WORLD TRADE
ORGANIZATIONWT/GC/W/408
19 July 2000
(00-2979)
Original:  English
FIVE-YEAR REVIEW OF THE EXEMPTION PROVIDED
UNDER PARAGRAPH 3 OF THE GATT 1994
Response by the United States to Questions Posed Concerning Jones Act
The following communication, dated 14 July 2000 has been received from the Permanent
Mission of the United States with the request that it be circulated to Members.
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The United States submits the following responses to the questions from the delegations of
Japan and the European Communities, containe d in documents WT/GC/W/402 and WT/GC/W/403
respectively.
Questions from Japan
1. Japan appreciates the US replies regarding questions (d) and (j) and would further appreciate
it if replies are provided on the following additional questions:
Q: Regarding the response to question (d), the US states that ships built in the US by a
foreign capital company are considered as "US-built".  Japan wishes to know whether
there are any restrictions for foreign capital participation in shipbuilding companiesand, if so, what they are.  Japan also wishes to know how many foreign capital
shipbuilding companies are currentl y being operated in the US.
A: We are aware of no laws or regulations restricting or limiting foreign investment in US
shipyards or ship repair facilities.  No info rmation is collected on how many companies with
foreign investment are operating shipyards or ship repair facilities in the United States.
Q: Referring to question (j), the US states th at, "There have been proposals in Congress to
change US cabotage laws (also referred to  collectively as the "Jones Act").  Please
inform Members of the contents of such proposals.
A: We are aware of proposals in the following bills that have been introduced into this
(1999-2000) Congress:
- S. 1510 ("United States Cruise Ship Tourism Development Act of 1999");
- H.R.3392 /S.2564 ("All American Cruise Act of 2000");  and
- H.R. 248/S.1032 ("United States Cruise Tourism Act of 1999").
The Congress has not acted upon any of these proposals.WT/GC/W/408
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Details about these proposals may be obtained through the Library of Congress website at
<http://thomas.loe.gov>.
As opposed to the answers mentioned in 1. above, it is regrettable to note that the replies to
questions (a), (b), (e), (f), (g), (h) and (i) are fa r from sufficient.  Japan would appreciate it if the US
could resubmit its replies, taking into consideration the following points.
Q: The US refers to the existence of specific mandatory legislations that fall within the
scope of paragraph 3 of the GATT 1994, but fails to explain in more detail why such
legislations are deemed necessary.  In light of the purpose of this review (to examine
"whether the conditions which created the n eed for the exemption still prevail"), we
believe that a more detailed and substantiated explanation would be required on theconditions of the shipbuilding industry in the US, including the present situation as
regards international competition and other relevant matters.
A: There is no provision in paragraph 3 of the GATT 1994 for the General Council to examine
"why the US legislation is deemed necessary".  As has been noted previously, the terms of theexemption do not require us to justify our invocation of its coverage.  This point was clear to
all concerned when the GATT 1994 was concluded.
To place the US legislation into context, it should be recalled that the core shipbuilding
industrial base, upon which the US Navy depends to meet its acquisition needs, hashistorically been sustained by a combinati on of commercial shipbuilding for the domestic
trade and military orders.  It is critical for US shipbuilders to build commercial ships for this
trade if a viable industrial base is to be maintained to meet future Navy requirements.
Moreover, the Navy relies upon shipyards that perform commercial work for the Jones Act
trades for day-to-day maintenance of naval and surge fleet vessels, such as the Ready ReserveFleet.  Vessels in the Ready Reserve Fleet are maintained in a state of readiness by the US
Government, capable of providing strategic sealift resources to meet national defense and
other national security requirements.
Q: Regarding the response to question (e), the US simply refers to the information it
submits to the WTO each year.  However, as  such information does not include the data
on the following points, which, in our vi ew, are vital to conduct meaningful and
balanced review under paragraph 3 of the GATT 1994, Japan requests the US to
provide Members with the relevant details.
- What is the exact number of shipbuilding companies in the US that build and
repair ships falling within the sc ope of the "Jones Act", as well as their percentage in the
shipbuilding industry as a whole?  What is the exact number of employees, and their
percentage in the industry as a wh ole, working in such companies?
- Over the last ten years, what is the amount of annual sales for building and
repairing ships alike which fall  within the scope of the "Jones Act", and what is the
change in percentage, also over the last ten ye ars, of such sales in relation to the total
amount of sales within the US shipbuilding industry?
A: There are no data distinguishing between shipyards and ship repair companies that build
vessels exclusively for the domestic trade or foreign trade.  As of May 2000, there were 94shipyards and ship repair facilities located in the United States, employing 80,414 workers.WT/GC/W/408
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Questions from the European Union
Q1: The figures provided by the US concerni ng the operation of the Jones Act show that
during the 1994-98 period the production has doubled and the expected deliveries (new
orders) have been multiplied by four, compared with the period 1990-1994.  The US now
represents 2 per cent of the world market.  Th is tends to demonstrate that the operation
of the Jones Act is benefitting to the US industry to the detriment of other Members that
have not access to the US market. Does the US  have a market share target to be reached
before repealing its protective legislation?
A: The statistical information provided in the annual notifications on vessel deliveries and orders
covers vessels 100 tons and above that may operate in either the domestic or international(non-Jones Act) trades.  The Jones Act does not require that vessels built in US shipyards
must operate exclusively in the domestic trade.
The United States is not a major builder of ships, and the EC's estimate that the US represents
2 per cent of the world market appears to be overstated.  The United States has no marketshare target. Our objective is to sustain a core industrial shipbuilding base to preserve our
national security.  The United States does not intend to repeal the legislation covered by
paragraph 3 of the GATT 1994.
Q2: In document WT/GCIW/397 (responses by the US to the questions posed concerning the
Jones Act), the US, in replying to the question  7 recognized that the notified legislation
has been subject to changes since 1994.  Co uld the US inform the Members of these
changes in detail and explain why it considers that they do not alter the conformity with
Part II of GATT 1994?
A: None of the changes referred to in the European Communities' question have modified the
legislation to decrease its conformity with Part II of the GATT 1994.
Q3: The reason invoked by the US to justify th e existence of such protection is the need to
maintain a naval capability for security reasons.  Could the US give a break down of the
figures between commercial and naval ships built under the Jones Act provisions?
A: The legislation is to maintain a viable industrial base to meet future Navy requirements, as
well as maintain shipyards that the Navy can rely upon for day-to-day maintenance of naval
and surge fleet vessels, such as the Ready Reserve Fleet.  The number of commercial and
naval ships that have been built in the past is not relevant to the issue of sustaining a
capability for future Navy requirements and ongoing maintenance requirements.
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