least
two proponents of this legislation, represents but the first of possibly
H.R. 8193 PROVIDES FOR REDUNDANT STATUTORY AUTHORITY FOR THE PRE-
several steps to extend the same preference requirement to other pri-
VENTION OF MARINE POLLUTION; CAN THE BILL REALLY PROVIDE TRANS-
vate commercial cargoes, such as ores and other mineral resources for
PORTATION SECURITY?
which we, as a nation, are dependent upon foreign supply. In response
to questions during consideration of this legislation before the Com-
One should not be mislead by the stimulating rhetoric concerning
mittee on Merchant Marine and Fisheries of the House of Represent-
any "red herring" during any debate on H.R. 8193, whether it be
atives, these two proponents responded in the following manner:
the alleged increased environmental protection by a provision in the
1. Mr. Alfred Maskin, Executive Director, American Maritime Asso-
bill requiring double bottoms in tanker vessels, or the ready avail-
ciation:
ability of United States-flag tanker vessels. The authority for protect-
ing the marine environment from pollution already resides in the
Of course, we import many other bulk commodities besides
Secretary of Transportation by virtue of Title II of the Port and
oil-ores and other dry bulk commodities which are of stra-
Waterways Safety Act of 1972, and based upon this authority the
tegic importance to the United States, and which again are
Secretary of Transportation has recently issued proposed regulations.
being carried almost entirely by foreign-flag ships. Off the top
And, if such a double bottom requirement even were to survive a con-
of my head, I can see no reason why a preference requirement
ference with the House, you can rest assured that, since it would invoke
should not be applied to these commodities, or to liquefied
tanker design and construction standards more severe than those appli-
natural gas which we're just beginning to export. * * *
(Em-
cable to foreign tanker vessels, American shipyards would, in rather
phasis supplied.) (See hearings before House Committee on
short order, seek to be paid additional Federal construction-differen-
Merchant Marine and Fisheries, Serial No. 93-26, at pages
tial subsidy to cover the costs of such stricter construction require-
362-363.)
ments!
62
As for any so-called "transportation security", we in the Senate
would simply be "sticking our head in the sand" if we failed to rec-
ognize H.R. 8193 for what it is-an onerous, non-tariff trade barrier,
which the Arab Organization of Petroleum Exporting Countries
(AOPEC), constructing as they are their own tanker vessel capacity,
will recognize and conceivably take retaliatory action. Then, of what
avail will have been the expenditure of billions of dollars of public
funds to construct several million deadweight tons of tankers vessel
capacity which, upon arrival at foreign sources of oil, will find that
MINORITY VIEWS OF MR. PEARSON
the spigot has been turned off to us? Their usefulness to our Nation
will be as illusory as the ghostly ship, the "Flying Dutchman"!
I. PROLOGUE
If, in fact, there is a true desire to have major international oil com-
panies register their vessels under the United States flag and employ
The President on June 29, 1973, directed the Chairman of the
American seamen, the means for accomplishing this meritorious
Atomic Energy Commission to undertake a review of energy research
objective is not H.R. 8193, but rather an amendment to the Internal
and development activities. The President subsequently on Novem-
Revenue Code denying to American-owned foreign flag tanker vessels
ber 8, 1973, launched a bold initiative, Project Independence, and called
the current tax haven of evading United States taxes until such vessel
all Americans to participate in a determined national effort to become
earnings are repatriated to the United States. This, then, is where the
energy self-sufficient by 1980.
burden should rest and not upon the American taxpayer and the
In announcing Project Independence, the President alluded to John
American consumer.
F. Kennedy's call to harness the nation's diverse resources in achieving
a manned landing on the moon within the decade. President Kennedy's
dream was realized in the priority Apollo program. President Nixon's
IS H.R. 8193 IN THE INTEREST OF EITHER THE AMERICAN CONSUMER OR
goal also can be achieved if the nation responds with comparable re-
THE AMERICAN TAXPAYER?
sources and accords Project Independence the priority which it SO
As I observed with respect to earlier and similar legislation (H.R.
clearly merits.
13324 of the 92d Congress), it is inconceivable to me that legislation
AEC Chairman Dixie Lee Ray published on December 1, 1973, the
such as H.R. 8193 could ever emanate from the Committee on Com-
report requested by the President in his June 29 energy massage. En-
merce which long has prided itself as being the champion of the Amer-
titled "The Nation's Energy Furture," this document outlines not
ican consumer. Passage of this legislation, in my opinion, can only
only a proposed FY 1975 energy research and development program,
serve to tarnish the armor of this "shining knight" of consumer
but also an action plan to accomplish self-sufficiency within this
interest.
decade. The report recommends an expenditure of $22.5 billion in
H.R. 8193 would give the American consumer nothing It even fails
a national energy R&D program, FY 1975-1979. The total includes
" to provide any relief by temporary waiver in a declared emergency
projections of both federal and private spending.
whenever the Congress by concurrent resolution or otherwise,
The proposed R&D program would decrease projected 1980 demand
or the President of the United States or the Secretary of Defense
for energy imports by half, to 5.9 million barrels per day of oil-
SO declare. Yet, this authority does exist in the present law applicable
equivalent. In order to replace by 1980 the other half of the import
to government-owned and government-financed cargo, since as stated
demand, Dr. Ray has recommended a reduction in energy usage; that
in the House Report (No. 2329), accompanying S. 3233, 83rd Congress,
is, a national energy conservation program, as well as extraordinary
which was approved as P.L. 83-644, "
the need for some Aexibility
measures to stimulate a dramatic increase in domestic energy
was recognized in extraordinary situations.
"
(Emphasis sup-
production.
plied.) No such flexibility is provided for in H.R. 8193, notwith-
I would urge the Senate to embrace the goals of Project Indepen-
standing the fact that in this instance such need is even greater, in-
dence. I would urge the Senate to determine at the outset of debate
volving as it does a vital energy resource of oil and products refined
whether an energy-related bill is consistent with the national policy
from oil.
objective. If such a bill has little effect on Project Independence, then
In conclusion, H.R. 8193 can only serve to hang about the neck of
it is probably of little merit, or irrelevant.
the American consumer and taxpayer like the albatross in The
If a bill, on the other hand, is counter-productive in the quest for
Ancient Mariner. Thus, in the parlance of seafaring men, I earnestly
diminished reliance upon foreign energy. I would then urge the Sen-
solicit the support of all of my colleagues to join with me in giving the
ate to reject it. Because energy self-sufficiency is SO central to national
bill, H.R. 8193, the "deep six"!
defense and entirely consistent with the American consumer interest,
NORRIS COTTON.
Congress should have little difficulty in characterizing bills which ob-
struct or delay this goal as bad legislation. It may be that Project
Independence cannot be realized; nevertheless, affirmative Congres-
sional action to frustrate energy self-sufficiency impedes whatever
progress that otherwise could be made.
(63)
64
65
The "Energy Transportation Security Act of 1974", H.R. 8193, is
more suspect than that of the oil industry, not only because it is based
bad legislation for many reasons. It is fatally defective, however, not
upon elusive criteria such as balance of payment benefits and increased
only because it ignores Project Independence, but because it actually
employment in already overburdened shipyards, but also because it
defies Project Independence and would force billions of dollars to be
ignores the entire history of maritime rates, Congressional findings
spent upon the premise that progress toward energy self-sufficiency
upon which the operating differential subsidy program is based, and
cannot be achieved within this century.
the traditional inflationary effect of artificial restraints on competition
in transportation.
II. THE NATIONAL SECURITY INTEREST
The fact is that this bill has costs which are potentially enormous;
although, admittedly, they cannot be quantified at this time. I share
The proponents of H.R. 8193 have contended that its enactment is
Senator Cotton's deep concern over the impact upon consumers which
important to the national security interest. Because tanker fleets owned
H.R. 8193 would entail. Depending upon the actual level of petroleum
by the international oil companies are registered under flags of con-
imports, H.R. 8193 could inflate energy costs initially to the consumer
venience, this bill is advanced as a hedge against the prospect of offi-
by $500 million-$1 billion per year and much more in the long term if
cial intervention by Liberia, Panama, and/or Honduras in a manner
the drive for energy selfsufficiency collapses under an assault by those
inconsistent with U.S. security interests. Notwithstanding the provi-
special interests, including both the principal opponents and pro-
sions of section 902 of the Merchant Marine Act of 1936, a provision
ponents of this bill, who stand to profit from the continued vulner-
which authorizes foreign flag vessels owned by U.S. nationals to be
ability of the U.S. to foreign energy supplies.
impressed for service in time of national emergency, the advocates of
The enactment of H.R. 8193 would force additional expenditures
H.R. 8193 conclude that only with a sizeable tanker fleet under U.S.
for construction differential subsidy and operating differential sub-
flag can America be assured of an uninterrupted supply of foreign oil.
sidy under the terms of the 1970 Merchant Marine Act. The taxpayers
It is regrettable, at this time of energy inflation, that H.R. 8193
would underwrite this dual subsidy program in order to secure a fleet
should be advanced under the guise of the "national security interest."
of U.S-flag ships which are not needed now and certainly will not be
All of us must surely recognize, in the wake of recent events, that the
needed in the future if reasonable gains can be made toward the goals
real threat to national security is embargo against shipments to U.S.
of Project Independence.
ports by the cartel of oil producing countries. The Arab Organization
After the unneeded tankers are constructed with taxpayers' money,
of Petroleum Exporting Countries (AOPEC), apparently, can with
they will be put to sea at taxpayers' expense to serve no legitimate
impunity act to curtail the U.S. supply, at least for the short term. It
national purpose. They will become part and parcel of a world-wide
is patently absurd to suggest that small countries, who merely provide
surplus of ocean transportation capacity.
tax shelters for the registration of in-house company fleets could, in
time of travail, successfully interfere with the sailing orders of U.S.
IV. PRECEDENTIAL EFFECT OF H.R. 8193
owned vessels requisitioned to serve U.S. interests.
The President in his November 8 energy message identified the key
Senator Cotton and the Executive departments have opposed this
national security issue and formulated an appropriate national re-
legislation vigorously because it entails a precedent that is destructive
sponse. He said that "This new effort to achieve self-sufficiency in ener-
to U.S. trade policy. Although the U.S. has maintained a cargo pref-
gy
is absolutely critical to the maintenance of our ability to play
erence on federally subsidized and owned exports, this legislation for
our individual role in international affairs."
the first time would impose such preferences by statute upon commer-
It is wholly inappropriate for Congress to enact legislation such
cial imports. That such countries as Chile, Morocco, Ecuador, Spain
as H.R. 8193 when the principal effect will be to institutionalize the
and Peru have embraced this non-tariff barrier to trade is not a legiti-
current U.S. dependence upon foreign petroleum and to launch a mas-
mate argument in behalf of comparable U.S. action. That major trad-
sive new capital investment program based upon the dangerous prem-
ing nations, such as France and Japan, have approved comparable
ise that such dependence will be maintained in perpetuity.
regulations is significant only to underscore the need for intensive dip-
lomatic initiatives seeking their recision.
III. THE CONSUMER INTEREST
The problem is that the specious national security argument can be
The American Petroleum Institute has estimated that H.R. 8193
extended to the import or export of almost any commodity by almost
could cost U.S. consumers up to $60 billion between 1975 and 1985.
any country. The mandate that products be exported on U.S. vessels
This estimate of cost, of course, is suspect because the international oil
inflates the purchase cost of our products and diminishes sales abroad.
companies have a special interest in opposing the bill for reasons
The mandate to import commodities on U.S.-flag vessels contributes
to the staggering problem of inflation at home.
wholly unrelated to consumer cost. The cost estimate at the other ex-
treme, as provided by witnesses closely identified with shipbuilding
American farmers are concerned about H.R. 8193 because they con-
interests and the maritime unions, has shown the bill to entail no in-
sume petroleum products. The bill would inflate the cost of their pro-
duction. But they are even more concerned that enactment would
creased cost to the energy consuming public. This cost estimate is even
establish a cargo preference precedent to which the huge trade in farm
66
commodities would be subject eventually. I share their concern, and
recognize that the intensely competitive trade in wheat, oilseeds and
feed grains could be jeopardized by the high cost of U.S.-flag ocean
transportation.
V. CONCLUSION
I have supported the landmark legislation, the Merchant Marine
Act of 1970. That act is designed to promote the construction and
operation of a viable U.S.-flag fleet. It will cost us billions of dollars,
but the 1970 Act will accomplish its purpose. The shipyards are now
operating at full capacity; there is a shortage of skilled manpower
to build more U.S.-flag ships; and the decline of the U.S. maritime
industry industry has been reversed.
It has been U.S. policy to facilitate registry of vessels owned by
U.S. citizens under flags of convenience. The American oil companies,
obviously, have taken advantage of this policy. As my distinguished
senior colleague, Senator Cotton, has observed in his companion
Minority Views:
If, in fact, there is a true desire to have major international
oil companies register their vessels under the United States
flag and employ American seamen, the means for accomplish-
ing this meritorious objective is not H.R. 8193, but rather an
amendment to the Internal Revenue Code denying to Ameri-
can-owned foreign flag tanker vessels the current tax haven of
evading United States taxes until such vessel earnings are
repatriated to the United States. This, then, is where the bur-
den should rest and not upon the American taxpayer and the
American consumer.
If there was ever a time when Congress should not impose infla-
tionary pressures upon the cost of energy to American consumers, that
time must surely be now. The American people are tolerant of federal
action inconsistent with their short-term interests if a legitimate case
can be made for a long-term gain or overriding considerations of na-
tional security need. The irony of the "Energy Transportation Se-
curity Act of 1974" is that the arguments of transcending national
need are misguided and based upon misconceptions. The inflationary
effect of the bill remains as the singular, dubious accomplishment upon
enactment.
The special interests supporting this bill are simply asking the
American people to suffer more inflation and potential inconvenience
without holding out any hope of relief from the problems and real
hazards of these difficult times. I share with Senator Cotton the view
that H.R. 8193 should be defeated decisively when the bill is debated
on the Senate floor.
JAMES B. PEARSON.