U.S. SHIPYARDS
CURRENT CHALLENGES & VIABLE SOLUTIONS
By Robert F. O'Neill, Vice President
American Waterways Shipyards Conference*
The U.S. maritime industry— shipyards of all types and sizes
included—has entered a truly
unique period. Both Congress and
the Executive Branch have turned
their attention to problems afflict-
ing the U.S. maritime industry. For
the first time in recent memory Con-
gress and the Executive Branch per-
ceive the need to take action in order
to save the U.S. maritime industry
from further decline. This special
opportunity will not last forever. In-
deed, action must be taken soon or
changing circumstances and na-
tional priorities will close the door
for some time to come. Develop-
ments on Capitol Hill and in the
Executive Branch indicate that some
action on maritime policy may be
forthcoming.
White House Policy
On Maritime Reform
On June 22, 1992, Secretary of
Transportation Andrew Card tes-
tified before the Senate Merchant
Marine Subcommittee and pre-
sented a 16-point program for mari-
time reform. The recommendation
were the product of a White House
high level panel tasked by President
Bush to develop a program that
would revitalize the United States
merchant fleet.
The White House was jolted into
action by the announcement of Sea-
Land, Inc., and American President
Lines that they would register their
ships under foreign flags if mean-
ingful changes were not made in
government policy affecting the
merchant fleet. Among the 16 rec-
ommendations are several items
that will affect shipyards. They in-
clude: reduction and repeal of the 50
percent ad valorem duty on non-
essential repairs in foreign ship-
yards; establishment of a Contin-
gency Retainer Program (CRP) com-
prised of 74 "militarily useful" com-
mercial cargo vessels that would
receive yearly payments for 7 years
in exchange for being available to
transport military cargo in times of
national emergency, expansion of
the Capital Construction Fund
(CCF) to include the construction of
inland cargo vessels, and a $35 mil-
lion, 7 year shipbuilding research
and development program on ship-
building.
There are elements of the pack-
age that have stirred controversy.
According to the reform package,
vessels built under the Contingency
Container Program, the Capital
Construction Fund and the Title XI
loan guarantee promotion program
could be built in foreign shipyards,
provided the shipyards are not "ex-
cessively subsidized." Yet no defini-
tion of "excessively subsidized" has
been set.
The package includes emphasis
on ending foreign subsidies through
the process established by Section
26
American Waterways Shipyard Conference members, such as MARCO-Seattle, provide a wide
variety of construction and repair services to naval and commercial vessel operators.
301 of the Trade Act, the subsidy
code of the General Agreement on
Trade and Tariffs (GATT), bilateral
trade agreements with shipbuild-
ing nations. Overall, the members
of the Committee expressed strong
reservations about the impact of the
proposed program on U.S. shipyards
and skepticism about relying on
Section 301 of the Trade Act, GATT
or bilateral agreements as a means
of addressing unfair foreign subsi-
dies.
Many of the components of the
administration's proposed pack-
age—including the reduction and
repeal of the 50 percent duty on
foreign ship repairs—must be con-
sidered and approved by Congress.
Secretary Card announced at the
July 9 hearing that a legislative
proposal will be sent to Congress
shortly after the Democratic con-
vention in mid-July. Many observ-
ers predict that such legislation could
move fast, even though—at this
writing—there are very few legisla-
tive days left in the 102nd Congress,
and the legislative schedule is al-
ready overcrowded.
The Gibbons Bill
The Shipbuilding Trade Reform
Act of 1992 (H.R. 2056), introduced
by Rep. Sam Gibbons (D-Fla.), is
working its way through Congress.
Passed by the House of Representa-
tives on May 13, 1992, by the im-
pressive margin of339-78, H.R. 2056
prohibits any vessel built or repaired
in a subsidized foreign shipyard from
calling at U.S. ports unless the owner
can certify that the vessel is sub-
sidy-free as of the date of enactment
or the amount of the subsidy was
repaid. The bill also amends
antidumping and countervailing
duty laws to authorize the imposi-
tion of duties on subsidized sales of
commercial vessels. The Gibbons
Bill would not affect ships built or
repaired in countries that sign a
shipbuilding trade agreement with
the United States.
The legislation was inspired
largely by the inability of multilat-
eral negotiation to reach an agree-
ment to phase out and end shipyard
subsidies. The shipbuilding sub-
sidy negotiations sponsored by the
Organization for Economic Coopera-
tion and Development (OECD) re-
cently concluded without a final
agreement. These negotiations were
initiated by the United States in
response to a petition for action filed
by the Shipbuilders Council of
America (SCA) under Section 301 of
the trade act. The SCA petition
cited unfair foreign government
shipbuilding subsidies, as well as
the loss of 120,000 shipbuilding jobs
in the United States since the termi-
nation of Construction Differential
Subsidy (CDS) program in 1981.
The Senate companion to H.R.
2056, the Shipbuilding and Repair
Industry Free Trade Act (S. 1361),
has been introduced by Senators
Mikulski (D-Md.) and Lott (R-Miss.)
It is pending before the Senate Fi-
nance Committee and a Committee
vote has not yet been scheduled.
The Senate has a well-deserved
reputation for not passing "sector
specific" legislation and the few re-
maining legislative day in the 102nd
Congress are already full with item
such as agency appropriations bills
and possible health care legislation.
If the supports of S. 1361 are suc-
cessful in getting a Senate vote . . .
and that seems unlikely now... and
can focus the debate on jobs and the
need to sustain a shipbuilding in-
dustrial base, the bill has some
chance of passing.
The Bush Administration has
announced its intention to veto the
Gibbons Bill or any similar legisla-
tion. Congressional override of a
Presidential veto is possible in the
House of Representatives but highly
unlikely in the Senate.
Global Competition
Since the mid-1970s, a new world
marketplace has emerged taking the
place of the economic order domi-
nated by the United States. Eco-
nomic powers such as Japan, South
Korea, Germany and Taiwan have
challenged U.S. dominance of com-
merce in everything from basic steel
to automobiles to ships. No longer
can the U.S. producers be assured of
continued, unchallenged prosperity.
As the marketplace has become more
global in scope and the portion of
U.S. gross domestic product related
to exports grows with each passing
year, U.S. producers must respond
to worldwide demand and competi-
tion from nations that design and
manufacture products with shorter
lead times and more efficient meth-
ods of production. The countries
that will prosper in the 1990 and
into the 21st century are those that
will have a technically skilled
workforce with the technical capa-
bility to implement technical ad-
vances that make production more
efficient and cost effective.
U.S. shipyards have no choice but
to compete in this new environment.
It should be noted that while the
fight goes on to eliminate foreign
government subsidies of shipyards,
the U.S. shipyard industry must turn
its attention to bolstering its capa-
bility to build vessels of all sizes,
utilizing new methods of design,
management and production. Even
if the United States were successful
in persuading its foreign competi-
tors to eliminate unfair subsidies,
U.S. shipyards would still have to
improve their production capabili-
ties in order to survive. Already
encouraging signs can be seen as a
few U.S. second-tier shipyards are
successfully competing in the world
marketplace. These shipyards pro-
duce vessels that are competitive in
cost and quality. More progress
must be made in this area.
National Shipbuilding
Research Program
The National Shipbuilding Re-
search Program (NSRP) has been in
continuous operation for more than
two decades. It began in response to
the legislation passed by Congress
directing the government to create a
program to reduce the cost of com-
mercial construction. The NSRP
was created as the organization
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