Maritime Promotional Programs

Shipping requires a large quantity and variety of economic resources to compete. Thus, virtually every maritime nation, regardless of the size of its merchant fleet, offers some form of direct or indirect assistance to its maritime industries. Promotion of U.S.-flag shipping services in the U.S. foreign and domestic trades is a basic fundamental of American maritime policies.

Cabotage

Section 27 of the Merchant Marine Act of 1920, known as the Jones Act, stipulates that operations in the United States coastwise trade, intercoastal and noncontiguous trades (including Alaska, Hawaii, and Puerto Rico) are to be reserved for U.S.-built and U.S.-owned ships manned by U.S. citizens. The Act of December 27, 1950 provides for an administrative waiver whenever such waiver would be in the best interest of the national defense. In enacting the Coast Guard Authorization Act of 1998, the 105^th Congress further established an administrative process for Jones Act waivers. The Secretary of Transportation, under certain conditions, is authorized to issue certificates of documentation with an endorsement for employment in the coastwise trade to certain small passenger vessels and uninspected passenger vessels carrying no more than 12 passengers for hire. The waiver, which is subject to notice and public comment, may not be granted if it would adversely affect U.S. shipbuilders or the coastwise trade business of any person who employs U.S.-built vessels. This administrative process is not applicable to larger passenger vessels and to cargo vessels. Any other waivers of the Act must be obtained legislatively.

Maritime Security Program

On October 8, 1996, President Clinton signed into law the Maritime Security Act (P.L. 104-239) after it was overwhelmingly adopted by the House of Representatives and the Senate. This measure established the Maritime Security Program (MSP) to support an initial fleet of 47 militarily useful U.S.-flag commercial vessels crewed by American citizens. Participating vessel operators are required to make their ships and other commercial transportation resources available to the Department of Defense during times of war or national emergency. Unlike the operating-differential subsidy program, MSP has few restrictions on vessels operating in the U.S. foreign commerce. Eligible vessels may be built either in the United States or in a foreign country.

Through the enactment of the Maritime Security Act of 2003, the 108th Congress expanded the program to incorporate 60 vessels. The legislation also called for increased payments, subject to annual appropriations. The program, subject to annual appropriations, is administered on the basis of renewable one-year contracts, provided funding is available.

Title XI Shipbuilding Program

This program, officially known as the "Federal Ship Financing Guarantee Program", was established under Title XI of the Merchant Marine Act of 1936. Its initial purpose was to assist U.S.-flag operators in obtaining private capital to build ships in American shipyards for both the U.S. foreign and the U.S. domestic trades. The government, through the Maritime Administration, guarantees payment of the underlying debt obligations, permitting the shipowner to obtain long-term financing at favorable interest rates. The U.S. government insures or guarantees full payment to the lender of the unpaid principal and interest of the mortgage obligation in the event of default by the vessel owners.

Guarantees on the obligations are eligible to be granted for up to 87 1/2 percent of the vessel's actual cost, as defined in Title XI regulations. Moreover, vessels eligible for Title XI guarantees are required to be of a design satisfactory to MarAd and includes passenger vessels, cargo vessels, tankers, towboats, dredges, barges, floating drydocks, oceanographic research vessels, and drilling rigs. The 103rd Congress enacted legislation amending the Title XI program to allow guarantees for vessels built for the export market. The legislation also authorized guarantees for shipyard modernization and improvement.

The Title XI program is self-sustaining. The Credit Reform Act of 1990 mandates that the Maritime Administration may only approve Title XI guarantees to the extent appropriations have been obtained to cover the estimated cost of the project to the government, as well as the administrative expenses of the entire program. In FY 2001, Title XI applications totaling approximately $730 million in loan guarantees were approved. The approved projects covered construction of 295 vessels. Vessels approved included one 2600-TEU (Twenty-foot Equivalent Unit) container carrier vessel, one enhanced Gorilla Class self-elevating mobile offshore drilling vessel, and one Orca Class roll-on/roll-off vessel. Projects also involved river barges, tank barges, and articulated tug/barge units. In FY 2002, eight Title XI commitments were issued to guarantee obligations with respect to 22 vessels for the following vessel types: 11 ferries, one passenger vessel, six double-hull tank barges, two liftboats, one offshore drill rig, and one dry dock reconstruction. In FY 2003, the Maritime Administration closed on six commitments to guarantee obligations covering the financing, in part, of 13 vessels: two double hull tank barges, five ferries, two containerships, one cruise vessel, one dry dock reconstruction and two offshore drill rigs.

Capital Construction Fund

The Merchant Marine Act of 1970 established the Capital Construction Fund (CCF) program. The program assists operators in accumulating capital to build, acquire, and reconstruct vessels through the deferral of Federal income taxes on certain deposits as defined in Section 607 of the Act, as amended (e.g. from vessel operations, proceeds from the sale or loss of vessels, and vessel depreciation). The CCF program enables operators to build vessels for the U.S. foreign trade, Great Lakes, noncontiguous domestic trade (e.g. between the West Coast and Hawaii), and the fisheries of the United States. It aids in the construction, reconstruction, or acquisition of a wide variety of vessels, including containerships, tankers, bulk carriers, tugs, barges, supply vessels, ferries, and passenger vessels. Since the program was initiated in 1971, fundholders have deposited $7.4 billion in CCF accounts and have withdrawn $5.6 billion for the modernization and expansion of the U.S. merchant fleet. As of September 30, 2001, 150 companies were parties to CCF agreements.

Cargo Reservation

Preference for national-flag ships to move national cargoes in international trade is a policy pursued by many maritime nations. The Maritime Administration maintains on its website, www.marad.dot.gov, a listing of U.S.-flag vessels eligible to transport preference cargoes as well as a listing of carriers with contact information. U.S. cargo policies include the following:

	The Cargo Preference Act of 1904 requires all cargoes procured for or owned by the military services to be carried exclusively on U.S.-flag vessels.
	Public Resolution 17, enacted in 1934, requires that all cargoes generated by the Export-Import Bank (Eximbank) be shipped on U.S.-flag vessels unless a waiver is granted by the Maritime Administration. The agency may grant general waivers permitting up to 50 percent of the cargo generated by the individual loan to be shipped on vessels under the flag of the recipient nation. It also may grant statutory waivers permitting a specific shipment to be made on a foreign-flag vessel if a U.S.-flag vessel is not available at a reasonable rate, or if the vessel cannot accommodate the cargo.
	The Cargo Preference Act of 1954 requires that at least 50 percent of all government-generated cargo subject to the law be transported on privately owned, U.S.-flag commercial vessels available at fair and reasonable rates. The Food Security Act of 1985 increased the percentage of the U.S.-flag tonnage requirement from 50 to 75 percent of agricultural cargoes under certain foreign assistance programs of the Department of Agriculture and the Agency for International Development.

Bilateral Agreements

Bilateralism may be defined as agreements between two countries to reserve the carriage of specific cargoes to a designated number of participants, principally but not always, national-flag fleets. They are legal instruments of the participating governments, specifying the commercial rights and the responsibilities of the national-flag fleets of each country in their bilateral trade. Bilateral agreements may involve revenue pooling agreements and sharing, on an agreed basis, the movement of specific commodities in the ships of the two trading partners. Presently, the United States has entered into bilateral agreements with Argentina, Brazil, and Russia.