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A qualified vessel generally is any vessel constructed
or reconstructed in the United States and documented under
the laws of the United States. In addition, the person
maintaining the CCF must agree with the Secretary (of
Commerce or Transportation) that the vessel will be operated
in the Unites States foreign trade, Great Lakes trade,
noncontiguous domestic trade, or in the fisheries of the
United States.

C. Budget Matters

The Budget Enforcement Act of 1990 ("1990 Act") amended
the 1985 Balanced Budget and Emergency Deficit Control Act to
establish new budget scorekeeping rules for legislation with
budgetary consequences. The 1990 Act subjects discretionary
spending for 1991 through 1995 to specified dollar maximums
("caps"). Increases in discretionary spending may not be
offset by higher taxes or fees under the new budget rules.

Direct spending programs (entitlements and other
mandatory spending) may be increased only if the increases
are offset in each year by lower direct spending in other
programs or by higher taxes or fees ("pay-as-you-go
scorekeeping"). Under the pay-as-you-go scorekeeping regime,
if direct spending increases or revenue losses are not offset
within the pay-as-you-go accounts, a sequester (automatic
reduction) in these accounts will occur at the end of the
fiscal year.


-10-

the Ready Reserve Fleet and (2) meet the sustainment sealift
requirements of the United States.

Capital construction funds

Section 106(b) of H.R. 2056, as reported by Merchant
Marine, amends section 607 of the Merchant Marine Act, 1936,
to provide that the definition of a qualified vessel that is
eligible to participate in a CCF is to include a vessel that
is constructed or reconstructed in a foreign shipyard under a
contract entered into after October 16, 1991. In addition,
in order to be qualified, such vessel must have been issued a
construction subsidy certification under section 435B of the
Tariff Act of 1930 (as added by H.R. 2056). It is understood
that no vessels presently qualify for such certification.
H.R. 2056 also amends section 7518(i) of the Internal Revenue
Code of 1986 to cross-reference the changes described above.
This cross-reference is necessary to provide the tax benefits
associated with CCFs to the vessels that meet the expanded
definition of qualified vessels.

Cc. Budget Matters

As reported by Merchant Marine, the PMC access fee
revenues likely would not be sufficient to offset the
estimated revenue loss from repeal of the boat user fee in
fiscal years 1994 and 1995 under the estimate of the bill by
the Office of Management and Budget ("OMB"). Thus, if the
bill as reported by Merchant Marine were enacted, an
OMB-declared sequester potentially would result.



-7-

would result in a net increase in the deficit under
the pay-as-you-go rules of the 1990 Act;

(2) Direct the Coast Guard to announce a boat user fee
schedule to raise revenues sufficient to offset the
projected deficit increase for each fiscal year for
which such an increase in the deficit is projected;
and

(3) Direct the Coast Guard to set a fee schedule that
eliminates the boat user fee for categories of
smaller boats entirely before reducing fees for
categories of larger boats.

The Ways and Means action also approved the FMC access
fee included in the Merchant Marine-reported bill, but
provided that the fee would be reduced after September 30,
1995, to an amount not exceeding the amount necessary to
offset the direct costs incurred by the FMC in providing
access to automated FMC tariff data and would not be imposed
on secondary uses of the data after that date.

Revenues from the FMC access fee would be retained in
the General Fund (i.e., the provisions of H.R. 534, as
reported by Merchant Marine, creating the Sealift Fund would
be deleted).


-6-

III. Prior Ways and Means Consideration
A. Trade Matters (H.R. 2056)

H.R. 2056 was reported with amendments by Ways and Means
on November 4, 1991.

As reported by Ways and Means, the bill amends Title Iv
of the Tariff Act of 1930 to require the master of a vessel
to present a subsidy certification to the U.S. Customs
Service as a condition of formal entry of the vessel. This
customs document would certify that any construction,
reconstruction, or repair carried out with respect to the
vessel meets one of several criteria, which would in essence
assure that the vessel was free of any foreign construction
or repair subsidy..

The bill establishes procedures for obtaining
certifications, and for investigations by the Secretary of
Commerce to ascertain whether a subsidy, in the context of
this certification requirement, has been granted or provided
to a particular vessel. The Customs Service would collect
the certification from the master of a vessel at the time of
formal entry. False certification may lead to civil and
criminal penalties under section 436 of the Tariff Act, as
well as payment to the U.S. Treasury for the amount of
subsidies received.

The bill also amends Title VII of the Tariff Act of
1930, as amended, to authorize the application of
countervailing or antidumping duties to purchases of dumped
or subsidized vessels by U.S. persons.

B. Revenue/Budget Matters (H.R. 534)

On October 22, 1991, Ways and Means reported, with
amendments, H.R. 534 (H. Rept. 102-182, Part 2), which had
been sequentially referred from Merchant Marine.

As reported by Merchant Marine on August l, 1991 (H.
Rept. 102-182, Part 1), H.R. 534 would have repealed the boat
user fee for fiscal years after 1992, and would have provided
for an FMC access fee of 35 cents per minute of direct or
indirect use of the FMC's automated tariff system. The Ways
and Means amendment to the bill would repeal the boat user
fee, effective for fiscal years after 1992, subject to
provisions protecting against a sequester. These provisions
would--

(1) Provide that repeal of the boat user fee would not
be effective, or that the fee would only be repealed
in part, for any fiscal year in which the official
cost estimate of H.R. 534, as enacted, otherwise



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Under the Merchant Marine amendment, the boat user fee
would be imposed as follows:
Boat Length Amount
Fiscal year 1993

19 feet, but less than 20 feet not more than $25/year
20 feet, but less than 27 feet not more than $35/year
27 feet, but less than 40 feet not more than $50/year
40 feet or more not more than $100/year

Fiscal year 1994

25 feet, but less than 27 feet not more than $25/year
27 feet, but less than 40 feet not more than $50/year
40 feet or more . not more than $100/year

Fiscal year 1995
65 feet or more not more than $100/year
FMC access fee

H.R. 2056, as reported by Merchant Marine, would require
water common carrier tariffs to be filed electronically, and
would impose a fee of 35 cents for each minute of remote
computer access to the information in the ATFI. Purchases of
the entire database in the ATFI would be allowed. If the
purchased information were then resold or otherwise
disseminated ("secondary use"), the 35 cents per minute fee
would apply for each separate computer access to the
information. There would be no charge for filing of the
tariffs with the FMC. Federal agencies would be exempt from
the fee. The FMC would be authorized to establish an
alternative schedule of such fees that would result in
equivalent receipts.

The bill also would allow the FMC to retain the amount
of fees collected necessary to carry out its requirements
under the bill. Any excess fees collected would be deposited
in a new Sealift Fund (see below).

Sealift Fund

H.R. 2056, as reported by Merchant Marine, provides that
any receipts collected under the FMC access fee in excess of
amounts for PMC administrative requirements under the bill
would be deposited in the General Fund of the Treasury, as
offsetting receipts, to be transferred to a new Sealift Fund.
Monies in the Sealift Fund would be available, subject to
future authorization for appropriation, to the Department of
Transportation to (1) provide a manpower base for vessels in



Joint Committee on Taxation
March 30, 1992
JCX-14-92
COMMITTEE ON WAYS AND MEANS
ACTION TO AUTHORIZE FURTHER AMENDMENT TO
H.R. 2056

(SHIPBUILDING TRADE REFORM ACT OF 1992)

I. Legislative Background and Summary

Legislative background of H.R. 2056

H.R. 2056 was reported on November 4, 1991 (H. Rept.
102-284, Part 1), by the Committee on Ways and: Means ("Ways
and Means"), and was sequentially referred to the Committee
on Merchant Marine and Fisheries ("Merchant Marine").
Merchant Marine ordered the bill reported on March 6, 1992,
with an amendment as a substitute (H. Rept. 102-284, part 2).
As originally reported by Ways and Means, H.R. 2056 would
amend the Tariff Act of 1930 to require that a document
certifying that a vessel is subsidy free be provided as a
condition of entry of that vessel into customs collection
districts and to provide remedies under the countervailing
and antidumping laws against foreign-built ships that are
subsidized or dumped.

Summary of H.R. 2056 as reported by Merchant Marine

Merchant Marine approved five changes to H.R 2056.
First, with respect to the provisions of H.R. 2056 that
provide trade remedies against subsidized and dumped foreign
commercial ships, the bill as reported by Merchant Marine
includes a number of changes related to the effective date, a
listing by the Secretary of Commerce of subsidized foreign
shipyards, repairs, agreements with foreign nations, and
certain maritime promotion programs.

Second, as reported by Merchant Marine, the bill
includes a phased repeal, beginning in fiscal year 1993, of
the annual Coast Guard recreational boat user fee ("boat user
fee") imposed by section 10401 of the Omnibus Budget
Reconciliation Act of 1990 ("1990 Act").

Third, as reported by Merchant Marine, the bill includes
a provision intended to raise offsetting revenues for the
phased repeal of the boat user fee by imposing a fee on
persons directly or indirectly electronically using certain
tariff information available from the Federal Maritime


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(2} Provide that the FMC access fee expires after
September 30, 1995 (to correspond with the
present-law expiration of the boat user fee after
fiscal year 1995); and

(3) Retain the revenues from the FMC access fee in the
General Fund, and delete the provisions of the bill
as reported by Merchant Marine that create a Sealift
Fund (to reflect the fact that the boat user fee
revenues, which the FMC access fee is to offset, are
retained in the General Fund).

Capital construction funds

Delete the provision in the bill as reported by Merchant
Marine (sec. 106(b)) relating to the CCFs.



-l1l-

Vv. Possible Options
A. Trade Matters
Authorize the Chairman to request the Committee on Rules
to present for floor consideration Title I of the H.R. 2056
as reported by Merchant Marine (with the deletion of section
106(b) relating to CCFs, as discussed further below).

Title I as reported by Merchant Marine incorporates the
amendments of both Ways and Means and Merchant Marine.

B. Revenue Matters

Authorize the Chairman to request the Committee on Rules
to include in the amendment to H.R. 2056 the following:

Boat user fee repeal

Provide a phased repeal of the boat user fee beginning
in fiscal year 1993, so that for fiscal years 1993 and 1994
the fee would be imposed under the following schedule--
Boat Length Amount
Fiscal year 1993

More than 21 feet,

but less than 27 feet not more than $35/year
27 feet, but less than 40 feet not more than $50/year
40 feet or more not more than $100/year

Fiscal year 1994
More than 37 feet,

but less than 40 feet not more than $50/year
40 feet or more not more than $100/year

No boats would be required to pay the fee in fiscal year
1995 or thereafter.

FMC access fee and Sealift Fund

Adopt the FMC access fee included in H.R. 2056, as
reported by Merchant Marine, except--

(1) Increase the FMC access fee from 35 cents per minute
to 46 cents per minute (to provide sufficient
revenue to offset the phased repeal of the boat user
fee and to prevent a possible sequester);



-8-

IV. Description of Provisions in H.R. 2056
as Reported by Merchant Marine

A. Trade Matters

H.R. 2056 as reported by Merchant Marine includes a
number of changes related to the effective date, a listing by
the Secretary of Commerce of subsidized foreign shipyards,
repairs, agreements with foreign nations, and certain
maritime promotion programs.

As for the effective date, the bill makes it clear that
all aspects of the bill are prospective as of the date of
enactment of the bill and that all vessels in service as of
the date of enactment are grandfathered with respect to
previous construction and repair subsidies.

Regarding the listing of subsidized foreign shipyards,
the Secretary of Commerce is to establish and publish such a
list so as to give vessel owners advance notice of subsidy
payback requirements before they enter into construction
contracts. A vessel operator or owner is free to construct a
vessel in any non-listed (nonsubsidized) shipyard without
subjecting himself to the sanctions of the bill.

Concerning repairs, vessel owners must post a bond or
other surety if they have repairs in shipyards listed by the
Secretary. Upon the filing of the surety, the vessel is free
to clear Customs as originally scheduled. The administering
authority is to determine the actual amount of the subsidy to
be repaid, with the surety guaranteeing that payment.

As for agreements with foreign nations, if the United
States signs an agreement with another nation to eliminate
shipbuilding subsidies, the certification provisions of this
bill will not apply to vessels built or repaired in that
nation.

Finally, with respect to maritime promotion programs,
the bill, as reported by Merchant Marine, amends various
promotional programs--including the capital construction
fund, the operating-differential subsidy, and Title XI
shipbuilding loan guarantees--so that owners can use these
programs to purchase vessels from any shipyard not listed by
the Secretary. (See below for further discussion on the
capital construction fund.)

B. Revenue Matters

Boat user fee repeal

H.R. 2056, as reported by Merchant Marine, provides a
phased repeal of the boat user fee effective for fiscal years
after 1992.



FMC access fee

Water common carriers in United States foreign and
domestic offshore shipping are required to file tariffs with
the Federal Maritime Commission. These tariffs and service
contracts are currently filed on paper.

In recent years, the FMC has been designing a computer
system to allow water common carriers to file the tariffs
electronically. This computer system is known as the
Automated Tariff Filing and Information System ("“ATFI"). The
electronically filed tariff information will be the
information currently required to be filed under section
8(a)(1) of the Shipping Act of 1984 (46 App. U.S.C. 1707),
and includes all rates, charges, classifications, rules and
practices assessed by a carrier between all points or ports
on a route and any through transportation rate a carrier has
established.

It is understood that the FMC plans to sell this tariff
data to persons in bulk. Commercial vendors then could
resell the information to carriers, shippers, and freight
forwarders. The information also could be obtained from the
FMC by remote computer access.

Sealift funding

The sealift needs of the United States Government
currently are funded through General Fund appropriations.

Capital construction funds

In determining taxable income for regular tax purposes,
a qualified taxpayer who owns or leases a qualified vessel is
allowed a deduction for certain amounts contributed to a
“capital construction fund" ("CCF") established under section
607 of the Merchant Marine Act, 1936. In addition, the
investment earnings on amounts contributed to a CCF are
excluded from gross income for regular tax purposes.

If a withdrawal from a CCF is used to acquire, construct
or reconstruct a qualified vessel, the amount withdrawn
generally is not included in gross income and the basis of
the qualified vessel is reduced by the amount withdrawn to
the extent attributable to amounts previously deducted or
excluded from income. In the case of any other withdrawal
from a CCF, the amount withdrawn generally is included in
gross income to the extent attributable to amounts previously
deducted or excluded from income and interest on the tax
liability attributable to such inclusion generally must be
paid from the date of the deduction or exclusion.



-3-

II. Present Law

A. Trade Matters

Part II of title IV of the Tariff Act of 1930, as
amended (19 U.S.C. 1431 et seq.) establishes the rules and
procedures for the report, entry, and unlading of vessels and
vehicles. Sections 433-435 of that Act provide the
requirements for the arrival and entry of American and
foreign vessels. Under these provisions, the general rule is
that the master of any foreign vessel, or of any American
vessel arriving from a foreign port or place, arriving at a
United States port must make formal entry of the vessel at
the customshouse within 48 hours of arrival.

Title VII of the Tariff Act of 1930, as amended,
authorizes the imposition of antidumping or countervailing
duties on foreign merchandise that is being sold at less than
its fair value or is subsidized, when such imports are
causing material injury to a domestic industry. However,
vessels are not considered merchandise for purposes of Title
VII and are therefore not covered by the antidumping and
countervailing duty laws.

B. Revenue Matters
Boat user fee

Under the 1990 Act, the Secretary of Transportation is
directed to establish a “fee or charge" to be collected
annually in fiscal years 1991-1995 from owners or operators
of "recreational vessels" greater than 16 feet in length.
The boat user fee is to be imposed as follows: (a) for
vessels of greater than 16 feet but less than 20 feet, not
more than $25; (b) for vessels of 20 feet but less than 27
feet, not more than $35; (c) for vessels of 27 feet but less
than 40 feet, not more than $50; and (d) for vessels of 40
feet or more, not more than $100.

The Coast Guard issued rules implementing the boat user
fee, at the maximum levels allowed under the 1990 Act,
effective July 31, 1991. Subject to several exemptions
provided by the 1990 Act and/or by the Coast Guard rules, the
boat user fee applies to vessels operated on the navigable
waters of the United States where the Coast Guard has a
presence. Among the exempt vessels are: manually powered
boats (e.g., canoes, kayaks, and rafts), public vessels
(e.g., State and local government vessels), sailboard, vessel
tenders, unpowered houseboats, and vessels of nonprofit
organizations.

Revenues from the boat user fee are deposited in the
General Fund of the Treasury as offsetting receipts for Coast
Guard activities.


-2-

Commission ("FMC"), effective on June 1, 1992 (the "FMC
access fee").

Fourth, as reported by Merchant Marine, the bill
establishes a Strategic Sealift Fund ("Sealift Fund") in the
Treasury. Amounts raised by the FMC access fee in excess of
FMC requirements for the electronic data base would be
credited to the Sealift Fund to be available for future
authorizations for U.S. sealift requirements.

Fifth, as reported by Merchant Marine, the bill expands
the definition of vessels eligible for the capital
construction fund provisions of the Merchant Marine Act, 1936
and the Internal Revenue Code of 1986 to include certain
vessels constructed or reconstructed in foreign ports.