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Transition Reports (1977) - Commerce Department: Consolidated Issues (5)
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The original documents are located in Box 34, folder "Transition Reports (1977) -
Commerce Department: Consolidated Issues (5)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 34 of The John Marsh Files at the Gerald R. Ford Presidential Library
APPENDIX I: Legislative Authority for Cuban Embargo
In 1961, the Congress authorized the President to impose
"a total embargo on all trade between the U.S. and Cuba."
The embargo was activated by Presidential Proclamation
3447 on February 7, 1962, which directed the Secretary of
the Treasury to implement the ban on all transactions
including imports. The Secretary of Commerce, acting
under authority of the Export Control Act of 1949 (since
replaced by the Export Administration Act of 1969) placed
Cuba in the export control embargo Category Z. Both
Secretaries were further directed to modify the embargo
as required by the national interest. Thus, under existing
legislation, the embargo could be altered or ended by
unilateral action of the Executive Branch.
Commercial relations with Cuba are subject to all of the
provisions of the Trade Act of 1974 as applied to non-
market economy countries. Cuba will therefore be denied
nondiscriminatory tariff (MFN) status, eligibility for
Eximbank and Commodity Credit Corporation credits until
it concludes a Bilateral Commercial Agreement with the U.S.
that complies with the emigration provisions of Section 402
of the Trade Act.
APPENDIX II: Possible Commerce Department Approaches to
Commercial Relations with Cuba
Assuming the accomplishment of certain political steps,
the Department of Commerce could take the following
interim measures toward normalized commercial relations:
U.S. passport travel restrictions are scheduled for
routine review prior to March 15, 1977. Appropriate
action to end the ban on travel could initiate a more
positive environment for future developments as was
accomplished with China in 1969. In conjunction with
Department of State action on the passport regulations,
Commerce could modify the appropriate export regulations
that restrict travel. Action would also be required of
the Department of the Treasury to remove the prohibition
on expenditure of funds for travel to Cuba.
The actual impact of such steps would probably be minimal
since travel to Cuba is inherently limited by the require-
ment for a direct invitation from Cuba. Furthermore,
regulations on travel have complicated, but have not
prevented U.S. citizens from legally traveling to Cuba.
Commerce could approve licenses for exports of U.S.
origin medical supplies and food in return for re-
activating the antihijacking accord, releasing U.S.
citizen prisoners in Cuba and convening substantative
talks on other bilateral problems, including compensation
for expropriated assets, the status of Guantanamo naval
base, and freer emigration.
If discussions proceed satisfactorily, Commerce could
approve licenses for exports by U.S. subsidiaries of
foreign made goods that contain a larger portion of U.S.
origin components than allow under current regulations
(20% by value is the maximum U.S.-origin component
currently allowed).
At the appropriate time, Commerce could place Cuba in
Category Y (with the U.S.S.R., China and most of the
countries of Eastern Europe) and approve licenses for
direct export of nonstrategic U.S. -origin products.
RELATIONSHIP BETWEEN COMMERCE AND THE BUSINESS
COMMUNITY IN ENERGY MATTERS
Background
Within the Department's overall mandate to safeguard and promote the
economic well-being of the Country, energy matters have assumed a major
position. Long-term problems such as assurance of supply to produce the
Nation's goods and services are coupled with immediate goals to foster
and promote energy efficiency in products and processes.
While market forces can, and do, make business more aware of the need
for energy efficiency and of methods for achieving it; significant
numbers of businessmen have yet to develop and implement programs which
address the difficult problems of adequate long-term supplies of energy.
Also, many have yet to address the immediate problems of the required
actions to achieve energy efficiency.
Issue
Which of the Department's business-related energy programs
should be emphasized to inform business of the nature,
duration and extent of the energy problem; and to encour-
age them to take action to reduce the wasteful use of energy
while maintaining national economic well-being?
Analysis of Issue
While there are many Federal agencies involved in dealing with the
energy problem, this duplication of effort is more apparent than real if
consideration is given to the diverse audiences to which these agencies
address themselves.
The Federal Energy Administration is given the role of "lead agency" on
energy matters, overall, and the Energy Research and Development Admin-
istration is the leader in technical aspects of energy supply develop-
ment and new technology matters.
Under these "umbrellas", various agencies have addressed the energy
problem in dealings with their particular constituencies. Agriculture
works closely with farmers; HUD in the housing area; DOT with trans-
portation, for example.
Commerce has its own constituency
the business community, and for this
audience, Commerce has the highest credibility and easiest access.
While the business community uses a large percentage of the Nation's
energy, it also produces the jobs and economic impetus to our continued
economic health. Efforts to alert businessmen to long-term problems of
- 2 -
supply and, at the same time, encourage them to develop meaningful
programs to improve the efficiency of their products and processes are
very appropriate actions to take within the over-all objective of the
Department and the immediate goals of addressing our energy problems.
Given these considerations, it is felt that Commerce has a vital and
unique role to play in business-related energy matters.
In fulfilling these responsibilities, we have felt that a prerequisite
for action is an awareness of the need for action. This has been the
initial premise of Departmental energy program planning. While most
major companies have adequately responded to the forces acting upon them
(present and anticipated), there is a significant number of businesses
for which even today's energy costs have not been sufficient motivation.
Commerce programs have been in two basic areas: first, demonstration of
the need for action both today and in the future and, second, what
actions can be taken. While need for the former still remains a high
priority, particularly for smaller organizations, increased emphasis
needs to be placed on the latter.
New publications in the "how-to" area should be developed to supplement
those now available and these new efforts should be directed to specific
audiences and/or industrial processes. Increased funding is required to
address the multitude of subjects of importance to business.
Refocusing our efforts to local levels is required so as to reach the
large number of relatively small companies which are not part of major
corporations.
Additional innovative methods of direct technology transfer, such as the
"Energy Efficiency Sharing" program, need to be developed and imple-
emented.
Departmental leadership of an ad-hoc, multi-agency, effort to improve
the total Federal image in energy matters to businesses, the "Federal
Energy Center" program, should be continued and additional resources are
needed to continue this trade-show and industrial exhibition program.
Work with technology transfer in the international area should continue
and be increased. This is a two-way flow of information on energy
efficient products and processes between the U.S. and other countries.
A most important mechanism for achieving the Department's energy goals
is the National Industrial Energy Council. Chaired by the Secretary and
the only formal linkage between the Secretary and leaders of major
companies, this advisory committee should be continued and a more
definitive role developed.
Schedule
See Appendix I for time-frame and milestones for current business
FORD i LIBRARY GERALD
related energy programs.
APPENDIX I
Program or Activity
Schedule
Comments or Notes
Production, distribution and
promotion of EPIC Series on
Energy Management
EPIC Supplement I
Printed and
Needs additional publicity and pro-
available
motion through trade associations,
NIEC and OFO
Small Business Manual
Due in Oct.
Should be promoted heavily by associ-
ations and NIEC. Direct mailings to
selected companies and through NFIB
and NSBA. SBA can play part if willing
Energy Management Course
Due in Nov.
OFO has need for this and will use,
but local groups and Chambers should
be key market as well as associations
Energy Management Case
Due in Dec.
Direct promotion to selected businesses
Studies
and through OFO and associations
Furnaces, Ovens and Kilns
Due in Jan.
Same as above
Steam Systems
Due in Mar.
Same as above
Burner Adjustment Manual
Due in July
Same as above
Distribute and publicize Prgress
Oct. et. seq.
An on-going job which needs additional
Reports and Updates on Voluntary
emphasis from press, associations and
Industrial Energy Conservation
and local groups
Program
Federal Energy Center/trade
Oct, Nov, May
A comprehensive program which is
show activities
multi-agency in composition and
suitable for business education.
Can be played up by media work
Revision of "Energy: Critical
Due Oct.
Distribution is already good on
Choices Ahead" film and manual
old version and can be channeled
similarly. Needs better TV and
press utilization
Revision of OEP brochures
Oct, Dec.
Should be emphasized through associ-
ations and local business.
Film on "Economics of Energy"
Sept.
First cut only. If film results it
should be promoted heavily by trade
associations and local business groups
FORD
GERALD
LIBRARY
- 2 -
National Industrial Energy
Sept, Dec
Not a project, per se, but NIEC must
'ouncil Meetings
Mar, June
Be more involved in development and
Sept.
promotion work in all areas of interest
Film on "How to Start an
Not within current resource allocation
Energy Management Program"
Projected cost of approximately $25K.
A much needed tool for OFO and associ-
ations
P
Space Conditioning Film
Not within current resources. Badly
needed to address "how-to" area for
large numbers of smaller businesses.
Easy to promote by many channels
International Technology
March
An experimental tool which can be
Transfer Program
very effective not only in moving
technology but in demonstrating
Government concern and response.
Energy Information Workbook
Jan.
A narrowly focused but poetntially
very valuable tool for medium size
companies. Probably best promoted
by associations. Follow-up costs
possibly high but must be determined
by current tests.
ergy Efficiency Sharing
Current &
Potentially one of the most effective
on-going
tools for moving "how-to" programs.
Very low cost as the delivery system
is through private business only with
modest OFO and OEP support.
Meetings, seminars, workshops
Oct, et seq
Difficult to schedule because of our
Speakers program
being responsive in most cases rather
than initiative of the program. Limit
is resources in OEP in both people and
dollars.
FORD is LIBRARY DERALD
BACKGROUND:
Commerce has been working to promote energy conservation by
business and industry since before the Arab embargo of 1973-74:
With the creation of the Federal Energy Office, and later the
Federal Energy Administration, a Joint Voluntary Industrial
Energy Conservation Program (VIECP) was established by agree-
ment between DOC and FEA. Under that agreement, FEA provides
policy direction and review while Commerce has responsibility
for day-to-day operation of the program. The major thrust of
the effort has been to work with trade and other associations
to reach very broad groups of companies which make up the
largest energy consuming industries. Contacts have been made
with some 80 associations or groups and about 40 have provided
DOC with data on a regular basis. In the latest report, now
in preparation, the Btu's reported account for more than 65%
of all industrial energy used. In this voluntary program, the
federal government has suggested broad guidelines for the data
submitted, while the exact data and energy efficiency measures
have been individually designed by the associations to accommo-
date the realities of their own operations.
The Energy Policy and Conservation Act was passed by the Congress
in December 1975 and signed by the President (P.L. 94-163). It
contains provision for a mandatory industrial conservation report-
ing program. Under this legislation FEA is to develop energy
conservation targets for the 10 most energy consuming industries
(2-digit SIC level) as well as to identify the 50 most energy
consuming companies in each of the 10 industries (within a bottom
consumption limit of 1 trillion Btu's per year).
These companies are to report annually to FEA their progress toward
the target. An exception to the companies mandatory report require-
ment can be made if the company participates in an "adequate
voluntary reporting program. The legislative history makes it
clear that this was done in order to provide for the continued
existence of the present voluntary program managed by DOC-OEP.
ISSUE:
Should the joint FEA-Commerce program be continued with the
respective agency responsibilities unchanged?
ANALYSIS:
To a large extent, the resolution of the issue will be influenced
by the general views of the incoming Administration on energy
2.
conservation, their emphasis on voluntary VS. mandatory
programs and on government organizational concepts.
The VIECP has been successful (both in terms of increased
participation and improved results) primarily because:
DOC emphasis has been on holding down or reducing
energy costs,
DOC recognizes the great diversity among industrial
corporations and their energy needs, and
Industry has had faith in DOC's advocacy role.
Because the voluntary program has, under EPCA become an al
ternative to mandatory reporting, FEA has used its require-
ments under law to report progress toward the targets to re-
shape the design of the voluntary reporting program to an
extent that Department of Commerce regards as inappropriate.
FEA has consulted closely with Department of Commerce in the
development of implementing actions and rulings for EPCA as
well as in deciding the criteria for an adequate voluntary
reporting program. However, the criteria proposed by FEA
is strictly prescriptive as to how energy efficiency is to
be calculated, doing away with the flexibility which has
characterized the program to date. We do not yet know how
industry will respond to the changes which the criteria
and other rulings will require in their program.
Future problems of this sort can be avoided by a recognition
of the integrity of the voluntary program and a more specific
delegation of authority from the Administrator of FEA to the
Secretary of Commerce for conduct of the VIECP under Title III,
Part D of P.L. 94-163. FEA would retain policy direction (i.e.,
setting of goals and objectives for the program) and the review
of accomplishments, but the operational and procedural methods
used to carry out the program would be Department of Commerce's
clear and designated responsibility.
SCHEDULE:
We shall see industry response to implementation of Title III,
D of P.L. 94-163 during the first four months following the
first report required in 1977.
ENERGY EXPORT POLICIES AND LEVELS
The Department instituted formal export controls on energy
products derived from petroleum and natural gas on December 13,
1973, at the height of the Arab oil embargo, to complement the
then Federal Energy Office's domestic allocation controls.
These controls were implemented in response to an energy situ-
ation which was at crisis proportions with a potential to grow
even worse. Export quotas for petroleum products (e.g., gaso-
line, kerosene, heating oils, propane) were established to
restrict exports to historical levels and destinations, thus
conserving energy products for domestic use while maintaining
our traditional trading relationships. The controls have re-
mained essentially unchanged to date with additional products
(e.g., naphtha, petroleum coke, synthetic and manufactured
natural gas) being added to the list of controlled products.
Although the controls were originally imposed under the short
supply authority of the Export Administration Act, four other
statutes* have since been enacted virtually prohibiting exports
of crude petroleum and natural gas, the feedstocks from which
the controlled energy products are derived. These statutes
also contain broad discretionary authority to control exports
of additional energy products, petrochemical feedstocks, coal,
and machinery and equipment related to the production and
utilization of energy.
With export controls firmly in place and ready availability of
foreign crude oil for import, the Federal Energy Administration,
in recent months, has removed price controls and has lifted its
domestic allocation controls over a number of petroleum energy
products. Crude petroleum of domestic origin remains subject
to price controls, however, and the FEA maintains standby allo-
cation authority in the event of an actual or threatened
interruption in our supply of foreign crude. Pursuant to the
Natural Gas Act of 1938, the Federal Power Commission continues
to control exports of natural gas.
Issue:
It is conceivable that the export control program, having been
designed to react to the extreme shortages which were occurring
during the period of embargo, does not correctly respond to the
present domestic energy situation.
The Trans-Alaska Pipeline Authorization Act of 1973, the Energy
Policy and Conservation Act of 1975, the Naval Petroleum Re-
serves Production Act of 1976 and the Alaskan Natural Gas
Transportation Act of 1976.
2
Analysis of Issue:
With no current shortages of energy products derived from petro-
leum, and only limited shortages threatened for products derived
from natural gas, the need to continue the current export con-
trol program over all such products has been challenged. It is
argued by some that removal of controls or increased flexibility
in the control program would not result in shortages of these
products, would encourage expansion of domestic refining capac-
ity, would allow U.S. refineries increased operating and
marketing flexibility resulting in increased efficiency, and
would reduce unnecessary Government regulation of industry. It
should be noted that refined petroleum products which are ex-
ported do not benefit from the FEA Entitlements Program or the
lower price of domestic crude oil.
Proponents of the current control program, on the other hand,
maintain that tight controls over exports of energy products
are an essential element of national energy policy, and their
removal could result in a surge in exports from their present
miniscule level (only 0.3 percent of the domestically refined
products under control were exported furing the first quarter
of 1976). It is further contended that removal of controls
might have a domestic inflationary impact, might require reim-
position of FEA's domestic allocation controls, and would leave
us without a sufficiently tight export control program in place
in the event of another interruption of foreign supplies.
Any action substantially altering the present system of export
controls on energy products would have to be coordinated care-
fully with the Federal Energy Administration, and could evoke
significant reactions from the Congress, consumer groups, and
the public at large.
Schedule:
While the Energy Policy and Conservation Act mandates controls
over the export of crude petroleum and natural gas until June 30,
1985, it is the Department's current practice to announce the
continuation of controls and the establishment of export quotas
on a quarterly basis, and it would seem logical to time any
announcement significantly altering the present control system
to coincide with the beginning of a quarter. Appropriate modi-
fications to the current control program should be identified
during the first quarter of 1977 and implemented by the second
quarter.
-10-
MARITIME AFFAIRS
U.S./U.S.S.R. Maritime Agreement
Dry Bulk Carriers
Outlook for construction contracts
CDS rates
Seatrain Yard
Proposed regulations for CDS program
Cargo Preference
Virgin Islands - Jones Act
West Coast Oil Surplus and U.S. Flag Tankers
LNG Ship Construction
Maritime Administration claim for Breach of
Contract by Hawaiian International Shipping
Corporation
-
Pursuit of litigation regarding default
on CDS contracts
Renewal of current ODS contracts
OD Subsidies - Examination of the system
Position of M&R, H&M, P&I subsidies
Maintenance and repairs on ships receiving
ODS
Third Flag Competition
National Defense Policy
Disposition of the NS Savannah
Disposition of the SS United States
U.S./U.S.S.R. MARITIME AGREEMENT
Background: The present U.S./U.S.S.R. Maritime Agreement was
signed on December 29, 1975, by the Secretary of Commerce for
the U.S. and the Minister of the Merchant Marine for the Soviet
Union. It is a six-year Agreement expiring December 31, 1981.
The Assistant Secretary of Commerce for Maritime Affairs serves
as the Designated Representative of the United States in
implementing the Agreement. Major points of agreement are
as follows:
Mutual access of vessels to 40 ports in each country
on 4-day notice, all other ports on 14 day request.
National flag vessels of each have the opportunity to
carry at least one-third of bilateral cargoes between
the two countries.
Freight rates for liner vessels for accounting purposes
at conference rates.
Freight rates to be paid to U.S. vessels in bulk trades,
particularly grain trade, are an important provision of
the Agreement. Agreement on these rates have been for
shorter periods than the Maritime Agreement itself because
of uncertainty as to changing conditions affecting the
carriage of these cargoes.
In 1975 an index method and debit/credit arrangements
were devised for fixtures made during 1976, expiring
at the end of that year. Under these arrangements
the minimum freight rate payable to U.S.-flag vessels
carrying grain to U.S.S.R. is $16.00 per long ton.
The base period for the index is August 1975 when the
Gulf/Holland-Beligum rate was $4.32/ton, and the
corresponding Gulf/Black Sea rate was agreed to be
$13.00/ton.
For any month that the derived rate is less than $16.00
per ton, the amount of the differential multiplied by the
number of tons involved constitutes a credit to the
U.S.S.R. The accumulated credits are reduced by the
same process when the derived freight rate rises above
the minimum. When the accumulated credit is fully offset,
the freight rate paid to U.S. vessels is the full rate
derived by the index.
The Agreement excludes the following vessels: fishing,
warships or other carrying out state functions, and
LNG carriers.
2.
Issue: To assure one-third participation of U.S.-flag liner
and bulk vessels in the shipment of all bilateral cargoes
moving by sea between the United States and the Soviet Union,
and to renegotiate freight rates for grain carriage after
December 31, 1976.
Analysis of Issue: The major issues remaining under the
present U.S./U.S.S.R. Maritime Agreement are resolution of
undercarriage of U.S.-flag vessels in 1975 and 1976, and the
negotiation of a new agreement on freight rates for grain
carriage after December 31, 1976. From January 1 through
October 31, 1976, U.S.-flag vessels have carried 2,641,840
tons amounting to 25.14 percent of the total grain cargoes
shipped. During this same period U.S.-flag vessels have
received the minimum freight rate of $16.00 due to accumulated
credits to the Soviet Union. The credits will have been
completely worked off in December 1976, enabling six U.S.-flag
vessels to receive approximately $19.37 per ton for December loadings.
Schedule: Meetings with the Russian representatives are
scheduled in Washington, D. C. for November 29 through
December 7, 1976, to discuss both issues.
CONSTRUCTION OF DRY BULK CARRIERS
Background:
The current U.S.-flag dry bulk fleet is in stark
contrast to the size of that fleet in 1947. Our
fleet then consisted of 68 ships, totaling about
660,000 deadweight tons, which represented one-
fourth of the world's total dry bulk capacity.
Since that time the U.S. dry bulk fleet has
declined while the world fleet has grown to over
4300 dry bulk carriers, totaling more than 150 million
deadweight tons.
The U.S.-flag dry bulk fleet currently carries less
than 2 percent of the U.S. dry bulk foreign trade.
The vessels which carry these cargoes comprise only
a small percentage of the total privately owned U.S.-
flag oceangoing fleet. of 517 U.S.-flag vessels
reported to be active as of October 1, 1976, only
16 were bulk carriers, representing 431 thousand
deadweight tons out of the total of 13,478 deadweight
tons in the active flect at that time.
Dry bulk shipping trades are important to the U.S. and
its future. The U.S. is currently dependent on foreign
sources for many strategic raw materials. In 1974, U.S.
iron ore imports exceeded 50 million tons, or approximately
one-third of U.S. total iron ore requirements. In addition
more than 90 percent of the nation's bauxite/alumina,
chromate, manganese, and tin are imported. Waterborne
transportation is the only practical way of importing
most of these commodities.
In 1975 the U.S. exported nearly 90 million tons, or more
than 50 percent of its grain and soybean production, and U.S.
coal exports amounted to 48 million tons.
Fertilizer
and wood each represent about 9 percent of U.S. dry
bulk exports. These four commodities -- grain, coal,
fertilizers and wood -- constitute more than 90 percent
of this nation's dry bulk exports.
Prior to the Merchant Marine Act of 1970, government
operating subsidies were provided only to liner operators.
However, the 1970 Act extended for the first time to
the bulk operators all of the benefits of the subsidy
program. Since then only two dry bulk carriers have been
built with subsidy, and they were really combination
ore-bulk-oil (OBO) vessels.
2.
Issue: To promote the construction of more U.S. -flag dry
bulk carriers with a capacity sufficient to carry a substantial
percentage of U.S. dry bulk foreign trade. A "substantial
share" has been defined to be at least 50%. The Merchant
Marine Act of 1970 was aimed at bringing U.S.-flag participation
in U.S. bulk trade up to approximately 15% by the end of the
1970s.
Analysis of Issue:
A major conference on dry bulk shipping was held by the
Maritime Administration July 12-14, 1976, in Hyannis,
Massachusetts. This conference, called the "National
Assessment and Planning Conference on U.S. -Flag Bulk
Shipping," was attended by some 150 representatives of
government, operators, shipbuilders, labor, shippers,
investors and Congress.
A major conclusion of the Conference was that the
current system is still geared more to the liner
segment of the maritime industry and does not
necessarily serve the needs of the bulk segment.
It was indicated that there must be a. more flexible
approach for bulk carriers. Examples of possible
solutions include allowing companies receiving operating
subsidy to also operate foreign flag ships, without
any "grandfather clause" phase-out period, and to further
relax restrictions and limited permissions regarding
foreign to foreign trading by the subsidized U.S.-flag
carriers. Fewer restrictions on operators with construction
loan and mortgage insurance were also suggested as well
as provision for this financing based upon shorter term
charters. Also, a new look at foreign cost computations,
the basis for subsidy, was urged in order to see if they
fully take into account all applicable costs.
Schedule: A meeting of senior Maritime Administration officials
was held on November 16, 1976, at Gaithersburg, Maryland to
discuss ways of implementing some of the recommendations suggested
at the recent Hyannis Conference. The Maritime Administration
intends to continue to follow-up on this dry bulk issue and
will take action to implement those proposals that appear
most promising.
OUTLOOK FOR SHIP CONSTRUCTION CONTRACTS
Background: Sixty-four new ships have been contracted for
under the Merchant Marine Act of 1970. Fifty-nine of these
were ordered within the first four years. Four have been
contracted within the past four months. However, with the
collapse of the tanker market and the general worldwide
economic setback, there were subsidy contracts for only three
new ships in FY 1975 and contracts for four previously
ordered ships were cancelled. Many shipyards are now
experiencing a considerable drop in the backlog of contracts.
Several have reached a point where employee layoffs are
necessary.
Issue: There has been a substantial increase in the demand
for new ship construction over the last year. Although
construction of bulk ships has shown little sign of resurgence,
the demand for liner and specialized ship types is increasing.
This will help alleviate a worsening employment situation.
Analysis of Issue:
The renewal of demand is the result of interest in new
construction from three distinct areas. The largest
component is liquefied natural gas (LNG) carriers. MarAd
currently has applications for the construction of five LNG
vessels with subsidy and financing guarantees, in addition
to three for financing guarantees without subsidy.
Applications for five other LNG's are expected within the
year. The total construction price for these thirteen
ships will be close to $2 billion.
Another growing source of new construction is container-
ships, roll-on/roll-off (Ro/Ro) ships, and lighter aboard
ships (LASH) for the liner industry. Many companies are
operating ships which are reaching the limit of their
economic usefulness. Those companies receiving operating-
differential subsidies (ODS) are required to replace these
ships as a condition of their contracts. Some non-subsidized
operators are also expressing the desire to modernize
their fleet with U.S. -built ships.
The third class of new construction includes vessels of
specialized design. These include integrated tug-barge
units, heavy lift ships, and very small break-bulk (cargo)
ships. These represent ship types new to the U.S. fleet.
In all, active ship construction applications consist of
41 new ships and thine_ships_ to be ..converted-or-reconstructed
These would involve subsidy-of close to $1 billion.
A
2.
detailed description of the ships contained in the
budget request to OMB are discussed in Appendix A.
U.S. shipyards need new contracts soon to maintain
employment levels. Of 14 major U.S. shipyards, four,
which provide 30,000 jobs, need contracts immediately
while six others require contracts before the end of
1977. They are:
Bethlehem Steel; Sparrows Point, Md. - immediate
Litton/Ingalls; Pascagoula, Miss. - immediate
Maryland Shipbuilding & Drydock; Baltimore, Md. - immediate
FMC; Portland, Oregon - immediate
Seatrain; Brooklyn, N.Y. - April 1977
Sun Shipbuilding and Drydock; Chester, Pa. - April 1977
Avondale; New Orleans, La. - April 1977
Newport News; Newport News, Va. - July 1977
General Dynamics; Quincy, Mass. - December 1977
Lockheed; Seattle, Wash. - December 1977
Schedule: The 1977 program for ship construction subsidy
includes contracting 14 ships for $256 million. Two container-
ships have already been contracted for a subsidy of $43 million.
Looking to 1978, the requested program level is $242 million
for the construction of seven ships.
The resources available for the 1977 program are as follows:
FY 1977 Appropriation
Carry forward from FY 1976-T.Q.
$348 million
Anticipated Deobligation
15 million
Planned Deferral to 1978
-107 million
FY 1977 Program Level
256 million
Current Availability
212 million
Appendix A
CURRENT SHIP CONSTRUCTION PROJECTS
1977 funds for construction-differential subsidy is projected
to include the following projects.
- American Export Lines has been conditionally awarded
subsidy for the construction of two containerships
to be built at Bath Iron Works, Bath, Maine, as a
replacement obligation on their current operating-
differential subsidies (ODS) contract.
- Three LNG vessels will be funded for LNG projects
currently being evaluated by the Federal Power Commission.
The projects are estimated to include ten ships which
are expected to be contracted for subsidy during 1977
through 1978. Lachmar (the Panhandle Eastern Project)
is currently under consideration for the award of CDS
on two vessels to carry LNG from Algeria to the Gulf
Coast. This company is a partnership of subsidiaries of
Panhandle Eastern Pipeline Company, Moore-McCormack
Bulk Transport and General Dynamics Corporation.
Zapata (the Pacific Lighting Project) has applied for
CDS on three vessels for the carriage of LNG from.
Indonesia to the West Coast. El Paso plans to construct
as many as five ships for the transport of LNG from
Algeria to the United States. The project that is
nearest to contracting is Lachmar, with Zapata following
closely behind during 1977.
-
Waterman Steamship Corporation is required to contract
for the construction of four LASH vessels by mid-April
1977 to be used in the trade routes from the U.S. to
the Far East.
- American Heavy Lift Shipping Company intends to construct
two heavy lift ships, relatively small vessels equipped
to handle massive pieces of cargo without a developed
port. These will be the first vessels of this type in
the U.S.-flag fleet.
- American Atlantic Shipping has submitted an application
for three small breakbulk (cargo) ships for specialized
trade in the Caribbean.
The 1978 program includes the following projects:
- Three additional LNG's from the projects described
above.
2
- Sea-Land Services, Inc. , not previously an applicant
in CDS construction, may contract for two or more
containerships with CDS to replace some of their 38
war-built vessels that have been converted to container-
ships.
- Prudential Lines, Inc. is expected to contract for two
ships as a replacement obligation on their current ODS
contract:
CONSTRUCTION DIFFERENTIAL SUBSIDY RATES
Background:
Between 1960 and 1970 CDS rates were in the range
50-55 percent.
The Merchant Marine Act of 1970 incorporated declining
CDS guideline rates (from 45 percent in FY 1971 to 35
percent in FY 1976) for negotiated contracting (the
ceiling remained at 50 percent for contracts involving
competitive bidding).
During this period, investment of over a billion dollars
in U.S. shipyards materially increased their efficiency.
Furthermore, inflation in foreign countries was considerably
higher than in this country. This reduced the differential
in cost between American and foreign ships. In addition,
there were devaluations of the dollar relative to foreign
currencies in 1971 and 1973. This had the effect of
making foreign goods, including ships, more expensive on
a dollar basis. As a result, CDS rates declined
progressively from close to 55 percent to 35 percent
for ships contracted for in FY 1975.
During the period 1970 through 1974 world shipbuilding
capacity nearly doubled to meet the then existing
demand for ships.
The oil boycott of 1973/1974 and its related price increases
reduced the demand for shipping and plunged the world
shipbuilding industry into a deep depression. As a
result, foreign ship prices (particularly in Japan)
declined very significantly and the differential at
the present time for most types of vessels is in the
range of 45-50 percent.
The CDS rate for LNG vessels is lower than for other
ship types. Currently the rate for LNG vessels is in
the 25-30 percent range.
Issue: Future levels of CDS rates.
Analysis of Issue:
It is difficult to forecast foreign shipbuilding prices
because they are affected by the supply/demand situation
in world shipbuilding, the policies of foreign governments
and changes in the-exchange-rate:
2.
The outlook for the world shipbuilding industry is
not good. There is tremendous excess shipbuilding
capacity and price competition remains fierce. This
situation is expected to continue until the end of
the decade.
There could be some upward movement of foreign ship
prices before the end of the decade if, as is expected,
the Japanese government takes steps to reduce the
effective size of the Japanese shipbuilding industry.
This would, in turn, ameliorate the upward pressure
on U.S. CDS rates.
Schedule: This issue is not amenable to discretionary
scheduling.
THE SITUATION AT THE SEATRAIN SHIPYARD,
BROOKLYN, NEW YORK
Background:
In the early 1960's the Department of Defense closed
the New York Naval Shipyard and the property was turned
over to New York City. In the late 1960's Seatrain Lines
established the Seatrain Shipbuilding Company, leasing
a portion of the old New York Naval Shipyard, and
started construction of large tankers. This shipyard
was supported with the assistance of a loan of $25
million from the Economic Development Administration (EDA)
in 1973.
O
The resumption of ship construction activity at the
shipyard was considered highly beneficial due to the
employment and economic benefits it would generate in
the area. The shipyard has achieved an exceptionally
high level of minority employment and at present, in
excess of 80 percent of the workforce consists of
minorities proportionately distributed throughout all
skill categories.
Although initially these tankers were to be built
without any Maritime Administration financial assistance,
the government has become involved financially in the
operation of the shipyard.
Issue: To assure completion of those ships in which the
government has an interest which are under construction at
the Seatrain Shipbuilding Company.
Analysis of the Issue:
O
The government has become increasingly involved with
the Seatrain Shipyard in an attempt to sustain its
operations. Initially only Title XI mortgage insurance
was to be provided upon vessel completion. As a
second step, Title XI guarantees were made available
during the construction of the vessels, and finally
CDS was agreed to for the ships. Seatrain Lines has
guaranteed the performance of the shipyard.
2
The first of the ships was completed at the end of
1973 and the second at the end of 1974. These two
vessels were sold and they are now under long-term
charter. In both cases they are covered by Maritime
Administration Title XI mortgage loans.
In early 1975 the shipyard faced a financial crisis and
was closed. After several months the Department of
Commerce provided additional funds for the shipyard
through a guaranteed loan of $40 million, and the yard
reopened at the end of June 1975.
Since that time construction has proceeded on the two
remaining tankers, and several small contracts were
undertaken by the shipyard and completed. In September
1976 contracts were signed which provide for the
construction of two barges with CDS and Title XI
assistance with delivery scheduled in late 1977 and
early 1978.
At this time (November 1, 1976) the shipyard has used
most of the money provided by the EDA loan, and only
$6.4 million remains available. This is in general
accordance with the shipyard's plan.
Schedule: The Maritime Administration staff will continue to
closely monitor the events at the shipyard and insist on
performance by the shipbuilder in accordance with the contracts
that represent the shipyard's current plans.
PROPOSED CONSTRUCTION-DIFFERENTIAL SUBSIDY REGULATIONS
Background: The Maritime Subsidy Board (the Board) published
in the Federal Register a notice of proposed rulemaking to
revise Part 251 of Title 46, Code of Federal Regulations.
The proposed revision provides comprehensive regulations
which apply to implementation by the Maritime Administration
of the Construction-Differential Subsidy (CDS) program,
authorized by Title Vof the Merchant Marine Act, 1936, as
amended (the Act), 46 U.S.C. 1151 - 1161. Title V was
amended significantly by the Merchant Marine Act of 1970,
necessitating revision of the existing regulations.
Although the CDS program is exempt from the notice requirements
of 5 U.S.C. 553, the regulations were published in proposed
form, and interested persons were invited to submit comments.
These comments have been considered, and the regulations have
been prepared in final form, except for the resolution of one
issue.
Issue: Where a vessel that has been constructed with the
assistance of CDS for use in the foreign commerce of the
United States is withdrawn from such service, and is operated
in the domestic trade, thus requiring a repayment of CDS by
the owner pursuant to section 506 of the Act, should interest
be required on such repayment, and under what circumstances?
Analysis of Issue: A legal opinion is being prepared.
Schedule: The regulations will be published in final form
upon completion the legal opinion and review of its implica-
tions under various factual situations. Final publication is
anticipated in 3 to 6 months.
CARGO PREFERENCE
Background:
There has been strong support from maritime unions and
the shipbuilding industry for cargo preference legislation.
Such legislation would require that some portion of
U.S. foreign trade would be carried on U.S.-flag vessels.
Although there has been mention of cargo preference for
all commodities, legislation proposed to date has been
limited to oil, and it is expected that future proposals
will also focus on oil. These proposals differ from
existing cargo preference legislation in that current
statutes relate only to government-generated cargoes.
Advocates of cargo preference legislation contend
preference legislation is the only means to ensure a
continuing flow of cargo for U.S. vessels. This continuing
flow of cargo is considered necessary to ensure the
construction of U.S. -flag vessels.
U.S.-flag carriage of the U.S. foreign trade varies
considerably by type of vessel:
Percent U.S. Carriage
of U.S. Oceanborne Foreign Trade (1975)
Vessel Type
U.S. % by Tonnage
U.S. % by Value
Liner
30.3
31.2
/
Non-liner (dry bulk)
1.4
2.7
Tanker
4.6
5.1
Total - all types
5.1
17.5
Cargo preference legislation for oil imports was passed
by Congress in 1974. This legislation, which would have
ultimately required 30 percent of U.S. oil imports to be
carried by U.S.-flag tankers, was vetoed by the President
on the grounds that it
- was inflationary;
- would cut into shipbuilding capacity available to
meet Navy requirements;
- would serve as a precedent to other countries to
increase protection of their industries; and
- would violate a large number of treaties of Friendship,
Commerce and Navigation (FCN).
2.
Bills similar to that passed in 1974 were introduced in
the 94th Congress but were not acted upon.
Issue: The issue is whether cargo preference legislation is
(1) necessary to the development and maintenance of a U.S.-flag
merchant marine and (2) if cargo preference is the most
appropriate means to develop a merchant fleet.
Analysis of Issue:
The cargo preference proposals relating to oil imports
were strengthened by the lay-up of substantial numbers
of U.S. -flag tankers in 1974. The number of tankers
in lay-up is now reduced somewhat partly because of
carriage of grain to the Soviet Union. Further
reductions in the lay-up of U.S. tankers are expected
to occur with the opening of the Alaska pipeline.
Cargo preference legislation would clearly stimulate
the construction of U.S.-flag vessels. Besides the
generation of shipboard jobs and shipbuilding jobs
in areas of generally high unemployment, it would decrease
payments to foreigners for transportation charges, and
decrease U.S. reliance on foreign-flag bulk ships.
On the other hand, the economic logic of building tankers
when great numbers of tankers are available at depressed
prices in the world market is questionable. Cargo
preference legislation would have an inflationary impact
and, if applied to U.S. exports, could increase the
cost of U.S. products in the world market thereby
reducing export levels.
The cost of oil cargo preference legislation would vary
as a function of oil import levels. Calculations of the
incremental cost of oil cargo preference which would
have resulted from approval of the 1974 bill ranged from
$300 to $500 million per year. This would have added
about a tenth of a cent to the cost of a gallon of
gasoline sold in the United States. Depending on the level
of oil imports, these figures could be higher today due
to the current large differential between depressed
foreign transportation rates and U.S. operating costs.
Schedule: Uncertain
EXCLUSION OF VIRGIN ISLANDS FROM THE JONES ACT
Background:
Section 27 of the Merchant Marine Act of 1920, known as Jones
Act, specifies that all cargoes carried by water
between points in the U.S., including territories
and possessions, be transported on vessels built and
registered in the U.S.
The Virgin Islands were excluded from this requirement
until such time as adequate U.S.-flag service developed.
Initially, this exclusion required an annual Presidential
Proclamation. In 1936, however, the law was amended so
that the President would not have to issue a yearly
proclamation. As a result, the Virgin Islands are
exempt from the coastwise laws either until those laws
are changed or until the President declares that such
laws would extend to the Virgin Islands and fixes a
date: for this to go into effect.
Issue: Whether or not to support legislation which would
eliminate the present Jones Act exemption concerning the
Virgin Islands oil trade. This would create more employment
opportunities for U.S.-flag tankers -- estimated at
approximately 25 U.S.-flag vessels of 30,000 DWT totaling
750,000 deadweight tons in tanker capacity.
Analysis of Issue:
It is believed from the language of the Act as well as
its legislative history, that it was never contemplated
that the Virgin Islands would forever be excluded from
the provisions of the Jones Act -- particularly after
U.S.-flag vessels became available for the trade.
We now have adequate U.S.-flag tanker capacity available
to serve this trade. In fact, as of November 1, 1976,
there were 25 U.S.-flag tankers totaling 1.4 million
deadweight tons, idled or in lay-up status. Of this
total, there are approximately 20 ships aggregating more
than 800,000 deadweight tons of the type suitable to
serve the Virgin Islands trade. In addition, there are
on order or under construction tankers totaling over a
million deadweight tons that could also service the
trade in question.
2.
Virtually every coastal nation in the world has
cabotage laws in some form to protect national
interests. It is believed that Jones Act application
to the Virgin Islands oil export trade would represent
a logical extension of U.S. cabotage that now applies
to our coastal and intercoastal trades and to domestic
trades involving Alaska, Puerto Rico, and Hawaii.
Schedule:
In the last Senate sessions, S. 2422 was introduced
and hearings were held. That bill would amend the
Merchant Marine Act, 1920, to provide that the coast-
wise laws shall extend to the Virgin Islands with
respect to the transportation of crude oil, residual
fuel oil, and refined petroleum products. This would
provide that those commodities moving by water, or by
land and water between the Virgin Islands and points
within the United States and its territories, be
carried exclusively in vessels which are built and
registered in the United States and are owned, operated
and manned by United States citizens.
A number of witnesses testified, including a MarAd
witness who testified in favor of the bill, and it
was reported out by the Senate Commerce Committee.
However, it was not acted upon by the Senate.
A companion bill, H.R. 14463, was introduced in the
House. No action was taken on the House bill pending
Senate action.
It is likely that the bill will be reintroduced in the
new session of Congress.
WEST COAST OIL SURPLUS
AND U.S. FLAG TANKERS
Background:
Alaska oil pipeline completion is expected in mid-
1977. By mid-1978 production of Alaskan crude oil
is expected to exceed West Coast demand by some 500
thousand barrels per day. Several pipeline
distribution alternatives have been proposed to
transport the Alaskan crude to domestic refineries
and markets located in the central U.S. However, it
is not likely that any of these pipeline systems can
be completed by mid-1978 due to licensing requirements,
right of way permission and environmental questions
which must be resolved before commencement of pipeline
construction. Therefore, over the near term it will
be necessary to employ tankers to transport the
anticipated surplus to the Gulf Coast via the Panama
Canal.
The statute which authorized the Alaska pipeline
prohibited export of the Alaskan oil. The President,
subject to veto by Congress, could make use of
emergency powers to allow export of crude. Barring
a decision to permit export, oil movement will be in
the U.S. domestic trade restricted by the Jones Act
to U.S.-flag tankers.
Issue: Arrange for movement of Alaskan crude oil surplus to
the U.S. Gulf Coast or as a secondary alternative, to the U.S.
East Coast, for refining until environmental approval is
granted to allow pipeline movement to the Mid-continent.
Analysis of Issue:
There will be a surge in demand for U.S.-flag tankers
beginning in 1977 third quarter to accommodate Alaskan crude.
The Jones Act fleet will fall short of the capacity needed.
Requests to pay back construction subsidy, or prorated pay
back of CDS, in exchange for permission to operate in the
Alaskan trade (as provided by Section 506 of the 1970 Merchant
Marine Act). can be expected. By 1980 one or more West Coast
to Midwest pipelines should be operational, reducing significantly
the demand for U.S.-flag tankers. Nevertheless, a high demand
for U.S. - flag tankers, relative to today, will remain for the
transportation of Alaskan crude to West Coast refineries and to
the West Coast terminal site chosen for pipeline hookup to the
mid-continent.
2.
Because of limitations on the size vessels which can
transit the Panama Canal, the most economical tanker
transport plan involving U.S.-flag tankers is as follows:
- Pick up crude in very large tankers at Valdez, Alaska.
- Transfer crude to other large tankers employed as
floating storage tanks in the Gulf of Panama.
- Transfer crude from floating storage tanks to tankers
capable of transiting the Canal.
- Discharge Alaskan crude at various ports in Texas.
Direct shipment from Valdez to Texas in Canal transitable
tankers is less attractive economically than the above
plan. The use of very large crude carriers (VLCCs) on the
long Valdez to Panama leg provides operational economies
of scale.
Possible action - CDS tankers: CDS ships cannot normally
operate in domestic trade. However, a CDS vessel can
participate in domestic service for a period not to
exceed six months in any year, if a proportion of the
subsidy, equivalent to the time engaged in domestic
service, is repaid (Section 506 of the Merchant Marine
Act of 1936) and approval of the Maritime Subsidy Board
(NSB) is granted.
- Number of vessels involved -- potential CDS payback:
Analysis shows a deficit of only 280,000 DWT of large,
Jones Act tankers in 1978. This implies that only 1
or 2 CDS vessels will be required over the short run.
However, unaccounted for delays, provision of a safety
margin, cost advantages to using CDS VLCCs and the
flexibility provided by PANAMAX tankers (the largest
capacity tankers capable of transiting the Canal--9
of which were built with CDS) are factors that may
lead to a greater number of applications seeking
prorated CDS paybacks in exchange for permission to
operate in the Alaskan trade.
Schedule:
There will be a surge in demand for U.S. flag tankers
beginning in 1977, third quarter, to accommodate Alaskan
crude. The Jones Act fleet will most likely fall slightly
short of the capacity needed. Several, perhaps many,
requests to pay back construction subsidy, or prorated
payback of CDS, in exchange for permission to operate in
the Alaskan trade can be expected.
3.
One company has applied for a Federal loan guarantee
(Title XI) to finance payback of construction subsidy.
MarAd, to date, has not issued a policy statement on
the payback issue.
Decision on the best distribution system for handling
the expected West Coast oil surplus is still awaiting
Presidential action.
A policy statement has already been issued (by FEA
Administrator Zarb) that none of the surplus would
go to Japan under any of the alternatives being
considered.
By 1980 one or more West Coast to Midwest pipelines
should be operational, reducing significantly the
demand for U.S. -flag tankers.
LNG SHIP CONSTRUCTION
Background:
Demand for LNG has resulted from shortage of gas
supplies in continental U.S.
- Reserves to production ratio falling constantly
- Shortfall of gas for 1976-1977. projected to be 100-400
billion cubic feet
- Projections of sharp curtailments in the future
LNG carriers which are required to carry LNG by sea
represent a significant portion of overall U.S. orders for
merchant ships. U.S. LNG ship construction program consists of:
- Nine carriers under construction with CDS contracts
and Title XI mortgage guarantees to bring foreign
LNG to U.S.
- Seven ships under construction with Title XI financing
pending for foreign to foreign shipment of LNG
- Two ships under contract, potentially for use in U.S.
domestic trade, with no request for government assistance
to date.
- Orders anticipated soon for ten more carriers to
bring LNG imports to U.S.
- Orders anticipated for at least 11 carriers to bring
Alaskan LNG to "lower 48" if El Paso - Alaska project
approved.
Two sources of LNG are foreign imports and LNG from Alaska.
- Concern about increasing dependence on foreign LNG
resulted in Inter-Agency Task Force on LNG set up by
the Energy Resources Council to analyze the LNG
import situation and to make policy recommendations.
ERC announced Presidential policy on LNG in August 1976:
- No more than one trillion cubic feet (Tcf) per
year of LNG from any one source (firm restriction).
-
General guideline of two Tcf/year from all foreign
sources (this guideline to be flexible; may be
changed should national policy dictate)
- Projects have already been approved totalling 380
billion cubic feet per year from Algeria which involve
construction of six U.S. carriers.
2.
- Projects actively before the Federal Power Commission
total 994 billion cubic feet (Bcf) per year.
- Indonesia: U.S. project of 201 Bcf/year (six
U.S. ships to be built).
- Algeria: U.S. projects of 793 Bcf/year (between
10 and 13 U.S. vessels required).
- There are two major competing projects to bring to
"lower 48" Alaskan natural gas - reserves estimated at
26 trillion cubic feet - presently before the Federal
Power Commission.
- The Arctic Gas proposal would build pipeline through
Alaska and Canada to the U.S. Midwest and could
deliver 2.34 billion cubic feet per day (bcf/day)
at an estimated capital cost of $8.1 billion (1975
dollars). Operating costs are estimated to be
$89 million per year.
- The El Paso - Alaska LNG Project would deliver gas
to port of Valdez where it would be converted to
LNG, then shipped by tanker to southern California.
This alternative could deliver 2.7 bcf/day of
gas at a capital cost of $7 billion (1975 dollars).
Operating costs are estimated to be $149 million per
year. This would be a wholly domestic project,
with increased security of supply one of the expected
benefits, and would involve the construction of at
least 11 LNG carriers in U.S. shipyards, resulting in
about 36,000 man-years of employment in U.S. shipyards.
Legislation (P.L. 94586, signed in October 1976) was
passed to expedite the delivery of Alaskan gas. It
requires a Federal Power Commission decision on the
competing projects by May 1, 1977, and requires the
President to make a final decision on the project by
September 1, 1977. Unless Congress vetoes the decision
within 60 days, the project will go forward, and no court
contest is allowed except on constitutional grounds.
Issue: The maintenance of an LNG carrier construction program
that is consistent with national energy policy.
Analysis of Issue: Under the Presidential policy announced by
the Energy Resources Council in August 1976, Algerian import
proposals are already in excess of the one Tcf/year limit
which implies disapproval of at least one project. This
should not affect construction of any U.S. vessels already on
order - at present nine are being built for U.S. LNG importation.
However, the two Tcf/year guideline could affect the long range
ship construction program if the two Tcf/year restriction is
maintained, because projects approved and under FPC consideration
3.
total 1.4 Tcf/year of LNG. There would be no impact in the
near-term (next five years), as very few ships for these projects
are yet under construction.
Should these guidelines be withdrawn, and the maximum number
of LNG carriers be constructed under the programs above for
transport of Indonesian, Algerian, and Alaskan natural gas,
there would be long-term prospects for the construction of
36 LNG ships.
Schedule: The schedule for LNG ship construction will be
determined by a number of factors, such as proposed national
energy policies, the choice of project to bring Alaskan gas
to the "lower 48" states, and the future availability of
natural gas from sources other than Indonesia, Algeria, and
Alaska.
MARITIME ADMINISTRATION CLAIM
FOR BREACH OF CONTRACT BY
HAWAIIAN INTERNATIONAL SHIPPING CORPORATION
Background: On June 7, 1974, the Maritime Subsidy Board (Board)
approved an application by Hawaiian International Shipping
Corporation (HISC) for a construction-differential subsidy (CDS)
and the Maritime Administrator approved in principle the
granting of financing guarantees under Title XI of the
Merchant Marine Act, 1936, as amended, to aid in the
construction of three 89,000 DWT oil tankers. Construction was
to take place at the Todd Shipyards Corporation (Todd)
facility of San Pedro, California at a fixed price of $38,847,563
per tanker of which amount $13,069,000 per tanker was to be
provided by the Board as CDS and payment for National Defense
Features. A series of contracts were thereupon entered on
June 12, 1974, between HISC, Todd, and the Board.
Todd began performance under the contracts almost immediately
and submitted routine progress billings to HISC and the
Board. Although the Board had paid its full share of the CDS
progress billings, by the early part of 1975 it became clear
that HISC did not intend to pursue the project and would not
make required progress payments. As required by the contracts,
Todd served HISC with a notice of failure to make progress
payments on January 16, 1975. Since HISC did not commence
payment, Todd gave notice of default on February 27, 1975
and requested that the Board take the action required by
Todd's contract with the Board. Under the contracts, the
Board was required to elect either to assume all payments
required by HISC and complete the tankers for the Government's
account, or to terminate all contract work. Due to the severe
recession in the oil transportation industry and a potential
expenditure of over $116 million, an election to complete the
tankers would not, have been justified. On March 7, 1975, the
Board gave notice of optional termination to Todd and HISC.
Having elected to optionally terminate the contract work, the
Board became obligated to pay Todd's termination expenses.
Although the exact amount has not yet been determined, it is
expected to be in the neighborhood of $10 million.
Since the cause of the optional termination was the
contract default by HISC due to its failure to make required
contract payments, HISC is liable to the Board for breach of
contract. By letter of July 16, 1975, the Board so notified
HISC and demanded payment.
2
Issues: The central issue is whether HISC's uncontested failure
to make required progress payments constitutes a breach of
contract for which the Board is entitled to recover the
termination expenses which the Board has become liable to pay
Todd. HISC has somewhat obscured the issue by alleging that
Todd was in default and that the Board wrongfully terminated
HISC for default. To HISC's view, it is not obligated to
pay any termination expenses and, moreover, the Board is
obligated to pay HISC's termination expenses (approximately
$1 million).
Analysis of Issue: The Maritime Administration has taken the
position that HISC is liable to the Board for the full extent
of the Board's damages and, that HISC is not entitled to recoup-
ment of its expenses from the Board.
By letter of March 28, 1975, the Justice Department was requested
to initiate a breach of contract action against HISC. Prior
to any action being formally initiated, however, HISC requested
that a law suit not be commenced and that the Secretary of
Commerce undertake an informal departmental review of the
entire matter. HISC's request was granted and no lawsuit
was initiated. On November 4, 1975, during the pendency of the
Secretary's review, HISC attempted to place the entire termina-
tion action in dispute under the contracts' Disputes Clause and
claimed nearly $1 million against the Board for its termination
expenses. In view of HISC's action, the Secretary suspended the
informal departmental review on November 24, 1975. It was
unclear, however, whether this action also released MarAd to
institute suit.
HISC continued to attempt to establish its entitlement to a
hearing under the Disputes Clause and payment for its termination
expenses. By action of May 25, 1976, the Board established a
procedure whereby HISC and MarAd staff counsel would submit
memoranda of law on whether the Board has jurisdiction under
the Disputes Clause to resolve issues of the Boards optional
termination and the bases therefore, and whether HISC is
entitled to recover its termination expenses under the contracts.
Schedule: Briefs have been submitted to the Board by all
parties. The Board's decision is anticipated in early 1977.
Should the Board determine that a hearing under the disputes
clause is inappropriate, MarAd will seek to immediately
initiate action in the district court for HISC's breach of
contract.
RENEWAL OF CURRENT ODS CONTRACTS
Background: There are currently 25 operators (10 liner and
15 bulk) who hold 27 ODS agreements with MarAd. Nineteen
of those agreements are not due to expire until 1991 at the
earliest. The remaining eight will terminate within the
period 1976-1979. The following list indicates the eight
contracts due to expire, the number of ships covered by each
contract, and the contract expiration date. The first seven
of these involve liner operators and the last a bulk operator.
Operator and
Number
Contract
Contract No.
Subsidized Ships
Expiration Date
American Export Lines
24
12/31/79
FMB-87
American President Lines, Ltd.
13
12/31/76
FMB-50
American President Lines, Ltd.
10
12/31/78
for the American Mail Line Div.
FMB-76
Lykes Bros. Steemship CO., Inc.
41
12/31/77
FMB-59
Pacific Far East Lines, Inc.
6
12/31/78
FMB-81
Prudential Lines, Inc.
18
12/31/77
FMB-49
States Steamship Corporation
11
12/31/77
FMB-62
Ecological Shipping Corp.
1
6/17/78
MA/MSB-275
American President Lines has applied for a two-year interim
contract to expire in 1978, which will coincide with the
termination of the American Mail Lines division's contract.
This application is currently being administratively processed.
American President Lines also has filed an application for a
twenty-year contract to become effective in 1979. This
application was referred for hearing and the Administrative
Law Judge's decision in that hearing has been certified to
the Board for its final decision.
2.
With the exception of American Export Lines, each of the other
six liner operators listed above has filed an application for
a new twenty-year contract. Ecological Shipping Corporation's
existing contract is for a period of five years, and the
operator has not yet filed an application for renewal of the
contract.
Issue: The Maritime Administration's annual appropriations
for Operating-differential subsidy will be largely determined
by the renewal or non-renewal of current ODS contracts.
Analysis of Issue: All the applications for contract renewal,
with the exception of American President Lines, as discussed
above, have been referred for Maritime Subsidy Board hearings
pursuant to Section 605 (c) of the Merchant Marine Act, 1936,
as amended. These hearings are currently in process. Each
application will be processed administratively depending on
the outcome of the hearing and any final decision made by the
Board.
Schedule: Renewal of contracts is to take place prior to
the contract expiration date. Therefore, of the eight ODS
agreements involved, at the latest one will be renewed in
the first quarter of FY 1977, three in the first quarter of
FY 1978, one in the third quarter of FY 1978, two in the
first quarter of FY 1979, and one in the first quarter of
FY 1980.
OPERATING-DIFFERENTIAL SUBSIDIES:
EXAMINATION OF THE SYSTEM
Background:
The objective of the Operating-differential subsidy
(ODS) program is to provide aid which will permit
the operation of U.S.-flag vessels on the essential
trade routes of the United States. The subsidy
represents the difference between the U.S. and
foreign cost for certain items of expense.
The number of ships receiving operating subsidy has
declined over the past five years, but the productivity
of the subsidized fleet has increased with the
introduction of larger and more efficient ships.
Funding for the program has increased. Despite the
fact that foreign costs are escalating more rapidly than
U.S. costs, the annual subsidy cost is expected to
continue to increase. There are pending applications
for subsidy of additional ship lines and services
which, if approved, will entail additional costs.
OMB has indicated concern regarding the escalation of
ODS funding requirements.
Issue: To identify feasible changes to the ODS program
through which the rate of cost increase may be limited without
adverse effect on the numbers of U.S.-flag ships available to
meet U.S. national security needs.
Analysis of Issue:
Questions have been raised as to the controllability
of the ODS program and the appropriateness of the
subsidy approach under current market conditions.
A study has been undertaken to resolve these questions.
This study will examine in detail the ODS system,
placing particular emphasis on the essential trade
route concept.
The methodology to be employed in the examination of
this issue will be varied and involve comprehensive
analysis of many areas related to the ODS program.
For example regression-analysis from historical data
plus analysis of economic trends to determine probable
future costs; analyses of shipping operations by route,
carrier, and type of service to identify potential
changes in constraints on subsidized carriers (e.g.,
required maximum and minimum sailings, ship assignments
to routes); plus market potentials that might yield
ODS fund savings without unacceptable erosion of
service or shipping capability.
Schedule: The study is to be completed in February 1977.
POSITION ON ODS PAYMENTS FOR M&R, H&M,
AND P&I SUBSIDIES
Background: Title VI, Section 603, Merchant Marine Act of
1936, as amended, authorizes the Secretary of Commerce to pay
an Operating-differential subsidy (ODS) to approved applicants
for such subsidy. In general, this program seeks to equalize
the disparity in operating costs between American ships and
their foreign competitors. The law provides that the parties
may agree to a lesser amount of subsidy than the actual cost
differentials. The following three ODS subsidy items are
subject to elimination:
Maintenance and repair (M&R) costs incurred by
operators include drydocking and underwater repairs,
boiler, machinery, hull and deck, electrical repairs,
and interior and exterior painting. Generally, to be
eligible for subsidy, the repair costs must not be
otherwise compensated for by insurance, must not be
incurred in foreign shipyards, and must be deemed
"fair and reasonable" by the Maritime Administration.
The average M&R subsidy rate for 1975 was 25.71 percent.
In 1975, subsidy accruals for M&R totalled $13.3 million,
5.99 percent of total ODS.
Hull and machinery insurance (H&M) costs include fair
and reasonable net premium costs of hull and machinery,
increased value, salvage, and collision liability
insurance. The terms and conditions of policies are
subject to approval by the Maritime Administration.
The average H&M subsidy rate for 1975 was 14.27 percent.
In 1975, subsidy accruals for H&M totalled $1.9 million,
0.86 percent of total ODS.
Protection and indemnity insurance (P&I) costs include
(1) the fair and reasonable net premium costs of
protection and indemnity, second seamen's insurance,
excess insurance, and cargo liability if excluded
from the primary policy, and (2) the costs of crew
claims paid under the deductible provisions of P&I
policies when such costs do not exceed $25,000 per
occurrence. The P&I deductible cost is the item
being considered for elimination from subsidy
participation. In 1975, subsidy accruals for P&I
deductible totalled $4.6 million, 2.1 percent of
total ODS.
2.
Issue: To eliminate M&R, H&M, and P&I as subsidizable
expenses.
Analysis of Issue: The cost differential of the M&R subsidy
has evidenced a steady decline in recent years, apparently
due to rising costs being incurred by foreign operators.
Additionally, the dollar value of the H&M and P&E deductible
subsidies constitutes a minimal benefit to individual operators
when viewed in terms of their overall ODS accruals. The
termination of these items is seen as a positive step toward
achieving a lesser reliance by industry on government subsidies,
as well as accruing savings to both Government and industry in
the administration of the items. The action is also in
conformance with Office of Management and Budget guidance
to reduce subsidy costs, and will allów application of
resources to other, more critical programs.
Industry objects to the elimination of M&R subsidy payments.
It is argued that the cost-differential is not in fact diminishing.
It is contended that foreign shipyards are offering lower
prices than U.S. facilities, and that these prices are being
underwritten by the foreign governments in attempts to forestall
unemployment. The elimination of M&P. subsidies (and the
concomitant requirement that under subsidy, repairs must be
effected in U.S. yards), is seen as potentially damaging to
U.S. shipyard operations.
Schedule: Implementation is being undertaken through contract
negotiations between the Maritime Administration and the
industry participants as contracts come up for renewal or as
new contracts are required. Assuming that the elimination of
these items is made applicable to all new contracts and
contract renewals, M&R, H&M, and P&I will be eliminated as
subsidizable expenses for about 75 percent of subsidized ships
by the end of the first quarter of FY 1978, for about 85
percent by the end of the first quarter of FY 1979, and for
about 96 percent by the end of the first quarter of FY 1980.
MAINTENANCE AND REPAIRS ON SHIPS
RECEIVING ODS
Background: The Maintenance and Repair (M&R) portion of ODS
payments is characterized by the following:
M&R subsidy accruals now total about $12 million per
year. This represents about 5 percent of the total
operating subsidy accruals. M&R subsidy rates are
about 25-26 percent. Thus, the operators are paying
74-75 percent of the M&R costs on subsidized ships.
Present policy of Maritime Subsidy Board is to
eliminate M&R as an item of subsidizable expense in
subsidy contracts. Of 198 subsidized ships, 11 are now
operating without M&R subsidy. Contracts recently
renewed with three operators will eliminate M&R subsidy
for 37 additional ships, effective January 1, 1978.
The main features of MarAd's present M&R surveillance system
are as follows:
Subsidized operators prepare subsidy repair summaries
and submit them with copies of invoices and ship repair
specifications to MarAd Region Offices after termination
of each voyage.
Region Offices review documents and approve or disapprove
costs claimed for subsidy, code cost data, and transmit
the data by terminal for input into a computerized data
bank in Washington. They also conduct condition surveys
of subsidized ships.
Headquarters prepares tabulations to identify unusual
cost items requiring further review and investigation.
Issue: To simplify MarAd's internal procedures for surveillance
of maintenance and repairs (M&R) during the remaining period
before the M&R subsidy program can be phased out completely.
Analysis of Issue: The present maintenance and repair
surveillance system is felt to be inefficient. The simplification
of MarAd's internal procedures, the elimination of marginal
value operations, the improvement of manpower utilization,
and the reduction of the paperwork burden on the subsidized
operators are considered attainable goals. A study of this
issue is underway. A simplified surveillance system, which
is considered feasible, is being designed to eliminate the
2.
entire voucher processing system and to substitute for it an
expanded auditing program. It will limit technical review
and investigation of M&R costs to only those cases involving
any unusual cost items.
Schedule: The simplified M&R surveillance system should be
completed in the first quarter of FY 1977. The draft study
has been completed and submitted to the Region Offices and
other interested MarAd offices for review and comment.
Implementing regulations are also being developed to be
effective on an interim basis January 1, 1977. The new
system should come into full effect in the second quarter
of FY 1977.
THIRD FLAG COMPETITION
Background:
The present problem is the proliferation of state-owned
third flag carriers which charge rates that do not
cover their fully distributed costs and their growing
encroachment upon the liner trade routes of the United
States and its trading partners. This development
arises as the result of government assistance far
exceeding that which other governments make available
to permit their fleets to operate competitively.
Predominant in the spotlight today are the Communist
state-owned shipping companies, particularly those of
the Soviet Union. These lines are growing rapidly.
The Soviet commercial freighter fleet has grown from 641
vessels and 3 million deadweight tons in 1960 to 1,794
vessels and 10. 7. million deadweight tons in 1975,
or from ninth in the world fleet rank to the number one
dry cargo liner fleet in the world today. (By comparison
the U.S.-flag liner fleet consists of 5,009,000 DWT and
is seventh in the world.)
During the development of the Soviet competitive position
in the western trades, members of the conferences, and
in porticular the Pacific Conference, have charged that
the Soviet Par East Shipping Company (FESCO) has been
practicing "rate cutting.' Conference members claim that
rates charged by FESCO are not economically compensatory
for themselves or for the Soviets. FESCO rates are
generally between 10-15% below conference rates.
FESCO has counter charged that conference members are
giving rebates to shippers in amounts greater than the
rate cutting by FESCO.
Introduction of legislation in the 94th Congress,
S. 868 by Senator Inouye and H.R. 7940 and H.R. 14564
by Representative Sullivan. These bills were popularly
referred to as the "Non-National Carrier Bills."
Issue: To stop encroachment of U.S. trade routes by third-flag
vessels which undercut conference rates.
Analysis of Issue:
Solutions to the problem are being discussed in both
domestic and world forums, including the United Nations,
but any international solution will be a long time in
coming. The problem is particularly difficult in light
of the established United States government policy of
fostering free trade which is embodied in various
Treaties of Friendship, Commerce and Navigation.
A U.S. solution to the "rate cutting" problem has been:
- Signing of the Leningrad Agreement by Federal Maritime
Commission Chairman Karl Bakke and Soviet maritime
officials on July 19, 1976.
- The agreement contains two key features:
1. That all ocean cargo rates contained in tariffs
of Soviet carriers now engaged as independents
in the liner trades of the United States will,
as promptly as feasible, be adjusted to a level
no less than that of the lowest rate in use for
the same commodity of any other independent
carriers in those trades.
2. That negotiations be conducted promptly with
a view toward bringing the Soviet carriers
into the Atlantic and Pacific Conference
systems.
The general industry reaction to the Leningrad Agreement
has been mixed. Many feel that the U.S. should wait and
see if the agreement does work, while others feel that
Congress should continue to pursue the passage of a
"third flag" bill during the next session of Congress
designed to curb the "rate cutting" practices of government-
controlled merchant fleets.
Schedule:
Congressional action on the third flag legislation stopped
after the signing of the Leningrad Agreement, pending an
evaluation of the agreement's success. However, the Senate
Commerce Committee favorably reported the legislation on
June 24, 1975, and the House Merchant Marine Subcommittee
held hearings on the legislation, but did not mark-up
the legislation.
The Soviet liner companies are presently filing amended
rates with the Federal Maritime Commission as agreed to
in the Leningrad Agreement.
NATIONAL DEFENSE: POLICY
Background: The Maritime Administration is responsible for
planning the role of the U.S. merchant marine in meeting
emergency shipping requirements. This planning is coordinated
with the Navy and the Department of Defense. In addition,
MarAd shares with the Navy responsibility for planning and
coordinating emergency shipbuilding programs.
Operations
- Section 902, Merchant Marine Act, 1936, provides
the Secretary of Commerce with standing authority
to requisition U.S.-flag merchant ships and ships
owned by U.S. citizens, on declaration of national
emergency or determination by the President that
requisitioning is necessary in the interest of
national security. Operational control is delegated
to the Maritime Administration. This includes shipping
allocation, ship operations, port allocation, and
supporting activities.
- Strategic planning calls for deployment of U.S.
reinforcements to NATO Europe immediately upon, and
so far as possible prior to, the outbreak of war.
The entire U.S.-flag liner fleet would be needed
to execute the deployment. The fleet is marginally
adequate to meet the requirement under expected
conditions of high ship attrition. To facilitate
prompt acquisition and commitment of ships, the
Navy and MarAd have established a joint procedure
under which U.S. ships report positions, courses and
speeds every 48 hours in peacetime.
- Arrangements have been made for early availability of
about 250 NATO flag ships for reinforcement movements,
and the entire NATO flag fleet would be available to
the U.S., within overall Alliance priorities, for
carriage of civil cargo, during the sustaining period
of war. Early availability of selected NATO ships for
reinforcement movement would promote faster closure
of reinforcing units than is possible using only
U.S. ships.
- In defense emergencies for which the requisitioning
of ships is not warranted, the Military Sealift
Command, under a contractual arrangement identified
as the Sealift Readiness Program (SRP) with concurrence
of the Secretaries of Defense and Commerce, may charter
half the ships owned by steamship companies which carry
2.
cargo for the DOD in peacetime. Call-up of the SRP
for one or two voyages would not work extreme hardship
on the shipping industry. Longer call-up would lead
to significant loss of trade.
- In any defense emergency, the National Defense Reserve
Fleet (NDRF) maintained by MarAd provides the only
shipping capability available to the U.S. over and
above that which can be drawn from the active merchant
fleet.
The NDRF comprises 130 Victory ships and 9 Seatrain
ships, all of which are overage. More modern ships
are expected to be traded in to the NDRF in coming
years.
Navy and MarAd have agreed upon a program to bring
the equivalent of 30 Victory ships to 5 to 10 day
readiness status, and the Navy has obtained funds
for the first year's work.
Shipbuilding
- Strategic planners do not agree on the probable length
of a NATO/Warsaw Pact war but agree that in prudence
we must plan for protracted conventional war.
- Immediately after the outbreak of war, U.S. shipyards
would have a heavy workload consisting of activation
of reserve naval and merchant ships, some conversion
of merchant ships for naval auxiliary use and certain
naval ship conversions, and repair of battle damage
sustained during the opening period.
- In a protracted war, substantial ship losses are
foreseen and, as a result, naval and merchant ship
construction would be necessary. In studies of
shipbuilding capabilities, requirements have been
estimated at the level necessary to replace U.S.
ship losses. World War II scale building programs
are not projected, because the NATO fleet today
is many times larger than the fleet available to
the Allics in World War II, and even numerically
heavy sinkings would impair total capability only
marginally.
- Questions have been raised as to the adequacy of
material and labor resources to meet both Navy and
MarAd peacetime shipbuilding requirements over the
next five years.
Issue: To assure adequate, responsive shipping and shipbuilding
support in wartime for military and essential civilian requirements
Analysis of Issue:
Operations - MarAd and DOD are cooperating in planning
activities and are working together to solve military
support shipping problems on a continuing basis.
Working relationships have become closer and more
effective in recent years.
Shipbuilding -
- Navy and MarAd are coordinating their shipbuilding
programs, especially with respect to the effects
on labor and material availability at the shipyards.
- The long-war requirement involving a large shipbuilding
workload is being analyzed in a major Navy/MarAd
study co-sponsored by Deputy Secretary of Defense
and Under Secretary of Commerce.
- MarAd has initiated work on the design of a modern
"mobilization ship," an updated version of the
Victory ship.
Coordinated Department of Defense/MarAd Planning
- The Secretaries of Defense and Commerce have chartered
a standing Navy/MarAd Policy Planning Group, which
deals without limitation of subject matter, with
broad problems of common concern.
- A Navy/MarAd Shipbuilding and Ship Repair Committee
focuses upon common problems regarding shipyards..
- MarAd participates in Joint Chiefs of Staff mobility
planning and analyses and cooperates with the Navy
in mobility planning.
- Designs for subsidized ships are coordinated with the
Secretary of the Navy, and the Assistant Secretary of
Commerce for Maritime Affairs pays for national defense
features required by Navy in ships built for trade.
- MarAd coordinates with Navy on assignment of material
priorities required for construction of merchant ships.
Schedule: Not applicable
DISPOSITION OF THE NS SAVANNAH
Background: The NS SAVANNAH was built in 1962 to demonstrate
the peaceful uses of atomic energy. It was recognized when
the legislation was enacted that the vessel would not be
commercially viable. The vessel was operated for familiarization
tests and for domestic operation in 1962 and 1963. For a period
of about one year in 1963 and 1964 labor problems immobilized
the ship, after which it was operated in 1964 and 1965 by American
Export Lines on a series of demonstration voyages to domestic
and foreign ports. From August 1965 to July 1970 the NS SAVANNAH
operated in an experimental commercial phase.
In July 1970, the vessel was placed in layup because
most of what could be learned from operation of the
vessel had been learned. Prior to withdrawal from active
service, the Maritime Administration issued a request for
proposals for the long-term operation of the NS SAVANNAH.
No responsive proposals for continued operation of the
vessel were received either from government or industry.
A decision was made in April 1971 to deactivate the
SAVANNAH. The ship's nuclear core was removed, and
decontamination of the ship was lished except for
the reactor compartment, which was isolated. The vessel
was towed to Savannah, Georgia, where it was expected to
become part of the Eisenhower Peace Center under
legislation which would authorize MarAd to transfer
title to the City of Savannah after the city met the
necessary license requirements of the Atomic Energy
Act of 1954, as amended. Subsequently, this proposed
plan fell through when the City of Savannah decided not
to take the ship over due to funding problems.
A decision was then made to place the NS SAVANNAH in
the NDRF. The ship was drydocked at Baltimore to
perform work required for layup status and then towed
to Charleston, South Carolina for topside conditioning.
In 1975, the Patriot's Point Development Authority of
Charleston indicated an interest in adding the SAVANNAH
to its Naval and Maritime Museum. The Development
Authority is seeking Federal financial assistance for
the project. Legislation was introduced in both Houses
of Congress to permit use of certain MarAd funds for
preparation of the ship and continued maintenance of
the hull below the waterline. The proposed legislation
was not acted upon.
FORD VIBRARY
In the spring of 1976 the secondary cooling system was
drained of contaminated fluids. This will effectively
preclude any further operation of the vessel as a nuclear
ship.
Issue: The issue for MarAd is how long to hold the SAVANNAH
at Charleston before placing it in the National Defense Reserve
Fleet (NDRF) at James River, Virginia.
Analysis of Issue:
The NS SAVANNAH is presently berthed in Charleston,
South Carolina at the Army terminal. MarAd agreed in
mid-1976 to temporarily defer moving the vessel into the
National Defense Reserve Fleet while the Patriot's Point
Development Authority sought funds and associated
legislation for support of the SAVANNAH museum project.
If the Patriot's Point Development Authority is
unsuccessful in this venture, MarAd will move the
SAVANNAH from Charleston to the NDRF at James River,
Virginia.
Schedule: The South Carolina Congressional delegation will
be consulted early in 1977 regarding the prospects for
successful financing of the Patriot's Point SAVANNAH museum
project. Unless the prospects are very good, the present
plan is 1:0 place the ship in the NDRF in the spring of 1977.
DISPOSITION OF THE SS UNITED STATES
Background: The SS UNITED STATES was delivered on June 20, 1952,
and operated by United States Lines, Inc. However, in the late
1960's the vessel consistently incurred major operating losses
even after payment of operating subsidy to the owner to the
maximum extent permitted by statute. As a result, the owner
withdrew the ship from service and placed it in layup at
Norfolk on November 7, 1969, and the vessel has remained in
interim layup since.
P.L. 92-296 of May 16, 1972, authorized purchase of
the SS UNITED STATES for layup in the National Defense
Reserve Fleet and/or sale or charter to a qualified
operator for operation under the American flag.
Proposals for sale or charter of the vessel have
been solicited in 1973, 1974, and 1976, but
satisfactory bids have not been received.
On October 18, 1976, legislation (P.L. 94-536) was
signed by the President authorizing the sale or
charter of the SS UNITED STATES as a floating hotel
on or in the navigable waters of the United States.
Issue: The issue is whether a qualified private operator
for the SS UNITED STATES can be found, or, if such an operator
cannot be found whether to scrap the ship O2 to permanently
lay her up at a reserve fleet site.
Analysis of Issue:
Use of the pier currently employed for layup expires in
1978 and further arrangements will have to be negotiated
by then, unless the vessel has been disposed of by sale
or charter or removal to the NDRF.
The next step will be another invitation for bids for
either sale or charter to a qualified operator under
the American flag, or for use as a floating hotel on
or in the navigable waters of the United States, as
authorized by P.L. 94-536.
Schedule:
Proposals for sale or charter of the SS UNITED STATES
will be solicited in the Federal Register by the end
of November 1976 and bids will be opened about 90 days
after solicitation of bids.
2.
There will be no decision regarding final layup or
disposal until the results of this solicitation are
reviewed.
TOURISM
Federal Recognition of Expo '81
Federal Recognition of Expo '82 and Subsequent
Expos
Federal Funding of Expo '81 and other U.S.
Expositions
Departmental Position on Senate's National
Tourism Policy Study
Legislative Extension of Department's
Tourism Authority
Future Direction of Joint Government Travel
Industry Domestic Tourism Promotion Program
Travel Advisory Board Agendas and Appointments
Federal Recognition of Expo '81
Background
In 1968, the United States acceded to the 1928 convention establishing the Bureau
of International Expositions (BIE), an international, intergovernmental body, head-
quartered in Paris, which screens and registers events seeking to be designated
"international expositions.' In 1970, Congress enacted P.L. 91-269 (22 U.S.C. 2801)
"to establish an orderly procedure by which the Federal Government determines its
recognition of, and participation in, international expositions to be held in the
U. S." Authority to carry out the provisions of the law was vested in the Secretary
of Commerce. In 1974, this authority was delegated by the Secretary (Department
Organization Order 10-7, dated March 14, 1974) to the Assistant Secretary for Tour-
ism, who heads the United States Travel Service (USTS).
To obtain Federal recognition of an event, an exposition organizer must submit
certain exhibits to the United States Travel Service' Division of Conventions
and Expositions for review and evaluation (15 C.F.R., Part 1202). These exhibits
include: (1) a statement of exposition purpose; (2) preliminary architectural,
design and participation plans; (3) documentary evidence of regional, state and
local support; (4) a statement describing availability of existing and projected
visitor services, including hotel and motel units, restaurants, health facilities,
transportation facilities, etc.; (5) plans for acquiring title to, or the right
to occupy, the exposition site; (6) a detailed feasibility study by a national
recognized firm; (7) time schedule and management control system (PERT, CPM, etc.);
(8) statement of benefits to be derived from the expo and residual plans; (9) an
agreement to develop and complete an environmental impact statement in compliance
with the National Environmental Policy Act of 1969; (10) an agreement to accept
a U. S. commissioner general appointed by the President and to provide suitable
acilities for the commissioner general and his staff.
Provided these submissions demonstrate the feasibility of the expo, the Department
recommends, formally, to the President, that the Government grant Federal recogni-
tion. If the President agrees and extends Federal recognition, the Department
applies to the BIE for formal registration at that international organization's
next semi-annual plenary session.
On March 28, 1976, Expo '81 Corporation, Los Angeles, reapplied for Federal
recognition and international registration of, and Federal participation in, a
Category I universal international exposition proposed to be held in Ontario
County, California, in 1981 to celebrate the 200th anniversary of the founding
of Los Angeles.
After evaluating the application, the Department determined that the organizers
had fulfilled, to the extent possible at this time, the requirements of P. L. 91-
269 and the implementing regulations. Certain requirements remained unmet,
however: (1) a satisfactory analysis and review of environmental issues through
the completion of a final environmental impact statement; (2) authorization by
the State of California of the planned $35 million revenue development bond;
(3) completion of other planned financial arrangements sufficient to develop and
operate the exposition; (4) a top quality professional administrator and an
autonomous and diversified board of directors; (5) final acquisition of the expo
site.
- 2 -
On November 15, two days before the opening of the semi-annual plenary session
of the BIE, in Paris, the Secretary of Commerce (1) recommended that the Presi-
dent grant Federal recognition of EXPO '81 contingent upon satisfactory ful-
fillment of the remaining requirements; (2) requested the President's
authorization to monitor fulfillment of remaining requirements; (3) promised
that if they are not satisfied in a timely manner, he would recommend that
Federal recognition be withdrawn; and (4) recommended that the Department pro-
ceed with preparation of a plan for Federal participation in Expo '81. Estimat-
ed cost of such participation is between $25 and $40 million, depending on
inflationary factors.
Because the President had not yet considered the Secretary's report on November 17,
1976,
the date when the BIE convened, that body approved, as a diplomatic
courtesy, the registration of EXPO '81, pending Presidential recognition. As
of November 30, the President had not yet granted recognition. If recognition
is not granted, it is unlikely that the California legislature, when it convenes
the first week in January, will vote funds to support the event. Without state
funds, the exposition will be in jeopardy.
Issue
Should Federal recognition be accorded to Expo '81?
Analysis of Issue
The organizers are working on fulfilling all necessary requirements. Considerable
nonfinancial support is on record from local public officials. Moreover, expo-
sition organizers cannot fully purchase or acquire a site before Federal and BIE
approvals are obtained. Full staffing of an exposition project before such
approvals are granted would also be an unwise risk of organizers' funds. A
Draft Environmental Impact Statement is being processed. The Department is
monitoring timely fulfillment of the remaining conditions. If these conditions
are not fulfilled by April 1, 1977, the Department will recommend to the President
and BIE that recognition of Expo '81 be withdrawn.
It is recommended that if resolution of this issue is left to the new Administra-
tion, the Secretary of Commerce-designate personally urge the President to find
Federal recognition of Expo '81 to be in the national interest.
Schedule
In accordance with BIE regulations, a Category I universal international exposi-
tion must be registered at least five years in advance of the event. Expo '81
would open May 1, 1981. If registration of Expo '81 is to be effected, a
decision by the President would be necessary no later than January 31, 1977.
Assuming Federal recognition is granted, the United States Travel Service plans
to commence work on a Federal participation plan on February 1, 1977.
USTS
NOV 15 1976
The President
The White House
Washington, D. C. 20500
Dear Mr. President:
I am pleased to forward herewith a report on the
application of the Expo '81 Corporation of Los Angeles,
California, for Federal recognition of an International
General Category (Universal) Exposition proposed to be
held in the County of San Bernardino, California, on the
site of the Ontario Motor Speedway. The report is
forwarded pursuant to the provisions of Public Law 91-269
which require a report by the Secretary of Commerce
before the President decides whether to grant Federal
recognition to any international exposition to be held
in the United States.
In addition to the Commerce report, the law requires
a report from the Secretary of State as to whether the
proposed exposition qualifies for registration by the
Bureau of International Expositions (BIE). I understand
that Secretary Kissinger is forwarding a favorable report,
and will also advise that the BIE has reserved the 1981
date for Expo '81.
I am satisfied that the organizers of Expo '81 have
fulfilled, to the extent possible at this time, applicable
requirements of Public Law 91-269 and the implementing
regulations (15 C.F.R. Part 1202). The theme of the
exposition, "People to People=-Pathways to Understanding,"
is appropriate for a Category I exposition. Expo '81 has
generated interest in the State of California, the Cities
of Los Angeles and Ontario, the Counties of Los Angeles
and San Bernardino, and other surrounding communities.
The proposal has also received endorsements from regional
representatives in the United States Senate and House of
Representatives and from Governors of the Western States.
2
The organizers are working on securing full financial
commitments which are necessary to assure the success of
Expo '81. At present, for example, there are financial
arrangements which are dependent on approval of legislative
measures in the State and local governments. There are,
additionally, some other unresolved questions raised in
the enclosed full report as to the exposition's viability,
but the financial implications are the most compelling
immediate concern. We believe that with your endorsement
through Presidential recognition, and the subsequent
registration by the Bureau of International Expositions
in Paris, all facets have a reasonable possibility of
being resolved.
Accordingly, I do recommend that you find Federal
recognition of the proposed Los Angeles exposition in
the national interest and that you sanction an official
United States request for registration of the event by
the BIE. However, the continuation of this Federal rec-
ognition should be contingent upon the following conditions:
O A satisfactory analysis and review of environmental
issues through the completion of the final environmental
impact statement;
O
Authorization by the State of California of the
planned $35 million bond issue; and
O Completion of other planned financial arrangements
ufficient to develop and operate the exposition.
I further recommend that you authorize me, acting on your
behalf, to monitor the fulfillment of these conditions. If
they are not satisfied in a timely manner, I will recommend
that Federal recognition be withdrawn.
If you concur in the foregoing approach, we will proceed,
in cooperation with the Department of State, with an
application for BIE registration at the organization's next
meeting in Paris on November 17. As part of the application
process, we will make clear to our fellow BIE member countries
the basis upon which you have accorded Presidential recognition.
With that done, should either Federal recognition or BIE
registration later have to be rescinded, there will be no
attendant embarrassment to either the exposition's sponsors
or to the United States Government.
3
In addition to Federal recognition, the organizers
have requested Federal participation in the exposition.
Therefore, if you favor Federal recognition, I propose
that we proceed with action authorized by Section 3 of
the law in the manner recommended in the conclusion of
the report. This section calls for preparation by this
Department, in cooperation with other Federal departments
and agencies at the appropriate time, of a plan for
Federal participation in the exposition, for submission
by you to the Congress for its consideration. Based
upon previous expositions which the Federal Government
has participated, I estimate that this would entail a
Federal commitment of about $25 million for construction
of a pavilion.
Respectfully,
/s/
Elliot L. Richardson
Enclosure
November 15, 1976
FACT SHEET
ON
LOS ANGELES' EXPO '81
The positive aspects are as follows:
1. The purpose, a nonpolitical forum to focus on and
promote the benefits of people-to-people understanding
in the promotion of peace and progress, is most satisfactory.
2. The facilities, theme, and participation plans are
excellent. Los Angeles is recognized as an
entertainment capital.
3. The accommodations and external transportation
facilities are good.
4. Labor relations and no strike agreements with unions
are satisfactory at this time.
5. The economic feasibility as to expenses, revenues
and benefits are reasonable.
6. The implementation schedule is excellent, especially
with a $25 million site sufficiently developed to
save up to two years in construction time.
7. The public relations, promotion and protocol plans
are well advanced at this time.
8. The direct and indirect residual economic impacts
are impressive, especially the creation of jobs in
the region, which currently has a high unemployment
rate.
9. The Draft Environmental Impact Statement (DEIS) was
published on November 1, 1976, and distributed for
comment as required by the National Environmental
Protection Act.
10. The General Rules, as required by the BIE, were cleared
by both Offices of General Counsel in Commerce and
State, and transmitted to the BIE in French and reviewed
by the Classification Committee on October 6, 1976.
After incorporating BIE comments, the completed General
Rules were taken to the BIE on November 15, 1976.
11. The organizers have agreed to the control of the
exposition as exercised by a U.S. Commissioner General,
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to be appointed by the President with the advice
and consent of the Senate.
12. Foreign nations and corporate clients express informal
desires to participate in a First Category Universal
Exposition in the United States and particularly in
the Los Angeles area.
13. Expo '81 could be the catalyst to the development of
a nonpolluting rapid mass transport system in
Los Angeles.
14. The BIE, on August 28, 1976, reserved the date of
1981 for Expo '81 to host a First Category Universal
International Exposition, the first in the U.S. since
New York 1939. Because of the frequency limitations
and other nations' , desires to host these events,
another exposition of this magnitude cannot be
scheduled in the U.S. until early in the 21st century.
15. If Federal recognition is given Expo '81, there is
every reason to believe that the BIE will grant
recognition at their plenary session on November 17, 1976.
The negative aspects are as follows:
1. Acquisition of the site by a $7 million first deed
of trust is contingent upon approval of the SEC of
a S-1 Registration Statement, which was filed on
September 24, 1976, and is awaiting approval. Ideally,
this approval should be obtained prior to seeking
Federal recognition by the President; however, very
few expositions have ever had their sites totally
free and clear at this stage of organizing.
2. To date, Expo '81 has operated from fund raising
dinners, donations of services and facilities. It
has received pledges of funds from local Chambers of
Commerce and local governments contingent upon Federal
and BIE recognition. There is no evidence, at this
time, of guaranteed financial and other support from
the state, local governments, business and civic
leadership of the region in amounts equal to the
minimum requirements stated in the Expo '81 feasibility
study. However, upon receipt of Federal and BIE
recognition, the raising of seed money and sale of
development bonds should be enhanced.
-3-
3. While a good management organization is planned,
only a few experienced (unpaid) people have been
added to the staff. In effect, Expo '81 Inc. has
been basically a one-man show, with little evidence
of effective control by a Board of Directors. This
situation is to be rectified before appropriations
are sought for a U.S. Pavilion.
4. It is anticipated that public hearings will be
required in California at the City of Ontario (the
site) after receipt of comments to the Draft
Environmental Impact Statement.
Federal Recognition of Expo '82
and Subsequent Expos
Background
In January of this year, Knoxville, Tennessee requested Federal
recognition of a Special Category, international exposition on
"Energy" to be held in Knoxville in 1980. The request application
was turned down by the Department in favor of Expo '81 in
Los Angeles, a Category I Exposition which met more of the rigor-
ous criteria required for Federal recognition.
In June, 1976, Knoxville re-submitted its application, requesting
Federal recognition for an exposition in Knoxville in 1982.
The Department's United States Travel Service is currently
evaluating the Knowville application. Representatives of the
Classification Committee of the BIE are scheduled to visit
Knoxville on December 1, 1976 for a site tour and to conduct a
preliminary inquiry on the validity of the theme (which is a
requirement for Special, but not Category I Exposition). The
Exposition has the active support of the Tennessee Congressional
delegation, the Governor and Tennessee legislature, Knox County
and the City of Knoxville.
Issue
Should the Department recommend Federal negotiation of Expo '82?
Analysis of Issue
A complete Analysis of the Issue is not possible at this time.
A preliminary review shows:
1) That Expo '82 has retained a highly qualified
architectural team and has nearly completed
its master development plan.
2) That the discussion paper on the environmental
issues is now clearing the Department -- and the
Draft Environmental Impact Statement should be
printed around December 15 for clearance in
accordance with the National Environmental Policy
Act.
3) That Expo '82 is more advanced at this stage,
in nearly all aspects, than any previous such
event involving the Department.
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Schedule
If Expo '82 is to be registered with the BIE five years in advance
of its opening, then the Secretary of Commerce must decide whether
to recommend Federal recognition by late February or early March,
1977. The United States Travel Service expects to complete a
feasability study by January, 1977.
The following other United States cities are currently studying
exposition proposals as follows: Kansas City, 1984 (Food);
Columbus, Ohio, 1992 (Quincentennial) New Orleans, Baltimore,
Pittsburgh and Phoenix, Arizona, are in early discussion stages.
No immediate action by the Department is necessary at this time.
Federal Funding of
Expo '81 and Other U. S. Expositions
Background
In 1974, the Department's responsibilities for determining Federal
recognition of, and participation in, international expositions to be
held in the U. S. were delegated to the Assistant Secretary for Tour-
ism. Several issues have been raised concerning this responsibility
which require resolution before Expo '81 or any future expos.
Historically, the host government operates a pavilion at world's fairs
which it recognizes. In addition, the President of the host country is
expected to invite other governments to participate in recognized
expositions. In accordance with BIE regulations, the host government
also appoints a Commissioner General, who carries the rank of Ambassador.
In all other countries except the U. S., the host government also assumes
the responsibility for "organizing" the expositions.
Foreign governments consider international expositions, as well as other
great international cultural and sporting events, such as olympics, as
requiring government-level negotiations too important to international
relations to be left to private individuals. In the U. S., this has
not been the case. The U. S. Government has never been the "organizer"
of a world's fair. The initiative, the financing, organizing, operation,
risks, and negotiations with potential foreign government participants
has been left to private groups.
This year, however, President Ford requested $28 million for the perma-
nent, unique sporting facilities for the 1980 Winter Olympics. Congress
passed an expanded version, appropriating $50 million in Federal funds
for the Winter Olympics to be held at Lake Placid, New York, in 1980.
This action could be interpreted as a precedent, although the President's
action was heavily weighted by the permanent nature of the facilities
which are needed in the United States.
Issue(s)
Should the Department of Commerce assume direct responsibility for or-
ganizing international expositions proposed for the U. S.? Should the
United States Travel Service (or another Federal agency, such as the
Department's Economic Development Administration, which will fund the
Olympics), be authorized to make grants to recognized U. S. expositions?
Analysis of Issue(s)
These questions, among others, will be considered in the National Tour-
ism Policy Study (see page 44, A Conceptual Basis for the National
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Tourism Policy Study, 94th Congress, Second Session, October, 1976.
In the meantime, the Department needs to develop its own position
and recommendations.
Schedule
An immediate decision is not necessary. However, should the Depart-
ment decide to implement its recommendations by seeking expansion of
its legislative mandate under P.L. 91-269 (22 U.S.C. 2801), it would
be advisable to submit a proposed amendment to the 95th Congress not
later than the Second Session, beginning January 4, 1978. Work on
the amendment should begin in June, 1977.
94TH Concuss
I
COMMITTEE PRINT
2d Session
/
1 CONCEPTUAL BASIS FOR THE NATIONAL
TOURISM POLICY STUDY
PREPARED AT THE REQUEST OF
Hor. WARREN G. MAGNUSON, Chairman
COMMITTEE ON COMMERCE
AND
Hov. DANIEL II. INOUTE, Chairman
NATIONAL TOURISM POLICY STUDY
FOR THE USE OF THE
COMMITTEE ON COMMERCE
AND
NATIONAL TOURISM POLICY STUDY
OCTOBER 1976
Printed for the use of the Committee on Commerce
United States Senate
U.S. GOVERNMENT PRINTING OFFICE
2
WASHINGTON : 1070
For sale by the Superintendent of Documents. U.S. Government Printing Office
Washington, D.C. 20102 . Price S5 cents
There is a misimem charge of $1.00 for each mail order
44
the authority of this net that in fiscal year 1976 are supported by a
$65 million appropriation. Of this amount, the program category
of "exchange of persons" receives $10.0 million.
The national interests supporting the educational and cultural C.X-
change programs administered by the State Department are similar
in part to those underlying the USTS international travel promotion
program: "These [State Department] programs are designed to seek
mutuality of interest involvement and benefit as the most effective
way to develop lasting understanding.' 30
An important promotional device stimulating domestic and inter-
national tourism has been the development of international exposi-
tions. Events such as the Seattle and Now York world fairs have
attracted millions of visitors from all parts of the United States and
the world, and have become a major vehicle for international cultural
exchange.
In 1970, Public Law 91-260 was enacted "to establish an orderly
procedure by which the Federal Government determines its endorse-
ment of and participation in international expositions to be held with-
in the United States. For purposes of this review, Public Law
91-269 is significant first for the insights it provides into the time-
liness of the U.S. approach to a coordinated international exposition
policy:
The first step toward developing a national policy in this field was taken last
year (1968) when. after review. the executive branch recommended and the
Senate approved U.S. accession to the 192S convention establishing the Barcan
of International Expositions (BIE)
There remained the second step of
domestic procedures and organization to deal with international expositions
proposed to be held in the United States and (P.L. 91-260) complements the
international convention in this respect."
On April 26, 1976, USTS-which exercises power delegated by the
Secretary of Commerce under Public Law 91-269-tentatively I'e-
served with the BIE a 1981 date for an international exposition to
be staged in the United States. The major policy issues that ought
to be considered with regard to this event, and subsequent interna-
tional expositions held in the United States, have been outlined by
the Assistant Secretary for Tourism:
A specific question which requires resolution is, what is the proper
role of the Federal Government in international expositions held in
the United States? Historically, the U.S. Government has extended
Federal recognition to, and operated a pavilion at. world's fairs held
in the United States, and the President has invited other nations of
the world to particiipate in such events, and in accordance with BIE
regulations, appoints the U.S. Commissioner General. However. the
Federal Government has never been the organizer of a "world's fair."
The initiative, the financing. organizing. operation, risks and nego-
tiations with potential foreign participants has been left to private
groups. Foreign governments on the other hand, organize and finance
world fairs in other countries. They consider international expositions,
as well as other great international cultural and sporting events—
such as Olympics-as requiring high government-level negotiations
= Pudget of the United States Government fiscal year 1970. Appeadix. p. 554.
=0 11:1d.
31 S. Rep. No. 21-234. In C.S. Cong. & Adm. News, 01st Cong., 2d sess., legislative history
of Public Law 01-200 at 317S.
= Ibl.l., p. 3170.
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45
too important to international relations to be left to private
individuals.
These facts pose certain philosophical/politienl questions with re-
gard to the U.S. national tourist office's inture role in U.S. interna-
tional expositions. Should USTS (or another Federal agency) as-
sume direct responsibility for organizing such expositions? Should
USTS (or another Federal agency) actively solicit and negotiate
foreign government participation in U.S. international expositions?
Should USTS (or another Federal agency) be authorized to make
matching grants to U.S. exposition organizers?
In the context of this legislative review, and indeed within the
broader framework of phase I of the NTPS. definitive resopnses to
these policy questions necessarily would lack an adequate foundation.
In the subsequent phases of the study. however, sufficient in formation
developed from responsible private and governmental sources will
provide the basis for specific recommendations in these areas.
One of the main objectives of Public Law 91-209. streamlining the
procedure for U.S. participation in certain international expositions.
was shared in part by a previous act, the Trade Fair Act of 1959.
This legislation was passed:
to provide for the free importation of articles for exhibition at fairs. eshi-
bitions, or expositions. It will avoid the Decessity for the enactment of
separate laws in behalf of individual fairs. and the repeared issuance of regula-
tions, as in the past.
Subject to certain conditions, the Trade Fair Act provided an es-
emption from duties and taxes for articles brought into the United
States to be shown at trade and industrial fairs and other exhibi-
tions "of a cultural, scientific. or educational nature. so long as the
Secretary of Commerce is satisfied that the public interest in pro-
moting trade will be served. 36 These fairs, of course. serve as an im-
portant vehicle for the promotion of travel as well as trade.
The promotion of tourism as 2 government objective with signifi-
cant international benefits WAS formally recognized in August 1975
by the 35 states (including the United States) who signed the Con-
ference on Security and Co-operation in Europe (Helsinki Accord).
The Helsinki Accord. an affirmative of the U.S. policy of détente
with the Soviet Union. is 2 multifaceted expression of intentions. It is
neither 2 treaty nor an executive agreement, and is not binding on the
United States. Its article entitled "Promotion of Tourism" is set forth
fully below:
The participating States.
Aware of the contribution made by International tourism to the develop-
ment of nutual understanding among peoples. to increased knowledge of
other countries' achievements in various fields. as well as to economic,
social and cultural progress.
Recognizing the interrelationship between the development of tourism and
measures taken in other areas of economic activity.
Express their intention to encourage increased tourism on both an indi-
vidual and group basis in particular hr:
Encouraging the improvement of the tourist infrastructure and co-
operation in this field;
= Letter from Terrid Perker (for Creighton Holden). on. cit., P.P. 5-6.
as 19 U.S.C. 1701-1756
as
Legislative history in U.S. Cong. & Adm. Name. S6th Conz. 1st ECSS., at 1406.
ad
Ibld.
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Departmental Position on
Senate's National Tourism Policy Study Recommendations
Background
In June, 1974, the Senate passed a unanimous resolution directing
the Senate Committee on Commerce to undertake a study to determine
"a policy and role for the Federal Government on tourism in the
United States which will most effectively enable the industry to
realize fully its potential to contribute to the social well-being,
the cultural understanding and the economic prosperity of the U. S."
Important objectives of the study were to be "coherence and coordi-
nation of Federal programs dealing with national tourism interests."
The study has been underway since 1975. Phase J, just completed,
defines terms, reviews Federal legislation relating to tourism,
and identifies programs which are related to the national tourism
interests. Phase II has begun and will include an assessment of
the performance of those Federal programs most important for tour-
ism. The programs conducted by the Department will be included in
the assessment. While the Department has no responsibility for
conducting the study, its officials are expected to cooperate with
the Senate contractor and will have to respond to the recommendations
of Phase III, the final report, which is expected to be completed by
November, 1977. One possible recommendation is some form of limited
consolidation of the Federal Government's tourism activities.
Such a consolidation was proposed by the President's National Tour-
ism Resources Review Commission in June, 1973, which recommended
establishment of a National Tourism Administration. The Nixon
Administration rejected the proposal in 1974.
The President-elect has stated that, "we must give top priority to
a drastic and thorough revision and reorganization of the Federal
bureaucracy."
Senator Daniel K. Inouye, D., Hawaii, Chairman of the Senate Sub-
committee on International Commerce and Tourism, which has over-
sight authority over the United States Travel Service, on November 18,
publicly urged the new administration to "support the national tour-
ism policy study now in progress."
Issue
The issue is, would a consolidation of Federal tourism activities
be beneficial to the nation and be consistent with the objectives
of the new Administration and with its own organizational plans?
Analysis of Issue
More than 125 Federal programs in some 46 agencies relate to tourism
in some way. Moreover, the U. S. Government's approach to tourism, as
an industry, has been notoriously fragmented. State travel directors,
especially, and others at the local level complain that there is no
focal point at the Federal level where information may be obtained
about Federal programs which impact on tourism. This problem does
not exist in a number of foreign countries; they have consolidated
their tourism programs into a single "ministry of tourism.' Action
is necessary to improve coordination and eliminate conflict and dupli-
cation, among Federal tourism-related programs.
Nevertheless, any new Federal structure put in place by the new Admin-
istration presumably will not be designed or implemented piecemeal,
but on a government-wide basis. Federal agencies are established to
achieve specific objectives related to paramount national interests--
such as full employment and economic equilibrium--and organization
structure is determined by the priority assigned to competing objec-
tives and interests. Any realigning of Federal tourism programs would
have to occur in conjunction with other organizational changes which
the Administration may decide to effect.
If Phase III continues on schedule, it will probably be necessary for
the Department to take a position on the National Tourism Policy Study
recommendations before the Administration has completed its reorganiza-
tion plan. The recommendations will be in the form of policy options
for legislative action. Legislative proposals will then be introduced,
based on the options presented, and the Department will be asked to
comment on the proposals.
In view of a possible impending reorganization of government agencies,
it is recommended that the Department take the position that action on
any reorganization proposals which would affect its tourism programs
be deferred until a total government-wide reorganization plan can be
developed, but that a member of the Senate Commerce Committee staff
should be assigned to work with the President's reorganization task
force, in the meantime.
Schedule
Phase II of the study is underway. An interim report is expected in
about February, following a series of regional meetings between the
current contractor, Arthur D. Little, and officials at the local level,
responsiblefor tourism planning, development and promotion. Phase III
is expected to begin in March and to be completed by November. A
formal Departmental position would be necessary by roughly December,
1977. However, the issue may be raised at confirmation hearings for
the Secretary-designate. In this event, one option is to take the
position that the Secretary cannot take a position on the study until
all findings are reported.
Legislative Extension of Department's
Tourism Authority
Background
The Act of July 19, 1940 (P. L. 76-755) as amended (54 Stat. 773; 16 USC 18-
18d), the legislative authority which funds the Department's domestic travel
promotion program, expires at the end of FY 1978 (September 30, 1978). The
International Travel Act of 1961 (P. L. 94-55) as amended (22 U. S. C. 2126),
the legislative authority which funds the Department's program to promote
international travel to the U. S., expires at the end of FY 1979 (September
30, 1979). Funding authority should be renewed before preparation of USTS'
FY 1979 budget begins early in the Spring of 1977. Normal procedure is to
request a three year extension of an expiring appropriation authorization.
If the domestic authorization is extended three years, it will expire at the
end of FY 1981. If the international authority is extended three years, it
will expire at the end of FY 1982. Two separate bills and two separate sets
of hearing will be required to effect renewal.
Issue
The basic issue is: should the Department seek renewal of both authorities.
A sub-issue is should the Department request an extension of both authorities
through FY 1982 (which would involve a four year extension of the Act of
July 19, 1940) so that both authorities run concurrently, a single, con-
solidated authorization request may be made by the Department, and one set of
hearings can be held? The Department's Proposed Legislative Program for the
95th Congress, 1st Session, which begins in January does not include a
request for extension of either authority. It notes that "a recommendation
on whether to continue the (domestic) program by extending the authorization
will be made early in 1977." (ordinarily, extension of the international pro-
gram would not have to be made until next year).
Analysis of Issue
The President-elect has stated that, "the major priority of the next Admin-
istration has got to be employment" and has supported stimulation and incent-
ives for the private sector to hire the unemployed and to retain workers
already employed. The highest rates of unemployment in the nation are in
those states which have natural or manmade tourist attractions and the infra-
structure in place to service tourist. In Puerto Rico, the rate of unemploy-
ment is 18.30%; in Florida, 10.06%; in Michigan, 10.02%; in California, 9.76%;
in New York, 9.25%. California locales suffering from particularly heavy
unemployment include such traditional tourist areas as San Francisco City/
County, 12.49% and Los Angeles, 10.4%. New York State areas include
Niagara Falls, 14.31% and New York City, 10.47%. Florida areas include
Fort Lauderdale, 12.19%; Miami Beach City, 14.12%; Miami City, 12.10%; Tampa,
12.91% and West Palm Beach, 13.31%.
-2-
Tourism generates jobs. Every $20,000 in direct tourist spending creates or
supports one job.
Overseas-bound Americans are currently spending about $8.8 billion annually
on foreign travel, which is tantamount to exporting 440,000 jobs. Foreign
visitor spending in the U. S. amounts to about $5.6 billion annually, rep-
resenting roughly 280,000 American jobs. In 1975, there was not only a
travel deficit of $3.1 billion, but a tourism "job gap" of 160,000 jobs.
An estimated $346 million in foreign visitor receipts, resulting in 17,300
American jobs can be identified as being related to United States Travel
Service (USTS) program efforts.
Annual spending by domestic tourists is estimated at about $84 billion,
accounting for roughly 4.3 million American jobs. No data exist which
might indicate the volume of spending or the number of jobs which is related
to the Department's domestic tourism program, which, in FY 1976 was funded
at a level of $1.2 million. However, promotional efforts by the United
States national tourism office, to encourage Americans to spend their travel
dollars within their own country, presumably counteract similar efforts by
foreign national tourist offices to lure Americans abroad, and thereby help
to retard the exportation of jobs which results from American travel to
foreign countries.
Extension of both of the Department's tourism authorities would help to
ensure the continuation of existing jobs in areas of high unemployment.
Expansion of those programs, with promotional efforts concentrated on those
foreign markets likely to result in tourism to U. S. states suffering from
high and persistent unemployment, and with more intensive promotion, both
overseas and domestically, of attractions in those states, would stimulate
tourism to the promoted areas and would stimulate the private sector to add
new jobs.
Schedule
If a single authorization request is to be made in the first session of the
95th Congress, and if funding authority for the domestic program is going to
be extant at the time the Department presents its domestic appropriation
request for FY 1979, (which will go to the Hill in December of 1977), then
appropriate draft legislation should be prepared in the first quarter of
FY 1977 and a decision will have to be made in late January to early February
of 1977 whether to instruct the Attorney-Advisor to proceed.
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Future Direction of Joint Government/Travel
Industry Domestic Tourism Promotion Program
Background
Under the Act of July 19, 1940 (P. L. 76-755) as amended (54 Stat. 773; 16 U.S.C.
18-18d), the Department of the Interior was vested with authority to "encourage,
promote and develop travel within the United States".
That authority was delegated to the National Park Service. NPS' domestic tourism
program was interrupted by World War II and the Korean War. It was reactivated
in 1968 when the travel deficit abruptly worsened and the Johnson Administration
saw in the program a means of encouraging Americans to "See America First". In
1970, the appropriation authorization for the program was increased to $250,000
for FY1971 and $750,000 for FY1972. However, the Department of the Interior
requested no funds for FY1972 and the program became dormant.
In 1973, in an effort to improve coordination of federal tourism programs, the
93rd Congress transferred authority for the Act of July 19, 1940 from the
Secretary of the Interior to the Secretary of Commerce. The Administration,
however, did not request funds for the program. In 1975, over Administration
objections, the 94th Congress appropriated $1,250,000 "to promote travel in
connection with the Bicentennial era." In so doing, the Congress noted that, "the
tourism industry is currently operating considerably below capacity.
Without
federal efforts to encourage the use of existing facilities, there could well be
a recessionary impact on the industry resulting in unemployment for relatively
low-skilled workers who have few job alternatives. This happened in 1974 when
the energy crisis prevented many persons from traveling. A recurrence of this
roblem could well have a recessionary impact on the economy
Although the Administration did not request an appropriation for domestic tourism
promotion for FY1977, the 94th Congress appropriated $1,500,000 for this purpose.
Because the sum was small and insufficient in itself to make a measureable impact
in the market place, the United States Travel Service elected to employ it as
seed money which would attract and marshal the resources of the private sector
and make possible a joint -- and expanded -- government/industry program. Pre-
liminary discussions in April between USTS officials and industry leaders
confirmed the feasibility of a centrally-coordinated industry/government approach.
At a subsequent meeting in October, called by Secretary Richardson, the Department
took the position that, due to the limited Federal funds and the potential
magnitude of industry participation, industry should coordinate both the planning
and implementation of the program. Secretary Richardson agreed to commit up to
$1 million of the Department's funds to the program. Discover American Travel
Organizations, the non-profit association of the travel industry and the successor
to the Federally-chartered Discover America, established in 1965 by President
Johnson, agreed to bring together and coordinate a National Travel Marketing
Task Force consisting of representatives of all major segments of the industry
to develop the program. (Membership in DATO is not a requirement for participation
in the Task Force.)
Task Force Objectives are to: (1) increase employment opportunities; (2) stimulate
the economy through expansion of travel activity; (3) produce an impact on the mar-
"et place in excess of what the USTS appropriation alone could accomplish; and (4)
eate a clearer awareness of the importance and benefits of travel.
Task Force work has begun, but a one-year administrative contract for $268,000 to
be awarded to DATO for development of a program plan has been held up by the Depart-
ment because of objections voiced November 18, 1976, by Senator Daniel K. Inouye,
D., Hawaii. The Senator complained that he was not briefed in advance of the Depart-
ent's plans for its domestic funds and requested an explanation as to why USTS could
not achieve similar results, operating its own program. He implied that the $1 mil-
lion commitment was made to obtain travel industry support for the Republicans.
Issue
Should the Department honor its commitment and award the initial contract?
Analysis of Issue
The funds were not committed to industry for political reasons, but because of
economic and marketing considerations and the desire to obtain as much leverage as
possible with the sum appropriated. Foreign government tourist offices, in 1973,
the latest year for which figures are available, were spending more than $18.4 mil-
lion in the U. S. to attract Americans abroad. USTS' $1.5 million represents only
a fraction of that. It cannot purchase the media exposure or advertising space or
achieve the impact--that competing national tourist office budgets can. In the
face of overwhelming competition, only a well-orchestrated U. S. campaign stands
a chance of achieving market penetration. Moreover, DATO has long been a voice
for all segments of the travel industry. It has long supported and conducted suc-
cessful cooperative programs with the government. It is the only non-profit travel/
tourism organization that can fulfill the need to have the private sector take the
major responsibility to bring the unions and associations together with corporations
and government to develop the program.
.e United States Travel Service recommends that the Department proceed with the
contract award. Original plans called for DATO to submit a proposed marketing plan
to USTS for review and approval by February. Assuming the plan is approved, the
Department would let an additional contract of roughly $750,000, for implementation.
Schedule
Americans begin planning their summer vacations often as early as late March or early
April. If the Government/industry program is to influence vacationists who will
travel during the peak 1977 summer travel season, then program planning must begin
immediately. If the current Administration does not resolve the issue, then the new
Administration will need to take action as a first order of business. Should the
question not be settled by the date of the Secretary-designate's confirmation hear-
ing, it may be raised at the hearing.
Beyond this immediate issue, there is also the question of whether domestic tourism
funds should be used for direct travel promotion or for research and analysis of
domestic travel problems and programs.
Travel Advisory Board Agendas
And Appointments
Background
The Travel Advisory Board (TAB), is a committee of travel industry representa-
tives chartered under the Federal Committee Act (5 U.S.C. App. (Supp. V, 1975),
chaired by the Assistant Secretary for Tourism and appointed by the Secretary
of Commerce. The current mandate of the TAB is to advise the Secretary on
matters which will further the objectives of the International Travel Act of
1961 as amended (22 U.S.C. 2121). The existing TAB charter, which was last
renewed on December 20, 1974, expires on January 5, 1977. The incumbent
Assistant Secretary for Tourism has submitted a request to the Department-Afor
transmittal to the Office of Management and Budget--to extend the charter for
another two years, to January, 1979. This is being processed. If approved,
the new charter will expand the TAB's objectives and duties to include pro-
vision of advice on matters pertinent to the Department's responsibilities
under the Act of July, 1940 as amended (16 U.S.C. 18-18d), the domestic
tourism promotion authority transferred from the Secretary of the Interior
to the Secretary of Commerce in 1972.
Board members are appointed for two year terms and serve at the discretion
of the Secretary of Commerce.
Expiration dates of current TAB members are as follows: Richard P. Ensign,
Sr. V.P. -Marketing, Western Airlines: January 3, 1977; Roger E. Chase, V.P.-
Agency and Consumer Affairs, TWA: January 13, 1977; Peter Ueberroth, Presi-
dent and Chairman, First Travel Corporation: June 1, 1977; James A. Henderson,
Executive V.P., Amexco: August 31, 1977; Edward Driscoll, President, National
Air Carrier Assoc. : May 26, 1978; James Host, Executive V.P., National Tour
Brokers Assoc. : May 26, 1978; James P. Low, President, American Society of
Assoc. Executives. May 26, 1978; William D. Toohey, President, Discover
America Travel Organization: May 26, 1978; Edward T. Hanley, Gen. President,
Hotel and Restaurant Employees and Bartenders International Union: September
7, 1978; Robert L. McMullen, President, McMullen Tours: September 17, 1978;
and Joseph Satrom, State Travel Director, North Dakota: September 27, 1978.
The current Administration is processing appointments for the following new
TAB members, who will succeed members whose terms expired in 1976: Joseph
Woodard, Executive V.P., Los Angeles Convention and Visitors Bureau;
Virginia Knauer, Special Assistant to the President for Consumer Affairs;
Howard P. James, Chairman, Sheraton Corp.; and Joel Abels, Editor and Pub-
lisher, Travel Trade.
Agendas for TAB meetings, which are held quarterly (roughly every 90 days)
are prepared by, and mailed to members by, the Assistant Secretary for Tourism.
During the first four years of the Carter Administration, there will be
approximately 16 meetings of the TAB.
Issue
The issue are: (1) what subjects should be discussed at future TAB meetings;
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and (2) what individuals should be named to the TAB to replace members whose
terms expire in 1977 and 1978?
Analysis of Issues
In the past, the Department has tended to solicit advice concerning its
promotional, rather than policy, responsibilities for tourism. The
composition of the board largely reflects the priority currently accorded
to marketing functions. Increasingly, however, public policy objectives
and issues are affecting the Department's ability to carry out its tourism
responsibilities.
Such objectives included but are not limited to: (1) Energy independence;
(2) Energy conservation; (3) Enviromental protection; (4) full employment;
and (5) Balanced growth.
The new Administration has the option of pursuing the present course, or
of using the TAB to advise primarily on broad, public issues affecting the
tourism sector and reserving TAB appointments for individuals who represent
broad segments of the industry in a policy-making capacity. TAB agendas
and TAB appointments are prepared by the Assistant Secretary for Tourism.
Schedule
The next TAB meeting would normally take place in February, 1977. The
Assistant Secretary for Tourism would ordinarily send out an agenda and
back up material in late January. Topic for discussion must be determined
by that time.
The appointments of four TAB members will expire in 1977. One of the members
whose term is up, Roger Chase of TWA, is a member of a Special TAB Task
Force currently drafting codes of conduct for tourists travelling within the
United States and for United States host communities which deal with tourists.
The codes were undertaken at the request of Secretary Richardson. There are
two other Task Force members.
EXPIRING
DEPARTMENT OF COMMERCE
CHARTER OF
Travel Advisory Board
Establishment:
The Travel Advisory Board (TAB) was established by the Secretary
of Commerce on July 18, 1968, and has been periodically renewed
in accordance with the provisions of Executive Orders 11007 and
11671. Initially chartered under the Federal Advisory Committee Act in
January 1973, the Board is hereby rechartered under the same Act, with
OMB concurrence.
Objectives and Duties:
1. The TAB advises the Secretary of Commerce on policies and
programs designed to accomplish the purpose of the
International Travel Act of 1961, as amended, (22 U.S.C.
2221-2227), which is to strengthen the domestic and
foreign commerce of the United States, and promote friendly
understanding and appreciation of the United States by
encouraging foreign residents to visit the United States
and by facilitating international travel generally.
2. The TAB will be called upon to identify areas where the
attainment of goals of the United States Travel Service
(USTS) can be facilitated, and to develop policy
recommendations related thereto; to review policies
and practices of other Federal agencies which have
impact in the trável field and propose changes or
additional actions that will better achieve the goals
of the USTS; to propose means to bring about the most
effective cooperation between the Federal Government
and the travel industry, and between the Federal
Government and local, State, and foreign governments
and international agencies, in achieving the purpose
of the Act; and to provide other guidance and re-
commendations on problems connected with carrying
out the functions of the International Travel Act.
3. The TAB functions solely as an advisory body.
Members and Chairman:
1. The TAB shall consist of fifteen members, in additic to
the Chairman, appointed by the Secretary of Commerce =0
serve for two years. Members may not be represented at
the meeting by alternates, and resignation will be
automatic upon a member's absence from two consecutive
meetings.
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2. The members of the TAB shall be senior representatives from
private and public organizations involved in travel and
tourism, selected primarily from the following industries,
businesses, organizations, and elements of Government:
International Airlines
Accommodations
Domestic Airlines
Steamship Lines
Supplemental Airlines
Tour Operators
Domestic Surface Transportation
Sightseeing Firms
Communications
States
Travel Agencies
Cities
Rental Car Agencies
Aircraft Manufacturers
Travel Societies
3. The Assistant Secretary of Commerce for Tourism shall serve
as Chairman of the TAB.
Administrative Provisions:
1. The TAB reports to the Secretary of Commerce.
2. The TAB generally meets every 90 days.
3. The United States Travel Service provides clerical and
other necessary supporting services for the TAB.
4. The annual cost of operating the TAB is estimated at
$7,050 and 1/2 man year of staff support.
Duration:
As provided by Public Law 92-463, effective January 5, 1973, the
TAB shall terminate on January 5, 1977, unless it is terminated
earlier or renewed by proper authority by appropriate action.
DEC 20 1974
Signed:
Date
Pursuant to subsection 9(c) of this Federal Advistry Committee Act,
5 U.S.C. App. I, this charter was filed with the Assistant Secretary
for Administration on December 20, 1974; copies were filed with the
committees of the Congress named below, on the same date; and a copy
was provided the Library of Congress, also on December 20.
Senate Committee on Commerce
House Committee on Interstate and Foreign Commerce
card
December 23, 1974
Robert Management Services Head
Departmental Organization and
Management Systems
Charter
Travel Advisory Board
Establishment
The Secretary of Commerce, having determined that it is in the public
interest in connection with the performance of duties placed on the
Department by law, established the Travel Advisory Board (the "Board"
hereinafter) on July 1S, 1968. Initially chartered under the Federal
Advisory Committee Act [5 U.S.C. App. I (Supp. V, 1975)] in January
1973, and renewed in December 1974, the Board is hereby re-chartered
under the same Act, with the concurrence of the Office of Management
and Budget.
Objectives and Duties
1. The Board shall advise the Secretary of Commerce on matters
pertinent to the Department's responsibilities to accomplish the
purposes of the International Travel Act of 1961 as amended
(22 U.S.C. 2121), and the Act of July 19, 1940, as amended
(16 U.S.C. 18-18d, et seq.). These laws are designed (1) to
strengthen the domestic and foreign commerce of the United States
and promote friendly understanding and appreciation of the United
States by encouraging foreign residents to visit the United States
and by facilitating international travel generally and, (2) to develop
"travel to and within the United States, including any commonwealth,
territory, and possession thereof
"
2. The Board will draw on the expertise of its members to provide
advice and recommendations to the Secretary. In its role, it is
anticipated that the Board will provide guidance for achieving
effective cooperation between other Federal agencies that impact
upon the travel field, state and local governments, foreign
governments, international agencies and the travel industry;
identify resources to facilitate execution of the functions and
goals of the International Travel Act and the Act of July 19, 1940,
and to recommend policies related thereto.
3. The Board shall function solely as an advisory body, and shall
comply fully with provisions of the federal Advisory Committee
Act.
Member and Chairman
1. The Board will consist of 15 members, in addition to the Chairman,
to be appointed by the Secretary to assure a balanced representation
of leaders from private and public organizations involved in travel
and tourism, selected primarily from the following elements:
States
Cities
International Airlines
Domestic Airlines
Domestic Surface Transportation
Travel Agencies
Rental Car Agencies
Travel Societics
Accommodations
Tour Operators
Sightseeing Firms
Consumer Organizations
International Financial Institutions
Educational Institutions
Regional Tourist Councils
The members shall be appointed for 2-year terms and serve at the
discretion of the Secretary. Members may not be represented at
meetings by alternates, and resignation shall be automatic upon
a member's absence from two consecutive meetings.
2. The Assistant Secretary of Commerce for Tourism shall serve as
chairman of the Board.
Administrative Provisions
1. The Board shall report to the Secretary through the Assistant
Secretary for Tourism.
2. The Board will generally meet quarterly, except that additional
meetings may be called as deemed necessary by the Secretary or the
Chairman.
3. The United States Travel Service will provide clerical and other
necessary supporting services for the Board.
4. Members of the Board will not be compensated for their services,
but will, upon request and subject to the approval of the Assistant
Secretary for Tourism, be reimbursed for travel expenses and
subsistence.
2
5. The annual cost of operating the Board is estimated at $8,568.00.
This includes one-half men-year of staff support.
6. The Committee may establish such subcommittees of its members as
may be necessary, subject to the provision of law and the approval
of Assistant Secretary for Tourism.
Duration
The Board will terminate two years from the date of this charter unless
earlier terminated or renewed by proper authority by appropriate
action.
Date
Assistant Secretary for Administration