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S. HRG. 106–1065

S. 1510, THE UNITED STATES CRUISE SHIP

TOURISM DEVELOPMENT ACT OF 1999

HEARING

BEFORE THE

COMMITTEE ON COMMERCE,

SCIENCE, AND TRANSPORTATION

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

OCTOBER 6, 1999

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

JOHN MCCAIN, Arizona, Chairman

TED STEVENS, Alaska

CONRAD BURNS, Montana

SLADE GORTON, Washington

TRENT LOTT, Mississippi

KAY BAILEY HUTCHISON, Texas

OLYMPIA J. SNOWE, Maine

JOHN ASHCROFT, Missouri

BILL FRIST, Tennessee

SPENCER ABRAHAM, Michigan

SAM BROWNBACK, Kansas

ERNEST F. HOLLINGS, South Carolina

DANIEL K. INOUYE, Hawaii

JOHN D. ROCKEFELLER IV, West Virginia

JOHN F. KERRY, Massachusetts

JOHN B. BREAUX, Louisiana

RICHARD H. BRYAN, Nevada

BYRON L. DORGAN, North Dakota

RON WYDEN, Oregon

MAX CLELAND, Georgia

MARK BUSE, Staff Director

MARTHA P. ALLBRIGHT, General Counsel

IVAN A. SCHLAGER, Democratic Chief Counsel and Staff Director

KEVIN D. KAYES, Democratic General Counsel

(III)

C O N T E N T S

Page

Hearing held October 6, 1999 ................................................................................. 1

Statement of Senator Abraham .............................................................................. 25

Statement of Senator Brownback ........................................................................... 23

Prepared statement .......................................................................................... 24

Joint Letter of support for S. 1510 .................................................................. 24

Statement of Senator Cleland ................................................................................. 26

Statement of Senator Gorton .................................................................................. 27

Statement of Senator Hutchison ............................................................................ 4

Prepared statement of Senator Inouye .................................................................. 5

Articles .............................................................................................................. 6

Statement of Senator McCain ................................................................................. 1

Prepared statement .......................................................................................... 3

WITNESSES

Colenda, Cynthia A., President, International Council of Cruise Lines ............. 29

Prepared statement .......................................................................................... 31

Murkowski, Hon. Frank H., U.S. Senator from Alaska ....................................... 21

O’Toole, Lawrence H., President, Marine Engineers’ Beneficial Association ..... 53

Prepared Statement ......................................................................................... 55

Sanchez, Veronica, Executive Director, Cruising America Coalition .................. 45

Prepared statement .......................................................................................... 47

Walker, Allen, President, Shipbuilders Council of America ................................ 56

Prepared statement .......................................................................................... 59

Wallack, Al, President, Voyager Holdings, Inc ..................................................... 38

Prepared statement .......................................................................................... 39

Welch, Edmund B., Legislative Director, Passenger Vessel Association ............ 40

Prepared statement .......................................................................................... 42

APPENDIX

Brennan, Mary S., Chairperson, Legislative Committee, forwarding statement

by National Association of Cruise-Oriented Agencies ....................................... 84

Brown, Cynthia L., President, statement on behalf of the American Shipbuilding Association ............................................................................................. 83

Calian, Philip, President and Chief Executive Officer, American Classic Voyages Co. letter dated October 5, 1999 to Senator McCain ................................ 83

Connors, John P., on behalf of the American Hotel & Motel Association,

letter dated October 1, 1999, to Hon. John McCain .......................................... 86

Feinstein, Hon. Dianne, U.S. Senator from California, prepared statement ...... 75

Frevola, Jr., Albert L., General Counsel, SeaAmerica Cruise Lines, Inc. prepared statement ................................................................................................... 88

Galloway, Joseph L., President and CEO, American Society of Travel Agents,

letter dated October 5, 1999, to Hon. John McCain .......................................... 87

Hawks, John K., President, Association of Retail Travel Agents, letter dated

October 5, 1999 to Hon. John McCain ................................................................ 87

Letter dated October 5, 1999, to Senator Inouye, signed by Directors in

the Shipbuilding Industry ................................................................................... 81

Maritime Cabotage Task Force, summary of prepared statement ...................... 89

Page

IV

Monroe, Michael E., General President, International Brotherhood of Painters

and Allied Trades, letter dated October 5, 1999 to Senator Inouye ................ 82

Nagle, Kurt J., President, American Association of Port Authorities letter

dated September 23, 1999 to Hon. John McCain .............................................. 86

Response to written questions submitted by Hon. John McCain to:

Lawrence H. O’Toole ........................................................................................ 79

Allen Walker ..................................................................................................... 78

Al Wallack ......................................................................................................... 76

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S. 1510, THE UNITED STATES CRUISE SHIP

TOURISM DEVELOPMENT ACT OF 1999

WEDNESDAY, OCTOBER 6, 1999

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC.

The Committee met, pursuant to notice, at 9:35 a.m. in room SR– 253, Russell Senate Office Building, Hon. John McCain, Chairman

of the Committee, presiding.

Staff members assigned to this hearing: Robert Freeman, Republican professional staff; and Carl Bentzel, Democratic senior counsel.

OPENING STATEMENT OF HON. JOHN McCAIN,

U.S. SENATOR FROM ARIZONA

The CHAIRMAN. Good morning. Cruise tourism is a booming industry worldwide, with roughly 4 million American passengers annually. However, due to barriers in an obscure 1886 law, commonly

referred to as the Passenger Vessel Services Act, most of our Nation’s port cities are missing out on this economic boom. These barriers limit the choices Americans have when deciding on a cruise

vacation by restricting the operation of internationally owned and

operated vessels from making successive calls on our coastlines.

Additionally, new American companies that want to enter the

large cruise ship domestic market are faced with barriers that prevent them from purchasing vessels already in operation. Instead,

they are forced to try and overcome what to date has been the insurmountable task of acquiring financing to build a vessel in a U.S.

shipyard at costs well above the world market. The task of acquiring financing is made more difficult by recent reports that point to

an oversupply of vessels in the industry.

It has become clear that the Passenger Vessels Servicing Act is

prohibiting American cruise passengers from cruising between U.S.

ports and preventing a wide range of American maritime business

and workers from benefiting from increased domestic trade. The

protections obstacles to trade contained in the Passenger Vessel

Services Act are neither bringing about U.S. flag ownership liners,

nor creating American cruise industry jobs. I remain a firm believer in removing obstacles to free trade, and it is clearly time to

revisit the Passenger Vessels Services Act.

At a minimum, the Act must be reformed in order to benefit the

cruising consumer, the travel agents, the U.S. ports, and the businesses, stevedores, longshoremen and other workers who service

and supply cruise ships sailing in the domestic market.

2

I am aware of recent advancements in the U.S. domestic cruise

market that will introduce new vessels to the market. However, I

remain convinced that the domestic market will remain virtually

stagnant without the introduction of international vessels, reflagged vessels, and newly constructed vessels.

This combination of ships is needed to service new markets and

provide new competition. The cruise tourism industry today does

not adequately serve U.S. port cities, nor does the PBSA actually

protect U.S. cruise operators from competition. Internationally

flagged operators already call on U.S. ports, although not successive ports, and U.S. operators already compete with internal operators both in North America and worldwide.

What I find most troubling about the current law is that it does

not allow most of our port cities to compete for vacationers in this

growing market. Further, I understand that U.S. shipbuilders and

some U.S. seafarers, as they did with similar measures in the last

Congress, object to S. 1510 based on the belief that the U.S.-flag

cruise ship industry is growing on its own and that the best way

to spur this growth on is to have the American taxpayers in this

Congress provide them tax and regulatory breaks.

Additionally, opponents of this measure claim that U.S.-flagged

vessels cannot compete and grow due to what they deem the unfair

operating environment on international vessels. As evidence, they

point to recent press accounts that highlight environmental health

and safety problems on board internationally flagged vessels.

I strongly agree that some international cruise operators that

currently operate in and out of U.S. ports have failed to follow the

spirit of the law, if not the laws themselves, and that they must

do more to ensure the on-board safety and comfort of their passengers.

I believe that continued failure by the international cruise industry to abide by all U.S. and international laws and regulations for

operation in and out of our ports, and to meet high standards with

regard to passenger safety and well-being, will result in action to

restrict access, not expand it.

I challenge them to improve their operations, and I warn them

that if they do not, the Congress will act, but that situation aside,

we still must act to give the cruising consumer more choices. For

this reason, I have joined with Senators Hutchison, Feinstein, and

Murkowski to introduce S. 1510. I hope that today’s hearing will

provide insights on the possible economic benefits to be gained by

passage of this measure.

I also want to note I am disappointed that Mr. Philip Calian,

President of American Classic Voyages, operator of the only large

cruise vessel in the U.S. domestic market, declined to appear here

today to share his views on the bill, but I look forward to hearing

from our witnesses on how we can improve the legislation and

move forward in the process.

I want to thank Senator Hutchison for her involvement. I especially want to thank Senator Murkowski, who I know is dedicated

to making sure that more citizens of our country and, indeed, from

all over the world have the opportunity to visit his wonderful State

in the most convenient and economic fashion.

[The prepared statement of Senator McCain follows:]

3

PREPARED STATEMENT OF HON. JOHN MCCAIN, U.S. SENATOR FROM ARIZONA

Cruise tourism is a booming industry worldwide with roughly four million Americans passengers annually. However, due to barriers in an obscure 1886 law commonly referred to as the Passenger Vessel Services Act, most of our nation’s port

cities are missing out on this economic boom.

These barriers limit the choices Americans have when deciding on a cruise vacation by restricting the operation of internationally owned and operated vessels from

making successive calls on our coast lines.

Additionally, new American companies that want to enter the large cruise ship

domestic market are faced with barriers that prevent them from purchasing vessels

already in operation. Instead, they are forced to try and overcome what to date has

been the insurmountable task of acquiring financing to build a vessel in a U.S. shipyard at costs well above the world market. The task of acquiring financing is made

more difficult by recent reports that point to an over-supply of vessels in the industry.

It has become clear that the that the Passenger Vessel Services Act is prohibiting

American cruise passengers from cruising between U.S. ports and preventing a wide

range of American maritime business and workers from benefiting from increased

domestic trade. The protectionist obstacles to trade contained in the Passenger Vessel Services Act are neither bringing about U.S.-flagged ocean liners nor creating

American cruise industry jobs.

I remain a firm believer in removing obstacles to free trade and it is clearly time

to revisit the Passenger Vessel Services Act. At a minimum, the Act must be reformed in order to benefit the cruising consumer, travel agents, U.S. ports, and businesses, stevedores, longshoremen, and other workers who would service and supply

cruise ships sailing in the domestic market.

I am aware of recent advancements in the U.S. domestic cruise market that will

introduce new vessels to the market. However, I remain convinced that the domestic

market will remain virtually stagnant without the introduction of internationally

vessels, reflagged vessels, and newly constructed vessels. This combination of ships

is needed to service new markets and provide new competition.

The cruise tourism industry today does not adequately serve U.S. port cities; nor

does the PVSA actually protect U.S. cruise operators from competition. Internationally flagged operators already call on U.S. ports, although not successive ports, and

U.S. operators already compete with international operators both in North America

and worldwide. What I find most troubling about the current law is that it does not

allow most of our port cities to compete for vacationers in this growing market.

Further, I understand that U.S. shipbuilders and some U.S. seafarers, as they did

with similar measures in the last Congress, object to S. 1510 based on the belief

that the U.S.-flag cruise ship industry is growing on its own and that the best way

to continue this growth is to have the American taxpayers and this Congress provide them with tax and regulatory breaks.

Additionally, opponents of this measure claim that U.S.-flagged vessels cannot

compete and grow due to what they deem the unfair operating environment on

international vessels. As evidence, they point to recent press accounts that highlight

environmental, health and safety problems on board internationally flagged vessels.

I agree that the some international cruise operators that currently operate in and

out of U.S. ports, have failed to follow the spirit of the law, if not the laws themselves, and that they must do more to ensure the on-board safety and comfort of

their passengers.

I believe that continued failure by the international cruise industry to abide by

all U.S. and international laws and regulations for operation in and out of our ports

and to meet high standards with regard to passenger safety and well-being will result in action to restrict access, not expand it. I challenge them to improve their

operations and I warn them that if they don’t, the Congress will act. But that situation aside, we still must act to give the cruising consumer more choices.

For this reason I have joined Senators Hutchison, Feinstein and Murkowski to introduce S. 1510. I hope that today’s hearing will provide insights on the possible

economic benefits to be gained by passage of this measure.

I also want to note that I am disappointed that Mr. Philip Calian, President of

American Classic Voyages, operator of the only large cruise vessel in the U.S. domestic market declined to testify today to share his views on the bill, but I look forward to hearing from our witnesses on how we can improve the bill and move forward on the legislative process.

4

I would like to call our first panel up, and while they come up,

perhaps we could hear from Senator Hutchison and from Senator

Murkowski.

The first panel is Ms. Cynthia Colenda, president, International

Council of Cruise Lines, Mr. Al Wallack, president, Voyager Holdings, Incorporated, and Mr. Edmund B. Welch, legislative director

of the Passenger Vessel Association.

Senator Hutchison, thank you for your support of this legislation.

I also know that this has some impact on the port cities of Texas

as well. Senator Hutchison.

STATEMENT OF HON. KAY BAILEY HUTCHISON,

U.S. SENATOR FROM TEXAS

Senator HUTCHISON. Thank you, Mr. Chairman. I appreciate

your calling this hearing. I am pleased to be a cosponsor of S. 1510.

It is an important bill to help an important and growing industry,

and it is estimated that the cruise industry has doubled in the last

6 years.

New studies show that the cruise industry was responsible for $11 billion in economic activity in the United States. Direct cruise

industry spending in my State of Texas was $123 million in 1998.

A 1997 economic impact study by the California Trade and Commerce Agency estimated that limited deregulation of the cruise industry would create more than 1100 new jobs, and 93 million onshore and maritime revenue dollars for the State of California.

So clearly the cruise industry is an important part of State

economies, and I think many Americans would like a larger opportunity to sample the cruise industry and to actually go on cruises,

but many Americans have wondered why they would have to sail

from Vancouver to go to Alaska, as opposed to sailing from Seattle.

The same can be said for cruises leaving in my home area of the

Gulf of Mexico.

On the other hand, we know that foreign-flagged vessels have

built-in advantages over their U.S. competitors, ranging from lower

ranges to lax environmental laws. This is a situation that we see

repeated in other industries as well. It is not fair, and we have to

address it.

We also know that there are foreign subsidies for building foreign cruise ships, so we have a difficult issue on our hands.

I first held a hearing on this issue nearly 2 years ago. Many different views were expressed. I appreciated both the concerns of

cruise operators and of maritime employers and employees that

want more U.S. shipbuilding. I think the bill we are discussing

today is an appropriate middle ground.

For the next 3 years, this bill would allow for the immediate reflagging of large cruise vessels under the U.S. flag for domestic

cruise operations. Our goal is to get more ships under the U.S. flag,

and the bill also encourages repairs and construction of vessels in

U.S. shipyards. I understand that there are still some opposed to

this bill, but I would hope that we could continue to work so that

we can pass a bill this session.

Not passing a bill would be an economic loss for the shipping industry and other States which benefit from tourism, so we should

not walk away from a bill that could create U.S. jobs and opportuVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
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nities for U.S. consumers, so I thank the chairman, and let me say

that I am going to continue the hearing.

The chairman has gone, and I would like to ask the panel also

to come forward so that we can have one panel. It is only six witnesses, and I think we could do better by doing the panels together.

So if you could scoot together, and if the other three witnesses,

Veronica Sanchez, Executive Director of Cruising America Coalition, Larry O’Toole, the President of the National Marine Engineers’ Beneficial Association, and Mr. Allen Walker, the President

of the Shipbuilders’ Council of America, I think we can have a

good, strong panel altogether. Thank you.

[The prepared statement of Senator Inouye and articles that he

requested be included in the record follow:]

PREPARED STATEMENT OF HON. DANIEL K. INOUYE, U.S. SENATOR FROM HAWAII

Mr. Chairman, I would like to thank you for holding this hearing. I share your

interest in expanding cruise ship opportunities in U.S. ports. The development of

a U.S. cruise industry can create significant economic benefits to the nation. Currently more than 3,600 U.S.-flag passenger vessels ply the waters of the United

States carrying hundreds of millions of passengers annually and creating thousands

of American jobs. Most of these are smaller vessels. However, significant progress

is being made in developing a thriving U.S.-flag, U.S.-crewed, and U.S.-built cruise

ship industry.

Recently, I was privileged to attend the signing of a shipbuilding contract for construction of the first U.S.-built oceangoing cruise ships in more than 40 years. These

will be the largest cruise ships ever built in the United States and their construction

and operation will create more than 5,000 American shipyard, seafaring and shoreside jobs.

I strongly believe that Congress can provide incentives for the development of a

U.S.-flag, U.S.-built cruise ship industry. While I commend the Chairman for his efforts to build a cruise industry in the United States, I do have concerns about the

legislation before the Committee today. I am particularly troubled by those provisions that would allow foreign-flag cruise ships, built with foreign subsidies and operated by Third World crews being paid sub-minimum wages, to provide domestic

cruises. Already these foreign cruise ships—which carry mostly American passengers from U.S. ports—operate in the international trades essentially free from

all American laws, including taxation, labor and U.S. safety laws, giving these foreign ships significant economic advantages over U.S.-flag cruise ships and other vacation alternatives. Current law already provides significant flexibility to these foreign cruise lines to visit U.S. ports as part of an international voyage. In fact, in

Hawaii, over 50 percent of passengers are currently carried by foreign cruise lines.

A number of incidents have occurred recently which have brought to the fore concerns about the activities of foreign cruise lines operating in the United States. One

line was fined $18 million for violations of our environmental laws this year—just

one year after its $9 million fine for similar actions. There have been serious allegations of sexual assaults on these cruise ships. I am sure that my colleagues on the

Committee have seen the series of front-page New York Times articles highlighting

the significance of these issues.

Mr. Chairman, I would like to have these, as well as several additional articles

and statements, submitted for the record. These articles raise important public policy questions. Is the U.S. doing enough to regulate foreign cruise ships carrying

American passengers from U.S. ports? Most of these foreign cruise lines argue that

they are immune from U.S. laws and regulatory oversight because they are governed by the flag states in which those vessels are registered. The flag states for

these ‘‘flag of convenience’’ ships often provide lax oversight of their vessels. It has

become such an issue that even the hometown paper to most of these foreign cruise

lines—The Miami Herald—is calling on Congress to regulate the cruise industry. I

would like to read a quote from the editorial entitled ‘‘Shame of the Seas’’ that appeared this past Sunday:

...Congress should act now to extend U.S. jurisdiction [to foreign cruise

lines] by ending the sham of ‘‘flags of conveniences.’’ Nothing less can protect

American passengers and waters from future abuses.

6

Mr. Chairman, I raise these issues because I am concerned that the approach

being advocated today would only increase the opportunities for these foreign cruise

lines to further exploit the U.S. environment and American passengers by allowing

them the unprecedented ability to offer domestic cruises without requiring them to

abide by all U.S. laws. For example, it would allow foreign crewmen to serve on

cruise ships operating within the United States without requiring them to abide by

U.S. labor laws such as the Fair Labor Standards Act or the National Labor Relations Act. We do not exempt any other industry from these important laws when

they operate in our country. Why should the cruise industry be any different? The

significant advantages gained by allowing these cruise ships to operate inside our

waters but outside our laws would create an insurmountable hurdle to the creation

of a viable U.S.-flag cruise industry.

Let me close by saying that I believe the Chairman’s goal is admirable. I have

served in this chamber for more than 36 years and I have been, and continue to

be, a strong supporter of our U.S. maritime industry. After many years and numerous attempts to stimulate a U.S.-flag cruise industry, we are finally starting to see

one develop. It is a slow process and the Pilot Project I sponsored is just one step

toward this revitalization. But I strongly believe that we can work together to continue developing a viable, strong U.S.-flag, U.S.-crewed, U.S.-built cruise industry.

Unfortunately, I do not believe that this legislation as currently drafted will accomplish this goal, and in fact, it could harm existing U.S.-flag cruise operations.

Mr. Chairman, our U.S.-flag maritime industry plays an important role in the

economy and national security of this great nation. I look forward to working with

you on legislation to expand U.S.-flag, U.S.-crewed, and U.S.-built cruising opportunities in the United States.

The Miami Herald

October 3, 1999

SHAME OF THE SEAS

CONGRESS MUST REGULATE CRUISE INDUSTRY

The most shocking thing about the U.S. government’s pollution case against Royal

Caribbean cruise lines earlier this year was the result—the government actually

won. Previously, the cruise line’s defense—that the government lacked jurisdiction

to regulate its foreign-flagged ships—has proven ironclad.

But not this time. And with this case fresh in mind. Congress should act now to

extend U.S. jurisdiction by ending the sham of ‘‘flags of convenience.’’ Nothing less

can protect American passengers and waters from future abuses.

It was only because of prescient investigators, cunning prosecutors and a coura- geous judge that Royal Caribbean pleaded guilty and has agreed to pay an $18 million fine. The account of how the government achieved this unlikely victory was detailed last Sunday by Herald business writer Gregg Fields.

The story, including a damning infrared Coast Guard photograph of waste trailing

the Nordic Empress, painted an unflattering picture of Royal Caribbean in the early

l990s. Evidence showed that its employees altered waste-disposal equipment to

mask the illegal discharge of oil and other pollutants. It suggested a willful pattern

of violations over years involving several ships. And it showed a company that was

either negligently unaware of egregious polluting by its ships or arrogantly callous

to the consequences.

CHANGES HAVE BEEN MADE

Royal Caribbean president Jack Williams has said that what occurred represented

‘‘shortcomings’’ in the oversight of critical operations. He pledges that operations

have been radically changed, that antipollution equipment used today is state-ofthe-art and enforcement of strict procedures is rigorous and ongoing. By its public

comments, the company has been chastened, embarrassed and completely changed.

We hope that the changes outlined are real and lasting. South Florida is the

cruise capital of the world, home to an industry that generates billions of dollars

in revenues, much of it pumped into the local economy.

Yet the case against Royal Caribbean provides useful ammunition for critics, including this page, who believe that the government should take a bigger role in regulating the industry so that it conforms to established federal environmental, labor

and criminal laws. Recently, for example, Carnival Cruise Lines acknowledged only

after being sued that 108 sexual assaults occurred on its ships during a five-year

period. Congress has tried to impose standards, but it has been thwarted by the inVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
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dustry’s political clout and international law, which governs the industry. It must

try again.

Cruise ships once catered primarily to celebrities and the rich. But since the

l980s, the industry has been transformed to the point where a cruise today is within

easy reach of almost everyone. Yet to skirt U.S. law and regulatory oversight, most

cruise ships register in countries such as Panama, Liberia or the Bahamas—which

provide ‘‘flags of convenience’’ and impose minimal regulations.

In the pollution case against Royal Caribbean, defense lawyers argued that only

those third-party countries, which have been notoriously ineffective, could enforce

the laws.

This time, however, federal prosecutors in Miami and other cities devised a novel

argument. They charged the company with lying in its reports to the government—

not polluting the seas—because the reports were filed while the ships were in U.S.

ports.

PRECEDENT FOR INTERVENTION

Through that narrow and ingenious tactic, prosecutors ultimately prevailed. But

too much is at stake and the industry is too intertwined in the nation’s commercial

and social fabric not to be governed by the same laws that affect other enterprises.

In the words of U.S. prosecutors during the trial: ‘‘What is unprecedented is the

claim by a private corporation headquartered in the United States, doing business

in the United States, plying the waters of the United States, and using U.S. ports,

that it is immune for a U.S criminal prosecution for violations of U.S. law that took

place in the United States.

Some legal experts argue that under certain conditions international law does permit an override by domestic law. An override can occur, for example, when there

is significant impact to the local jurisdiction. France, for instance, claims jurisdiction

whenever any of its citizens is involved in a murder, even if the crime occurred in

another country. Likewise, Israel claimed and won the right to try an American

youth on a murder committed in Maryland because the boy’s father had been born

in Palestine.

U.S. courts haven’t embraced this principle as applied to cruise lines. But it can

be a starting point for Congress to begin a review of U.S. oversight of the industry.

The Wall Street Journal

Thursday, July 3, 1997

FOR CRUISE WORKERS, LIFE IS NO ‘LOVE BOAT’

By Joshua Harris Prager

Staff Reporter of The Wall Street Journal

The fog horn bellows as the cruise ship Holiday pulls out of the Los Angeles harbor bound for Catalina, Mexico. Standing below the aft deck in a white shirt and

black apron, Pavel Lukanov wonders how his dreams became shipwrecked. He

earned an economics degree back home in Croatia but now spends day after day

busing tables.

Mr. Lukanov works between 16 and 18 hours a day, for which Carnival Cruise

Lines pays him just $1.50 daily. He is at sea 10 months a year, and has two days

off a month. The bulk of his livelihood is the almost $1,000 a month in tips he collects. ‘‘That’s big money in my country,’’ Mr. Lukanov explains.

Most passengers, dancing and dining on luxury cruise lines, have no idea that the

busboys and bellhops who attend them are living on subsistence wages. A majority

of the workers are from Third World countries, and many are college educated, yet

they vie for jobs aboard American-owned cruise ships, flooding cruise line agencies

around the globe from Honduras to Romania. As Ihsan Satilmis, a native of Turkey

and a waiter on Celebrity Cruise Lines’ Galaxy explains, ‘‘I cannot make better

money in my country.’’

Many of the 55,000 employees aboard the world’s 110 cruise ships don’t fare as

well as Mr. Lukanov. ‘‘Some workers are vacuuming or peeling potatoes. They only

get tips if they have a table,’’ says the Rev. Paul Chapman, former director of the

Center for Seafarers’ Rights. Ludim Talma, a 27-year-old Haitian, spends eight to

10 hours a day buffing brass aboard Carnival’s gargantuan Destiny, the world’s first

100,000 ton-plus cruise ship. He is paid $182 every two weeks and receives no tips,

which works out to roughly $1.56 an hour, slightly more than one-third the $4.45

U.S. minimum wage.

8

Cruise lines are able to avoid U.S. minimum wage laws the same way they do

taxes, registration and inspection fees and safety and environmental regulations -

by registering their ships abroad. Their vessels sail under foreign flags known pejoratively as ‘‘flags of convenience’’ and save millions of dollars annually.

The practice became common in the 1980s, when waves of American-owned cruise

lines including Carnival and Celebrity began to jump ship to registries anchored primarily in such developing nations as Panama, the Bahamas and Liberia. ‘‘It is an

industry that has used a series of legal maneuvers,’’ explains Joseph Belluck, a

former staff attorney at Public Citizen, a public-interest advocacy group. ‘‘The U.S.

cannot enforce occupational safety and health laws on any employer located abroad.’’

Carnival spokesman Tim Gallagher says, ‘‘We do not disclose employee compensation.’’ But Cynthia Colanda, president of the International Council of Cruise Lines

‘‘says that cruise employees are granted ‘‘excellent job opportunities.’’ As for their

salaries, she says that ‘‘within the maritime industry, we pay competitive prices.’’

Cruise wages also compete favorably with foreign land-based salaries. The average per-capita-income in the Philippines is less than $1,000 a year, while an elementary school teacher in Romania earns just $70 a month. Thus foreign workers

clamor for jobs aboard cruise ships that not only offer superior wages, but room and

board and various benefits as well.

The ICCL-worker relationship is strained, however. Last year the ICCL tried to

persuade Congress to revoke the legal right of a foreign worker to sue a cruise line

in U.S. court, but lawmakers voted against the measure.

Some workers say life on board is smooth sailing. Wesley Evans left Jamaica 13

years ago to be a busboy on a cruise ship, and today is the head bartender aboard

Royal Caribbean Cruise Lines’ Song of America. He now earns roughly $30,000 a

year, primarily in tips. ‘‘I love my job,’’ says Mr. Evans, whose wide grin reveals

a few sparkling golden front teeth. ‘‘They take care of everything for me.’’

Other cruise employees, however, say they feel like flotsam. Mr. Lukanov describes what critics say are the industry’s questionable recruiting tactics. He says

that like many newly hired cruise ship employees, he had to pay a Croatian cruise

ship agent $600 to confirm his hiring. Carnival then temporarily paid the $1,400

for his ticket to the U.S. Suddenly in debt, Mr. Lukanov became, effectively, an indentured cruise line employee, obligated to work for months to pay off his loan.

(Having finished his stint on the Holiday, Mr. Lukanov is currently on leave and

will return to work aboard Carnival’s Inspiration.)

Mr. Gallagher says he was unfamiliar with Mr. Lukanov’s case and adds, ‘‘We

don’t generally pay for someone’s ticket.’’ Still, Mr. Gallagher says, ‘‘I’m not saying

that we’ve never found abuses. In such cases, we’ve made a change.’’

A day in the life of a cruise worker is hardly the routine depicted on television’s

‘‘Love Boat.’’ Busboy bunkmates—four to a room—typically awaken at 5:30 a.m. and

work three meals from 6 a.m. to 11 p.m. Breaks are used as time to sleep, or if

in port, to make the occasional phone call home. ‘‘This is very tough,’’ says Sasha

Mandish, a Yugoslavian former busboy aboard Celebrity’s SS Meridian. ‘‘We don’t

see our families [for] five, six months.’’

Workers’ rooms are inspected biweekly. There is a separate bar and pool for the

crew, as interaction with passengers is forbidden. Infractions in cruise policy—such

as tardiness, dirty quarters, bacchanalia and mingling—are recorded. After two infractions, a worker’s coveted position can be given to someone else.

Meanwhile, passengers imbibe at swim-up bars, dance beneath retractable domes,

and feast on smorgasbords bedecked in a panoply of flowers and fronds. The crew

is barely noticeable and is told to keep it that way. Explains John Edinborough, a

former busboy aboard the Destiny, ‘‘You can say hello, but that’s it.’’

Kevin Rodriguez, a travel agent at Liberty Travel in Manhattan, theorizes that

vacationers ‘‘simply never think about’’ the condition of the workers. ‘‘They’re in a

totally different world,’’ he says.

The New York Times

Sunday, January 3, 1999

GAPS IN SEA LAWS SHIELD POLLUTION BY CRUISE LINES

By Douglas Frantz

Shortly after 10 A.M. on Oct. 25, 1994, radar and infrared sensors aboard a Coast

Guard jet over the Atlantic off Puerto Rico detected a possible oil discharge. As the

aircraft swept low, its crew saw a long oil slick trailing a ship entering the San

Juan harbor.

9

The vessel was then the largest cruise ship in the world, Royal Caribbean’s Sovereign of the Seas, a floating resort the length of three football fields. When Coast

Guard inspectors boarded the ship in port, its officers denied discharging any oil.

Suspicious, the Coast Guard and Justice Department opened what would grow

into a four-year inquiry leading to the discovery of a fleet-wide conspiracy within

Royal Caribbean Cruises Ltd. to save millions of dollars by dumping oily waste into

the ocean. Last June the cruise line pleaded guilty to conspiracy and obstruction of

justice, admitted that its ships had rigged pipes to bypass anti-pollution equipment,

agreed to pay a record $9 million in fines and promised the dumping would never

happen again.

Astonishingly, the next month it did. The Nordic Empress, another Royal Caribbean ship, was discovered discharging oily waste and creating false records to cover

it up. Moreover, the new dumping incident occurred even though the company knew

it remained under Federal investigation for other discharge incidents.

An examination of the criminal investigation, plus new details about the latest

incident, shows how difficult it is for authorities to police the booming cruise industry as it launches ever larger ships, and how determined the industry is to make

itself exempt from American regulation.

The review offers strong evidence that the dumping of oil and other wastes by

cruise ships, which can create lasting pollution problems in oceans and coastal

areas, is more common than previously known. And it reveals an influential industry that has assembled an international lobbying force to plead its case. Royal Caribbean’s included two former United States Attorneys General, Elliot L. Richardson

and Benjamin R. Civiletti.

In defending itself, Royal Caribbean, a Liberian corporation with its headquarters

in Miami, made what the Justice Department described as an unprecedented claim:

that a private company doing business in the United States was immune from

criminal prosecution because its ships fly foreign flags.

All major cruise ship owners—including Disney, which launched its first ship, the

2,200-passenger Magic, last summer—sail their ships under foreign flags. By registering with so-called flag countries in exchange for substantial fees, the owners

avoid American corporate taxes and can pay lower wages to foreign crews. Financial

documents show that Royal Caribbean saves approximately $30 million a year in

United States taxes by registering its ships in Norway and Liberia.

Critics say the savings come at the price of muddied jurisdiction and lax enforcement by the flag countries, one of the most prominent of which, Liberia, has been

devastated by ethnic warfare and divided government most of the last decade. One

Federal study found that foreign countries took action in only 2 of 111 dumping

cases referred to them by the United States. Generally, flag countries have jurisdiction over ships in international waters and the United States asserts jurisdiction

in its territorial waters.

These questions are raised just as concern is deepening that the industry’s explosive growth is posing new threats to the environment, from the popular Caribbean

to the pristine coastline of Alaska.

Royal Caribbean officials said the company had instituted tough new environmental compliance procedures. But the company did not succeed in having the case

against it closed with its guilty plea. Instead, the company’s discharge practices remain under investigation by Federal grand juries in Anchorage, Los Angeles, Miami

and New York, according to a senior company official and its own recent filings with

the Securities and Exchange Commission.

The outlines of the country’s biggest ocean pollution investigation have been public since the company’s admission of guilt. But the full extent of the dumping

scheme, and the existence of the lobbying effort, was pieced together from court

records in San Juan and Miami and from interviews with Federal officials and current and former Royal Caribbean employees.

The newest cruise ships carry 2,000 or more passengers and up to 1,000 crew

members. Disposing of the waste they generate costs hundreds of thousands of dollars a year for each ship, which is one reason, authorities say, that crews sometimes

disregard pollution laws.

In recent years other cruise lines have been fined at least six times for dumping

oil and refuse. Last summer the Holland America Line, a division of the Carnival

Corporation, pleaded guilty to discharging oily waste in Alaska’s Inside Passage and

paid $2 million in penalties.

10

THE INVESTIGATION

TOLD OF DISCHARGE, PROSECUTORS MOVE IN

Word that the Sovereign of the Seas had discharged oily waste in October 1994

reached the Justice Department in Washington the day after the incident. In three

inspections that October day, the Coast Guard had seen oil in pipes and elsewhere

indicating that oily waste had been sent directly overboard. Most convincingly, lab

tests matched oil from the ship to a sample taken from the slick by a Coast Guard

boat.

Royal Caribbean argued that the discharge was an isolated oversight. But Richard

A. Udell, a career prosecutor in the Justice Department’s environmental section,

found indications to the contrary in Coast Guard data bases. The records showed

that more than a year before, on Feb. 1, 1993, a Coast Guard jet had spotted an

oil slick behind the Nordic Empress, off the Bahamas en route to Miami. A videotape taken from the jet showed a slick that appeared to be a perfect match to the

videotaped discharge from the Sovereign of the Seas. The Nordic Empress’s officers

had also denied discharging anything.

On Oct. 25, 1994, inspectors had videotaped the engine room of the Sovereign of

the Seas in San Juan; four days later, when the ship arrived in Miami, a second

videotape was taken. Comparing them, Mr. Udell noticed that a set of pipes present

on Oct. 25 was gone on Oct. 29. Government experts determined that the pipes had

bypassed a critical anti-pollution device known as an oil-water separator.

On any ship, oil drips from machinery and collects along with sea water in the

bilges. The separator filters out oil so the water can be discharged and the oil stored

for disposal in port. Each time the separator is operated, the event must be noted

in the ship’s oil record book. The Coast Guard relies on the books to monitor compliance with pollution laws.

The oil record book of the Sovereign of the Seas contained no record of a discharge. Later, a ship’s engineer testified before a Federal grand jury that there had

been none. The officers of the Nordic Empress had made the same claim in 1993,

supported by their oil record book.

It took several months, but Coast Guard investigators eventually discovered similar bypass systems on the Nordic Empress and other Royal Caribbean ships. They

began to doubt the authenticity of the oil logs.

Confronted by the evidence, witnesses changed their stories. They testified that

Royal Caribbean ships regularly bypassed pollution devices and dumped oily waste

overboard, usually at night to avoid detection. An engineer from one ship, the Song

of America, testified that the oil-water separator was operated so infrequently that

it did not work when he did try to use it. They also admitted that the oil record

books were falsified so routinely that they were known among many engineers as

Eventyrbok, which means fairy tale book in Norwegian.

As for the disappearing pipes on the Sovereign of the Seas, engineers said they

had been ordered to cut them up on the voyage from San Juan to Miami and drop

them in a trash bin, according to court records.

Oil-water separators are notoriously troublesome to operate. But company engineers testified that the bypass systems, which had been in operation on some ships

since 1990, were partly the result of the company’s bonus incentives. Membranes

for the separator cost as much as $80,000 a year per ship and disposing of waste

oil in port can cost $300,000 a year. By saving this money, a ship’s officers could

receive bigger year-end bonuses for staying under budget.

The savings was the Government’s strongest evidence that senior management

may have known of the conspiracy, said Government officials involved in the case.

But investigators were stymied in following the trail because crucial witnesses, all

foreign employees of Royal Caribbean, had left the company and either returned

home or taken jobs with other cruise lines outside the United States, the officials

said. No senior company officials were charged.

THE DEFENSE

CRUISE LINE THROWS BIG GUNS INTO BATTLE

As evidence mounted, Royal Caribbean’s lawyers tried to reach a deal. People involved in the negotiations said that in the fall of 1996 the company offered to plead

guilty to some charges and pay a substantial fine. But the department rejected the

offer and within weeks prosecutors told company lawyers to expect a 35-count indictment.

Mr. Civiletti, who was Attorney General under President Jimmy Carter, and two

of his law partners, Judson W. Starr and Joseph G. Block, both former Justice DeVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
11

partment environmental chiefs, had tried to negotiate the plea bargain. Other

former Government officials working for the company had lobbied the State Department and Pentagon in an effort to persuade the Justice Department not to file

charges.

The mission of the lobbying and legal arguments was not to refute the accusations, which would prove irrefutable, but to dispute the authority of the United

States to bring charges. The former officials argued that asserting American jurisdiction undermined international Law of the Sea and could lead other nations to

interfere with American vessels, particularly military ships.

Some senior State and Pentagon officials agreed with the international law argument, but in a later legal brief, the Justice Department accused unnamed former

Government officials on Royal Caribbean’s payroll of providing incomplete and inaccurate information in those private sessions, something company lawyers deny.

A pre-indictment review is not unusual in a major case, and in this instance the

Justice Department approved an indictment reduced to 10 counts. On Dec. 11, 1996,

the grand jury in San Juan indicted Royal Caribbean and two engineers from the

Sovereign of the Seas. The indictment accused the company of conducting a fleetwide conspiracy to illegally discharge oily waste, but restricted most of the counts

to the Sovereign of the Seas. The inquiry into the 1993 Nordic Empress discharge

was shifted to a Federal grand jury in Miami.

Justice Department officials said Royal Caribbean’s lobbying played no role in reducing the number of counts. ′′Like every other case, the appropriate charges were

based solely on the facts and the law,′′ said Myron Marlin, the department’s chief

spokesman. ′′In the end, the prosecution produced two criminal convictions, a record

fine, and the case has had a ripple effect throughout the industry, not to mention

that the investigation is still continuing.′′

Legal maneuvering intensified after the indictment. The company’s team expanded to include four retired admirals, a former acting assistant attorney general,

a former Coast Guard commandant and a former deputy assistant secretary for

oceans at the State Department.

Many of these former officials filed affidavits saying the United States could not

charge the company under international law. Some contacted former colleagues in

a continuing effort to settle the case, according to court records and interviews.

Mr. Richardson, who was Attorney General under President Nixon and held other

top Government posts, sought meetings with high-level Administration officials and

acknowledged raising the issue with Thomas R. Pickering, the Under Secretary of

State and an old friend.

‘‘I mentioned it briefly to Tom Pickering,’’ Mr. Richardson said. The conversation

was brief because the matter was in litigation.’’

The effort was international. An influential Norwegian family owns a large share

of Royal Caribbean and its members helped enlist the Norwegian Government, people involved said. On March 12, 1997, a delegation from the Norwegian Embassy

delivered a diplomatic note to the State Department seeking jurisdiction because the

Sovereign of the Seas flies a Norwegian flag. They met with Mr. Pickering and other

officials, people involved in the talks said.

Along with the prosecutors’ steadfast contention that the United States had jurisdiction, they believed another reason not to cede authority was the poor record of

flag countries on previous pollution referrals.

In 1992, the State Department had reviewed 111 cases in which accusations of

cruise ships dumping garbage overboard had been referred to flag countries. The

study found that the countries acknowledged receipt of the referral in only 35 cases

and that the only penalties were small fines in two cases. As a result, the State

Department halted referrals on dumping in United States territorial waters.

The Nordic Empress had been in international waters when it was discovered discharging oil in 1993, so in July of that year the matter was referred to Liberia because the ship flew a Liberian flag. Liberia accepted the company’s claims that no

dumping occurred and asked the Coast Guard to expunge the incident from its

records, according to Liberian records.

Even after Royal Caribbean admitted lying about the Nordic Empress discharge

last June, Liberia decided no action was necessary. The investigation wascompleted

and closed in 1994, said David Crede, chief of investigations for Liberian Services

Inc., a private company in Reston, Va., that is Liberia’s agent for vessels flying its

flag. In the case of the Sovereign of the Seas, the Norwegian Embassy said its officials had looked into the case and decided that no action was warranted.

12

THE OUTCOME

AFTER LEGAL SETBACKS, A PLEA OF GUILTY

The Nordic Empress had discharged its waste in international waters, but the

ship had presented the Coast Guard in Miami with an oil record book that omitted

the discharge. So, on Feb. 19, 1998, Royal Caribbean was indicted in Miami, not for

dumping but on a single count of making a false statement to the Coast Guard.

On April 22 and 23, a pivotal hearing took place in Federal District Court in

Miami in which the cruise line asked Judge Donald M. Middlebrooks to dismiss the

charges.

The Federal judge in San Juan handling the Sovereign of the Seas case, Juan M.

Perez-Gimenez, had already rejected the company’s claim that the United States

lacked jurisdiction and had ordered the case to trial in June.

At the Miami hearing, Mr. Civiletti argued that the United States had overreached its authority. He said that Liberia had jurisdiction and that that country

had determined there was insufficient evidence of a crime. He also produced a surprise diplomatic note from the Liberian Embassy in Washington to the State Department asking that the case be dismissed.

Mr. Udell countered that Royal Caribbean’s false statement to the Coast Guard,

plus its extensive presence here, subjected the company to American law. Although

its ships fly various flags of convenience, he said, ‘‘Royal Caribbean is as much a

part of Miami as the Miami Dolphins.’’

The company called Mr. Richardson as an expert witness, because he had been

the chief American negotiator at the United Nations conference that led to the Law

of the Sea Treaty. He testified that only Liberia could prosecute the discharge, and

warned that the case would undermine the navigational freedom established by the

United Nations convention.

But Mr. Richardson seemed less certain when the prosecutor, Thomas Watts-Fitzgerald, asked whether his view would change if the ship had produced a record required by the Coast Guard that contained a misrepresentation. It might well, Mr.

Richardson replied.

On May 12, Judge Middlebrooks rejected the motion to dismiss, ruling that the

United States had authority to press charges because of the false statement to the

Coast Guard.

Losing on the jurisdiction issue and faced with indisputable evidence, Royal Caribbean pleaded guilty on June 3 in both cases and agreed to pay $9 million in fines.

The Government called the violations so pervasive and longstanding that the criminal conduct amounted to a routine business practice.

Unlike most plea bargains, this one did not end Royal Caribbean’s criminal liability. The company refused to yield to Government demands that it turn over the results of an internal inquiry, citing fears that employees would refuse to cooperate

in future internal investigations. As a result, the company acknowledged, additional

grand juries are contemplating similar charges.

The cruise line struggled to put the episode behind it. ‘‘We deeply regret our role

in polluting the marine environment and we are particularly sorry for the attempts

to conceal that pollution,’’ Jack Williams, the company president, said in a statement. ‘‘These acts were inexcusable, they were wrong and we accept full responsibility for these violations.’’

But that effort hit a stunning shoal. On July 15, the company notified the Coast

Guard that engineers aboard the Nordic Empress had tampered with pollution devices and discharged oily waste into the ocean. The company said a junior engineer

had reported it.

When the Coast Guard questioned engineering personnel the next day, it was like

stepping back in time. The chief engineer, Michael Psomadakis, a Greek citizen, denied that there had been a discharge and presented an oil record book that supported him, according to court records and a Coast Guard agent’s affidavit. Mr.

Psomadakis was served with a grand jury subpoena on the spot.

Two days later, the company held its own hearing and dismissed Mr. Psomadakis

and another engineer. On July 19, company personnel escorted him to a Miami

hotel to pick up his belongings for the trip home to Greece. He was given his passport and plane ticket and then evaded agents of the Federal Bureau of Investigation

who were waiting to talk to him, simply by walking out another exit.

Nancy J. Wheatley, who was hired by Royal Caribbean last June as senior vice

president for safety and the environment, and William K. Reilly, the former administrator of the Environmental Protection Agency, who joined the Royal Caribbean

board last January, said in interviews that the company had implemented a vigorous new environmental compliance program under Government supervision.

13

Mr. Reilly said he believed the company’s management was committed to cleaning

up its past problems.

‘‘Obviously everyone is chagrined about what has happened and somewhat

stunned by the seriousness of the allegations,’’ Mr. Reilly said. ‘‘The Justice Department set out to get Royal Caribbean’s attention, and they got it.’’

Ms. Wheatley said the latest incident showed that the system was working, because a junior officer came forward and was supported by management.

‘‘We know we don’t have a business if the oceans aren’t a beautiful place to go,’’

Ms. Wheatley said.

But prosecutors were shocked. At a court hearing in September, they said the conduct, which was under investigation, demonstrated the difficulty in changing a pervasive culture of ingrained criminal conduct.

New York Times

November 16, 1998

ON CRUISE SHIPS, SILENCE SHROUDS CRIMES

By Douglas Frantz

A Texas woman on a Caribbean cruise with her husband accused a waiter of drugging their dinner drinks and later raping her in their cabin.

An Oregon family on a cruise said their daughter was raped by a ship’s bartender

after she celebrated her 16th birthday in a bar.

A California woman said that a crewman forced his way into her cabin and beat

and raped her.

As with many rape cases, none of these was clearcut. Some involved alcohol and

counterclaims of consensual sex. One wasn’t reported until after the cruise. Yet in

every case, the accusers say, the cruise line’s main concern was to protect its reputation by buying or coercing their silence and shielding the accused.

Once the exclusive playground of the very wealthy, the cruise business has expanded over the last decade by appealing to the vast middle class, especially families and young adults. The polished mahogany decks and formal dinners of a bygone

era have been replaced by glittering floating cities dedicated to carefree partying,

gambling and drinking.

But as the industry has boomed to more than five million passengers a year, it

has presented new concerns for its ports of call, its passengers and the environment,

in part because of the size of its giant liners, in part because the cruise lines operate

largely outside the laws of any one country. A particular problem is the allegations

of sexual assaults committed by crew members.

There is no evidence that crime is rampant aboard cruise ships. The Federal Bureau of Investigation does not break out statistics on rapes on the high seas. But

F.B.I. agents in Miami, the country’s busiest cruise port, said they are called to investigate a shipboard sexual assault about every other week.

An examination of sexual assault cases on ships operated by the largest cruise

lines, based on court records and interviews with current and former employees,

law-enforcement officials, and passengers who reported assaults and their lawyers,

found a pattern of coverups that often began as soon as the crime was reported at

sea, in international waters where the only police are the ship’s security officers.

Accused crew members are sometimes put ashore at the next port, with airfare

to their home country. Industry lawyers are flown to the ship to question the accusers; and aboard ships flowing with liquor, counterclaims of consensual sex are common. The cruise lines aggressively contest lawsuits and insist on secrecy as a condition of settling.

When the Texas couple sued, the cruise line settled with a confidential agreement.

Cruise line lawyers subpoenaed the Oregon girl’s school records to question her

character, but eventually settled a suit. Officers aboard the California woman’s ship

did notify the F.B.I., at her insistence, but she said the arrival of the agents was

delayed until her room had been cleaned.

In another case, a Federal grand jury is investigating whether Carnival Cruise

Lines, the world’s largest, helped a ship’s officer accused of rape get out of the country. And in 1995, a Florida appeals court found that Carnival dismissed a crew

member for refusing to lie to protect the company in a civil suit brought by another

seaman.

‘‘You don’t notify the F.B.I.,’’ said Charles C. Harris, a former chief of security for

Carnival. ′′You don’t notify anybody.’’ You start giving the victims bribes, upgrading

14

their cabins, giving them champagne and trying to ease them off the ship until the

legal department can take over. ‘‘Even when I knew there was a crime, I was supposed to go in there and do everything in the world to get Carnival to look innocent.’’ The cruise lines say that crimes are uncommon and that they do a good job of

investigating when one does occur. But three years ago their lobbyists tried in Congress to win protection from most damages in sexual-assault suits and from all suits

by foreign crew members.

DIFFICULTIES ARISE

ISSUES OF JURISDICTION, REPORTING OF CRIMES

In many ways these ships, as long as three football fields, are not so much floating cities as sovereign islands, operating beyond the police and regulatory jurisdiction of the nations they cruise among.

Every major cruise ship sailing out of American ports is registered with a foreign

country, usually Panama or Liberia. The corporations that own them are foreign,

too. The foreign registry means the ships and their owners avoid American corporate income taxes and many American laws, though more than 80 percent of their

passengers are American.

Carnival Corporation, the parent of Carnival Cruise Lines, has its headquarters

in Miami but is a publicly held corporation registered in Panama. Controlling interest is held by the family of its founder, Ted Arison, a billionaire who renounced his

American citizenship in 1993 in part to avoid estate taxes. His son, Micky, an American citizen, is chairman. Most of Carnival’s executives are American.

The other leading line, Royal Caribbean Cruises Ltd., also has its headquarters

in Miami, but the corporation is registered in Liberia. Controlling interests are

owned by a Bahamian partnership associated with the wealthy Pritzker family of

Chicago and by a shipping company owned by a Norwegian family, the

Wilhelmsens.

Lynn Martenstein, vice president for communications at Royal Caribbean, said

the company would not comment on cruise ship crime or respond to any specific

questions because of legal considerations.

A vice president of Carnival, Tim Gallagher, said his company reacts promptly

and thoroughly any time there is an accusation of sexual misconduct involving passengers or crew members. He said only a handful of assaults occur each year,

though he declined to provide numbers.

We have more than 1.5 million guests a year and it is impossible that there would

not be a huge public outcry if there were any kind of serious crime problem,’’ he

said.

The F.B.I. has jurisdiction to investigate crimes in international waters on foreign

ships if the vessel departed from or is headed to an American port and the crime

involves an American citizen. But investigating a crime scene at sea is difficult,

agents routinely wait until a ship returns to port, and jurisdictional questions often

arise, law-enforcement authorities said.

And not all crimes are reported. Cruise ships are required to report only crimes

and other incidents that result in serious physical injury, which does not necessarily

include rape. ′′Unless otherwise required to do so, Carnival leaves it to the individual to decide whether to report to authorities,′′ said Curtis J. Mase, a lawyer for

Carnival.

Complaints are frequent enough, however, that Lloyd A. Lipkey, the agent in

charge of the F.B.I.’s Miami squad that deals with crimes on the high seas, offered

a warning to passengers: ‘‘Go on a cruise just like you go anywhere else, with your

eyes open.’’

THE CULTURE

ABOARD SHIP, RULES BAR FRATERNIZING

Today’s huge cruise ships carry 1,800 to 2,200 passengers and 700 to 800 crew

members drawn from 50 or more countries, many of them poor nations. While some

crew members are highly trained, particularly the officers, many are unskilled

young men who work long hours seven days a week. Pay can be as little as $500

a month; many send their wages home to support families.

Ships have rules barring fraternizing with passengers. Carnival, Mr. Gallagher

said, prohibits crew members from fraternizing but encourages officers to be

friendly. ‘‘The guests like it,’’ he said.

And romance, of course, has long been one of the attractions of cruises. ‘‘Sex between crew and passengers happens all the time,’’ said Dennis Hypolite, a musician

15

who worked for Carnival and Royal Caribbean for three years until he quit on Nov.

1. ‘‘Every cruise, every day. Crew go into guest cabins and guests go to crew cabins.

Both seek it out, passengers and crew.’’

Mr. Harris, the former Carnival security chief, who now investigates shipboard

crimes for lawyers of victims and insurance companies, said crew members and officers often pursue sex with female passengers.

Carnival’s lawyers said Mr. Harris was a disgruntled former employee who earns

his living testifying against cruise lines.

Michael D. Eriksen, a lawyer in Lake Worth, Fla., has handled more than a dozen

cases of sexual assault on ships.

‘‘Typically it starts out with an opportunity for a crew member to observe and

sometimes interact with a passenger,’’ he said. ‘‘A lot of times it will be a waiter

or someone who works in room service or behind a bar.’’

The Oregon girl struck up a conversation with a bartender in the Ain’t

Misbehavin’ Lounge on the Monarch of the Seas, a Royal Caribbean ship. It was

her 16th birthday, and after some drinks she went with the bartender to his cabin.

The girl’s parents said she was raped and sued the cruise line last year.

Royal Caribbean contended that the sex was consensual. Even so, because of the

girl’s age, the incident would have been a felony had it occurred in Florida. But

state law was not applicable. The line also accused the girl’s parents of failing to

exercise reasonable care in protecting their daughter and subpoenaed the girl’s

school records in an attempt to discover previous problems.

When the case was settled this summer, the company insisted on a confidentiality

agreement that prohibited the family or their lawyer from discussing the case, according to the lawyer, David W. Bianchi.

‘‘People just want to get on with their lives, and when the cruise lines wave

money under their noses if they promise not to talk, they always accept it,’’ Mr.

Bianchi said.

In a deposition, the bartender, Cleve Ellis, testified that crew members make a

sport of having sex with passengers, Mr. Bianchi said. The deposition has not been

made public because of the confidentiality order. Attempts to find Mr. Ellis were unsuccessful.

People who deal with assault victims say young girls are often targets on cruise

ships. In 1996, Mr. Bianchi represented the family of a 14-year-old who said she

had been raped by a crew member aboard the Fascination, a Carnival ship. After

an article about the case appeared in a legal publication, Mr. Bianchi said, he was

contacted by the father of a 16-year-old girl who said she had been raped by the

same crew member. Both cases were settled and the crewman was dismissed after

the second report, he said.

Last year, the Texas couple were on a Carnival cruise in the Caribbean to celebrate their 10th anniversary. The woman said the waiter drugged their drinks at

dinner and later came to their cabin and raped her while her husband was unconscious.

The couple complained to cruise officials, who responded in part by moving them

to a better cabin for the remainder of the voyage. When the ship docked in San

Juan, P.R., they tried to report the incident to the police but were told they would

have to contact the F.B.I. They never did.

Theodore L. Shinkle, a Carnival lawyer, said the ship’s officers had assisted the

couple in contacting the San Juan police and had provided them with the number

for the F.B.I.

The couple filed a civil suit against Carnival. At the trial the waiter, Ashton Sylvester, a 12-year employee of Carnival, denied having sex with the woman, and witnesses said she and her husband had been drinking heavily that day. But the company settled the case just before it went to the jury.

Mr. Shinkle declined to disclose the terms of the settlement, citing a confidentiality agreement. He said Carnival’s decision to settle was ‘‘just a matter of good

business sense.’’

Rape experts say delays often occur in reporting rapes, particularly in a situation

like a cruise, where the passenger could fear reprisal and there is no independent

investigator or rape treatment center. But the time lag makes criminal prosecutions

difficult.

‘‘Cases reported within 72 hours offer the best forensic evidence,’’ said Dr. Karen

J. Simmons, director of the rape treatment center at Jackson Memorial Hospital in

Miami. ‘‘But we see a lot of people after that because they may be afraid of reporting it or ashamed.’’

Dr. Simmons said the center did not keep statistics on victims from cruise ships,

but she said passengers were treated with some frequency. Court files in Miami,

16

where most suits must be filed against the big cruise lines, indicate rapes often are

not reported until too late for criminal investigation.

MANEUVERS

TRYING TO DEFLECT VICTIMS’ LAWSUITS

Not everyone delays reporting. On June 19, 1997, a 35-year-old California woman

aboard a Royal Caribbean ship with her parents sought help immediately.

The woman had spent some time in the ship’s nightclub before returning to her

cabin about 4 A.M. Unlike many cases aboard ships, where alcohol is plentiful,

records show that she consumed only a non-alcoholic drink in the nightclub. ‘‘I put my key into the slot to open the door,’’ she later testified in court. ‘‘I put

one foot in and was pushed from behind.’’ She said she fell onto her hands and knees but ‘‘fought to save my life.’’ People

in the cabin next door heard the commotion, but did not summon help. Her injuries

were so severe that she was on crutches for two weeks, according to court records

and her lawyer.

When her attacker left, she called her father and he alerted the ship’s security.

Within hours, the woman had identified her attacker in a line-up as Jorge Virtucio,

a member of the cleaning crew.

Questioned that day by a ship’s security officer and a company lawyer who had

been flown in, Mr. Virtucio denied being anywhere near a passenger, saying he had

been washing decks at 4 in the morning. When asked about scratches on his body,

he said they were from minor work accidents.

Mr. Virtucio was indicted and, as his trial approached last May, DNA evidence

linked him to the assault. He switched his story and his lawyers argued that the

woman had consented to sex. A jury found him innocent. ‘‘Our defense was that the case was a false claim and that the motive was ultimately to sue Royal Caribbean,’’ said Fletcher Peacock, the public defender appointed to represent Mr. Virtucio at trial in Federal District Court in Miami.

The woman did sue Royal Caribbean. Her lawyer, Johnna J. Hansen, said the

cruise line had appeared to cooperate with her client and had notified the F.B.I. at

the woman’s request. But she said that the cruise line had tried to make sure no

one else on the ship heard about the incident and that F.B.I. agents were delayed

for several hours before boarding the ship. During that time, she said, her client’s room had been cleaned, making it harder to gather evidence.

She also said lawyers for the cruise line conferred with Mr. Virtucio’s lawyers in

the courtroom during the criminal trial. Mr. Peacock said Royal Caribbean maintained a neutral stance, but its lawyers were pleased by the verdict.

In court papers, Royal Caribbean said it was not responsible for a crew member’s actions outside his official duties.

To counter what it regards as frivolous lawsuits, the cruise industry had its lawyers draft a measure in 1995 to restrict the ability of sexual-assault victims to collect damages in court and to prohibit foreign crew members from suing in American

courts.

Representative Don Young, an Alaska Republican, introduced the measure as an

amendment on the House floor and it passed without a hearing. Between 1993 and

1998, Mr. Young received at least $29,000 from political action committees and individuals affiliated with the cruise industry, according to Federal Election Commission records.

The bill was stopped by Senator Ernest F. Hollings, Democrat of South Carolina,

after lobbyists for the trial lawyers noticed the language and started a campaign

against it.

One of the strongest accusations of a coverup involved a crew member who said

she had been sexually assaulted. A 26-year-old Carnival employee was in her cabin

last Aug. 13, nearing the end of a weeklong Caribbean cruise on the Imagination,

when one of the ship’s engineers, Yurij Senes, attacked and sodomized her, according to court records.

Her lawyer, Mr. Bianchi, said the woman reported the rape to ship’s security and

identified her attacker. But Carnival’s lawyers said the woman initially did not

want to report the episode to the authorities.

Two days later, when the ship docked in Miami, Mr. Senes was dismissed from

his job and arrangements were made for him to be taken to Miami International

Airport for a flight to his native Italy because his visa automatically expired when

he was dismissed. By then, the female crew member had filed a complaint with the

F.B.I. and agents told Carnival security personnel that they wanted to interview

Mr. Senes. Mr. Mase, Carnival’s lawyer, said a mix-up occurred and the suspect was

taken to his flight without being questioned.

17

Mr. Bianchi disclosed at a court hearing last month that his client had testified

before a Federal grand jury investigating whether Carnival helped the officer escape. John Schlesinger, special counsel in the United States Attorney’s office, would

not confirm or deny an inquiry. But he expressed amazement at the suspect’s escape. ′′Carnival raised some eyebrows when they whisked him to the airport moments ahead of the posse,′′ he said.

In September, Mr. Senes was indicted on Federal charges of aggravated sexual

assault. He was arrested at his home in Italy and faces extradition to the United

States.

Lawyers who sue cruise lines said it is common for crew members suspected of

crimes to be sent home. Tracking them down for depositions and subpoenas can be

expensive and difficult.

‘‘My general experience is that the cruise lines would rather be horse-whipped

than bring these perpetrators back to U.S. law enforcement,′′ said Mr. Ericksen, the

Lake Worth lawyer, who has located crew members as far away as Bombay.

There also is evidence that employees are encouraged to lie or remain silent.

Charles Lipcon, a Miami lawyer who often represents crew members, said they often

keep quiet about crimes because those who speak out are dismissed and sent home.

In 1995, a Florida appeals court found that Carnival had dismissed a crew member, Luis Baiton, for refusing to lie to protect the company in a civil suit brought

by another seaman. ‘‘Allowing retaliation against an employee for truthful testimony, or refusing to give false testimony, strikes at the heart of the adjudicatory

process,’’ the court said.

The case did not involve sexual assault, but rather a claim filed by a crew member who was hurt on a ship. Mr. Baiton said Carnival had tried to persuade him

to lie in his testimony on behalf of the crewman and dismissed him when he refused.

In September, Royal Caribbean paid a $9 million fine after pleading guilty to a

fleet-wide conspiracy to dump oil into the ocean. As part of the plea, Royal Caribbean acknowledged ordering an engineer to lie to a Federal grand jury and destroying evidence to conceal its illegal dumping.

The New York Times

February 19, 1999

CRUISE LINES REAP PROFIT FROM FAVORS IN LAW

By Douglas Frantz

MIAMI - The world’s largest cruise company, the Carnival Corporation, earned $2

billion in profits over the last three years. But the company, with headquarters here

in two multistory buildings on Carnival Place, paid less than 1 percent in income

taxes even though its earnings exceeded those of many Fortune 500 companies.

Royal Caribbean Cruises, the second-largest cruise company, whose headquarters

overlook the Port of Miami, reported profits of $657 million over the same time. Its

financial statements do not even include a line for income taxes.

Doing business under a decades-old loophole in the Federal tax code, and protected by an increasingly powerful lobbying force, the 17 major cruise lines pay

practically no income tax even though they are based in this country and 90 percent

of their passengers are Americans. The cruise lines, all of them registered in foreign

countries, do not observe the nation’s labor laws, minimum wage law and many environmental and safety regulations.

Just last fall, by having a senator insert a single word in the Federal budget bill,

the 17 cruise lines won an exemption from immigration fees worth $20 million a

year. In an amendment to another bill, a Congressman protected the foreign-registered cruise lines’ monopoly on coveted permits to sail into Glacier Bay National

Park in Alaska.

Over the last decade the cruise industry has grown rapidly, launching ever bigger

ships carrying thousands of passengers. But now concern is growing over the

megaships’ impact on marine environments and the impact of the foreign-registered

lines’ tax advantages on struggling American-registered cruise ships.

In Congress, a potential battle is brewing on several fronts, including the foreign

cruise ships’ major advantage: while they earn their profits from the United States,

they avoid nearly all income taxes by registering as foreign corporations and sailing

under foreign flags. They also build their giant floating resorts overseas.

‘‘These companies don’t pay any of the taxes or live with any of the associated

costs of operating a safe vessel and paying a decent wage,’’ said Representative

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Gene Taylor, Democrat of Mississippi, whose district includes shipbuilding companies, ‘‘and it is absurd to allow them access to the American market free of charge.’’

Last month the Senate majority leader, Trent Lott, a Republican who is also from

Mississippi, called on the Clinton Administration to work with Congress to strengthen the American maritime industry by re-examining the advantages enjoyed by foreign companies.

‘‘This nation’s tax policies should promote business growth, not stifle it,’’ Mr. Lott

said.

And this month, two Democrats in the House, Representatives John A. Dingell

of Michigan and Henry A. Waxman of California, initiated an investigation by the

Commerce and Government Reform Committees into illegal dumping of oily waste

and other pollutants by cruise ships, to determine whether the United States should

strengthen its regulation of the industry.

‘‘′′The major companies may argue that they have environmental programs in

place,’’ Mr. Dingell said, ‘‘but as long as these practices persist, it calls into question

either the quality of the plans, or the commitment of senior management, or both.’’

Industry representatives respond that cruise lines adhere to strict international

environmental and safety standards that are enforced by the International Maritime

Organization, a regulatory agency affiliated with the United Nations. And they say

immunity from American taxes is a long-recognized element of international law on

ocean-going trade.

Cruise lines pay more than $66 million a year in fees to American ports, as well

as other taxes and fees, according to the industry. And a new study done for the

industry found that cruise lines bought $6.6 billion worth of American goods and

services in 1997, generating 176,433 jobs.

‘‘We generate billions of dollars every year here in the U.S. economy, and the

United States is a major beneficiary of our industry,’’ said Cynthia A. Colenda,

president of the International Council of Cruise Lines, which represents the major

cruise lines.‘‘This industry is a revenue generator, and it helps economies throughout this country.’’

But while the 17 cruise lines flying foreign flags and some of their suppliers have

prospered, the American maritime industry has fallen on hard times. The only

cruise ship flying an American flag is the 50-year-old Independence, which travels

among the Hawaiian Islands, and no deep-ocean cruise ship has been built in the

United States for at least 40 years.

TAX DISADVANTAGE FOR AMERICAN LINES

Efforts are under way to develop an American-flag cruise industry, but American

shipping companies that must pay United States taxes and wages face serious disadvantages.

The United States corporate income tax rate is 35 percent, though most corporations pay a modestly lower rate through various deductions. If Carnival was an

American corporation paying taxes at the 35 percent rate -- or even if it was a foreign corporation in a different business here, it would have paid about $700 million

in taxes to the United States over the last three years on $2 billion in net income.

Instead, Carnival is registered in Panama, which does not impose a business income tax, and the company paid only $15 million in income taxes -- on the earnings

of one division, which has hotels and tour operations in the United States and so

is not exempt from taxes.

The tax break is in a section of the Internal Revenue Code that exempts foreign

corporations’ income from ships and aircraft from taxation, if the country in which

the corporation is organized offers the equivalent exemption to American corporations. The rules were set up to promote international shipping and air trade.

Cruise companies have been able to take unique advantage of the provision by

registering in small countries like Liberia, Panama and the Bahamas, which do not

impose a corporate income tax. Major airlines like British Airways or Lufthansa do

not pay United States taxes either, under the provision, but unlike the cruise lines,

they are not based in the United States and they paysubstantial taxes in their home

countries.

And American-registered cruise companies do not benefit from a reciprocal exemption because they remain subject to United States taxes, even on their international

business.

‘‘Our members are fully subject to U.S. income taxes, even if we take our vessels

into foreign waters,’’ said Edmund B. Welch, legislative director for the Passenger

Vessel Association, the trade group for passenger ships flying under American flags,

which are mostly sightseeing and excursion vessels.

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‘‘We have ships relocate from the Pacific Northwest down to Mexico in the winter,’’ Mr. Welch said, ‘‘but they still pay U.S. taxes on their Mexican operations.’’

Foreign-registered cruise lines also pay workers far less than their American

counterparts. Their crew members, mainly from developing countries, routinely

work 10 to 12 hours a day, 7 days a week, for as little as $400 a month, according

to a survey last year by Seafarers’ House, a nonprofit agency that ministers to workers at Florida ports.

BIG SPENDING ON LOBBYING

There has never been a serious effort to alter the tax rules, and the industry has

developed an effective lobbying presence in Washington to protect its interests.

While all the members of the International Council of Cruise Lines are foreign

businesses, the campaign finance law allows the organization to have a political action committee and raise donations for it from the cruise line employees who are

American citizens. In the 1997-98 campaign, the group donated $166,146 to House

and Senate candidates, according to the Center for Responsive Politics, a nonpartisan organization.

The council spent more on lobbying. In its latest full-year report filed with the

Senate, it said it spent $557,023 on lobbying in 1997.

Most of the money, $380,000, went to the firm Alcalde & Fay for work on tax and

immigration issues. The firm, run by Hector Alcalde, a former Congressional staff

member, received an additional $200,000 in the first half of 1998. Mr. Alcalde is the

father of Cynthia Colenda, who worked at his firm before taking over as president

of the International Council of Cruise Lines.

The effectiveness of the lobbying was evident in the budget bill for the current

fiscal year. An innocuous-looking item, Section 114, amended the immigration act

by inserting a single word, ‘‘State,’’ and a comma. Doing so eliminated as much as

$20 million a year in fees from cruise lines.

The Immigration and Naturalization Service had been authorized to assess $6 per

passenger to cover inspection costs for people arriving in American ports on cruise

ships, unless their cruise had begun in Canada, Mexico or a United States territory.

Adding ‘‘state’’ expanded the exemption to passengers whose travel started in the

United States — eliminating the fee for all but the tiny number of transoceanic passengers.

The immigration service calculated that the change cost it $20 million a year, said

a spokesman, Greg Gagne.

‘‘We were aware that it was going in,’’ Mr. Gagne said, ‘‘but it certainly wasn’t

our choice or our preference. We think all carriers should share in the cost equally.’’

In fact, however, the fee had not been assessed in recent years. Mr. Gagne and

industry representatives said they did not know why.

SECRECY BEHIND THE CHANGES

The change originated in the Senate, but records do not identify its author. Senator Ted Stevens, the Alaska Republican who is chairman of the Appropriations

Committee, said through a spokeswoman that he knew who wrote the section and

that he had approved it, but he refused to identify the senator. ‘‘Senator Stevens

is respecting the confidentiality rules of the Senate,’’ said the spokeswoman, Jen

Siciliano.

Mr. Taylor ran into similar secrecy when he tried to close a loophole that allows

foreign-registered cruise lines to operate gambling cruises out of American ports.

Under a century-old law designed to protect the American shipping industry,

ships flying foreign flags cannot travel between American ports, or leave from and

return to the same American port, unless they visit a foreign port as part of the

voyage. That is why foreign cruise ships sailing from Miami or San Diego stop at

a foreign location before returning, a practice critics call ‘‘cleansing the voyage’’ for

tax purposes.

But the Customs Service ruled that foreign vessels meet the requirement in some

cases if they merely sail three miles out into international waters before returning.

That ruling allows foreign ships to operate gambling ‘‘cruises to nowhere’’ that depart from an American port, travel briefly into international waters and return to

the same port without visiting another country.

Those types of cruises are operated by smaller foreign cruise lines operating from

American ports, not the major lines.

Seeking to claim that business for American ships, Representative Taylor won

House approval three times, from 1993 to 1995, for legislation that would require

foreign-registered vessels to stop at a foreign port even on a ‘‘cruise to nowhere.’’

20

Each time the bill got to the Senate, at least one anonymous senator put a hold

on it , blocking any vote. Mr. Taylor said he was unable to identify who stopped

the measure, but he said he knew who was behind it. ‘‘The first time I went to pass

that bill in the House, I will never forget what happened to me,’’ Mr. Taylor said,

describing a 1993 incident. ‘‘As I’m walking across the street to go handle the bill

on the House floor, the chief lobbyist for the foreign cruise industry comes up and

offers me and my family a free cruise if I withdraw my bill. He says, ‘It’s just so

that you get to know us.’ It sure sounded like a bribe to me.’’ Mr. Taylor said the

lobbyist was Mr. Alcalde.

In a written response, Mr. Alcalde called the accusation reprehensible. He said

that the Congressman misunderstood what he said, and that he did not even have

the authority to offer anyone a free cruise.

‘‘It is true that I suggested he inspect the cruise ships,’’ Mr. Alcalde said. ‘‘It is

important that to take a position as a legislator, one must understand the industries

that they are attempting to regulate.’’

‘‘It is also true that I suggested that they are an excellent vacation, especially for

families. Never did I offer Mr. Taylor any favor or incentive, and I am truly sorry

that he misunderstood those words.’’

The cruise trade group opposed Mr. Taylor’s bill in 1992, telling Congress it

feared that the restrictions could be applied too broadly to its members. The next

year, the group said it could support the bill with clarifications spelling out that it

was intended for the ‘‘cruise to nowhere’’ trade.

PERMIT ADVANTAGE IN GLACIER PARK

The industry’s influence also paid dividends last October when Representative

Don Young, Republican of Alaska, preserved the monopoly held by foreign cruise

lines on entry permits to Glacier Bay National Park, a popular cruise destinations.

In an effort to increase competition for concession business at national parks,

Congress last year eliminated a long-standing provision that allowed existing operators to retain concessions by matching the best offer from any other company. The

provision made it virtually impossible for an outside company to win a concession.

Among the parks that would have been opened to competition was Glacier Bay,

where concerns over the environment and wildlife have restricted entry permits for

ships. The day the bill passed the House, Mr. Young, chairman of the Committee

on Resources, inserted an amendment extending the preference for operators at Glacier Bay until 2009.

Mr. Young has received about $45,000 in contributions from cruise industry employees in recent years. One of his former staff members also works as the chief

lobbyist for Holland American Line, the division of Carnival that has the most entry

permits for Glacier Bay.

Efforts to interview Mr. Young over the course of a week were unsuccessful. Last

fall, he said that retaining the preference was necessary to avoid disrupting cruises

and to protect Alaskan tourism.

‘‘Cruise ship companies depend on a smooth process for bidding on permits to

enter Glacier Bay in order to accommodate the thousands of passengers who visit

this park every year,’’ he said.

Kevin Apgar, the National Park Service concession manager for Alaska, said in

an interview that the exemption was anti-competitive and not necessary to insure

smooth cruise operations.

‘‘I don’t see any justification for it,′′ Mr. Apgar said. ′′The industry made a special

pleading and got special treatment over all the other large concessions nationwide.’’

Three American companies with smaller ships submitted proposals last year for

some of 42 new cruise-ship permits being awarded by the Park Service.

‘‘The big operators still have a preference and we expect our application to be denied,’’ said Gary Sorrels, vice president of American West Steamboat in Seattle,

which is planning a 250-passenger cruise ship.

Officials at the National Park Service in Washington said they expected to award

most of the new permits to Holland America, which they said submitted the best

proposal, within the next few weeks. The company promised new studies on the impact of cruise ship noise on whales and said it would finance an on-site equipment

and personnel to respond to an oil spill in the park.

The award is likely despite Holland America’s guilty plea last August to discharging oily waste in the waters of Alaska’s Inside Passage.

‘‘We’re aware of the dumping,’’ said Bill Pierce, the Alaska desk officer at the park

service, ‘‘but Holland America’s proposal was very good.’’

21

Senator HUTCHISON. Now I would call on the good Senator from

Alaska, Senator Frank Murkowski, who is also a cosponsor of this

legislation, and whose State is very much affected, and I think

would open up a lot of opportunities if we could pass this legislation, having been a visitor to Alaska, I know that a lot of people

would like to have the opportunity to cruise the Alaska shore, so

thank you, Mr. Chairman.

STATEMENT OF HON. FRANK MURKOWSKI,

U.S. SENATOR FROM ALASKA

Senator MURKOWSKI. Let me thank you, Madam Chairman, and

also thank Senator McCain for the efforts on this legislation. I

think Alaska and Hawaii are particularly sensitive to the impacts

of maritime legislation. We have lived under the Jones Act for a

long, long time, since the early 1900’s.

The Jones Act, of course, is the cabotage law, which mandates

that the movement of goods between two American ports take place

in a U.S. flagged vessel, and as a consequence we do not move

Alaskan coal to Hawaii because it is cost-prohibitive.

We are not allowed to move Canadian goods—excuse me, U.S.

goods from the West Coast, the State of Washington, up to Alaska

in a Canadian ship simply because it is a violation of the Jones

Act, and so in order for us to transit, why, we have a foreign vessel

between a U.S. and foreign port, but not to other U.S. ports. That

is a protectionist type of legislation that has been able to foster the

maritime industry in the state to what it is today, and what it is

today is somewhat limited.

As you know, all the oil that moves from Alaska down the West

Coast, which is about 20 percent of the total crude oil produced in

the United States, moves in U.S.-flagged vessels, and that is obviously a significant contributor to the American merchant marine.

Now, the Passenger Shipping Act has a similar prohibition. It

says passengers cannot move between two U.S. ports unless it is

on a U.S. vessel and as a consequence, Madam Chairman, we have,

for all practical purposes, eliminated any sailings from U.S. ports

by any major vessels. The only exception to that is one vessel that

is serving the Hawaiian Islands.

As to what we are attempting to do here, I would prefer a simpler approach, but I recognize the difficulties associated with this

legislation. As many of you know, the passenger business has become a significant outlet for vacationers seeking a leisure experience, and the industry I think has done an extraordinary job in

meeting the requirements of the leisure public who are willing to

spend a week or so on a ship.

I think right now we have about 92 ships that are foreign-documented vessels with foreign crews traveling out of U.S. to a foreign

port. I am told that the industry has topped $11 billion in 1997,

and the cruise industry spends more than $6 billion annually nation-wide, and spends more than $363 million annually in my State

of Alaska, and spends more than $2 billion in Florida, to give you

some idea of the magnitude of the contribution.

These figures I think demonstrate beyond a question that it is

a big business. It is good to have such spending in our States, but

it is also obvious that if the industry is spending more than $60

22

billion a year in direct purchases of goods and services, then the

U.S. is already a major cruise-ship market.

And let us not forget the other figure. They carry more than 4

million passengers, most of whom are U.S. passengers. The industry is expected to grow by more than 50 percent over the coming

years. The 1997 study indicated the industry planned as many as

41 new vessels. I do not know whether that is an overcapacity, but

clearly, they know the risk, and they are looking at increasing passenger capacity by more than 40 percent between 1997 and the

year 2000.

It is unfortunate, but it is a fact that all of the cruise lines that

I have discussed operate foreign vessels exclusively. That is just a

sad necessity, because it is not financially possible for a company

to operate the U.S.-flagged vessels that are required by the Passenger Services Act in its current form.

The industry is dominanted Carnival Corporation, which operates a number of cruise lines, Holland-American Lines among

them, but Royal Caribbean is also a major factor in the industry,

about $1 billion and net earnings of about $331 million last year.

So what we have is an industry that is focused on U.S. passengers in a trade that has become extremely lucrative. That being

the case, the question is, why are there no U.S.-flagged vessels? As

I have indicated, there is an old one in Hawaii, but the answer is,

it costs too much to build vessels in the United States and man

them with U.S. crews.

I hope the witnesses will give us enough detail so we can understand whether this legislation as proposed is designed to benefit

one company in particular, which says that it will commit itself to

build and crew in the U.S. if S. 1510 becomes law. I think we

should examine the cost of U.S. construction and manning to determine what factors are relevant in this.

It is my understanding that there is a consideration of a substantial contribution from MARAD in this proposal, where MARAD

would provide Government assistance, financing, and so forth. It is

also my understanding that there is a potential of substantial

union pension funds being invested in this proposal. The latter is

the business of the unions, which is quite appropriate, but nevertheless not everyone has access to that type of funding capability.

Madam Chairman, I do not know if cost alone is the only reason

we have no U.S. vessels at present, but I think we have to look

closely at this legislation, which may put one company in the U.S.

trade, but the question is, can it be expanded to encourage other

companies to do the same?

On another note, given the tremendous growth and extraordinary

profits of the current foreign flag operators, perhaps it is simply

that it is more profitable to operate under foreign flags which minimize a company’s liability for U.S. taxes, as well as its obligation

to employ U.S. citizens. As we know, the current ships do not employ U.S. labor to any great extent, and their tax situation is such

that they pay taxes on revenue generated within the United States

but not on earnings from voyages from foriegn ports.

So I am not opposed to having my State, or any State for that

matter, benefit from the dollars brought in by foreign-flagged vessels. I would like to see us competitive, and this legislation may be

23

a step in the right direction, and that is why I am supporting it

at this time.

As it stands today, the Passenger Service Act does not protect

American industry under any terms and circumstances. It merely

holds it back, to the detriment, I think, of all American ports, and

that is not good policy. Changing it is. And when I say American

ports, I am talking about American jobs as well, and so I applaud

those who have the forward-looking vision to support this bill, but

I would also suggest, Madam Chairman, that we get a full understanding of the financing which is suggested in this proposed legislation.

I thank the chair.

Senator HUTCHISON. Thank you, Senator Murkowski, and thank

you for your leadership on this issue, and I do hope we can come

to a resolution that will be in everyone’s interest, and certainly

with a fair taxation and fair access to a level playing field in the

regulatory arena. I think that is certainly a given.

Now, Senator Abraham has graciously agreed to let Senator

Brownback proceed.

Excuse me, Senator Cleland. Did you come before Senator Abraham? I am sorry.

Senator CLELAND. Madam Chairman, he was first.

Senator HUTCHISON. Let me just ask you, Senator Brownback

has asked to go first because he has another hearing.

Senator CLELAND. That is fine.

Senator HUTCHISON. All right, Senator Brownback.

STATEMENT OF HON. SAM BROWNBACK,

U.S. SENATOR FROM KANSAS

Senator BROWNBACK. Madam Chair, thank you very much. I

want to thank my colleagues, Senator Cleland and Senator Abraham, for allowing me to go out of order. I only want to take a couple of minutes. I did want to comment briefly that I think this is

an important bill, and it is an important hearing for us to have on

this issue, and I am supportive of it.

I have got a letter that I am going to introduce into the record,

signed by five of our colleagues and myself, supporting this effort

on opening this up, but we would also like to take the spirit embodied in this bill, in S. 1510. We hope that the Congress will soon

turn to the deregulation of coastwise transportation of freight,

which is presently restricted by the Merchant Marine Act of 1929,

which of course is best known as the Jones Act.

The chairman, Chairman McCain has held a hearing on this previously. It really hurts American farmers. Farmers and other bulk

shippers in the agricultural heartland of America are affected by

the Jones Act, because it removes competitive shipping options that

could otherwise be available if we had a viable deep-water fleet engaged in coast-wise trade, and I want to give you one small example of what happened.

This impact was confirmed by a decision earlier this year by

poultry and swine producers in North Carolina to buy 75,000 tons

of soybean meal from Brazil. This in the midst of a terrible crisis

farmers are suffering right now in the United States and our low

prices.

24

The livestock producers chose to buy foreign grain because counterproductive shipping restrictions prevented them from buying

U.S. grain at a reasonable cost and being able to ship it into North

Carolina. It was cheaper for them to ship it from Brazil than to get

it from Ohio, Indiana, and Illinois, and the limited shipping options

we have there because of Jones Act problems.

Madam Chairman, this has been a problem for the agricultural

community for some period of time. It just continues to get worse

as the deep water fleet has grown smaller and smaller, so I would

hope that as we look at this act on tourism, we would also take a

look at the Jones Act and its impact on agriculture, and our lack

of having competitive options for a deep water fleet to move agricultural bulk commodities within the United States.

With that, I am going to submit this letter and my full statement

in the record, and again thank my colleagues for allowing me to

present this out of step.

[The prepared statement of Senator Brownback and joint letter

of support for S. 1510 follow:]

PREPARED STATEMENT OF HON. SAM BROWNBACK, U.S. SENATOR FROM KANSAS

Senator BROWNBACK. Madam Chair, thank you very much. I want to thank my

colleague, Senator Cleland and Senator Abraham, for allowing me to go out of order.

I only want to take a couple of minutes. I did want to comment briefly that I think

this is an important bill, it is an important hearing for us to have on this issue,

and I am supportive of it.

I hope that the Congress will soon turn to the deregulation of coastwise transportation of freight, which is presently restricted by the Merchant Marine Act of 1929,

which of course is best known as the Jones Act.

The chairman, Chairman McCain held a hearing on this previously. This Act really hurts American farmers. Farmers and other bulk shippers in the agricultural

heartland of America are affected by the Jones Act because it removes competitive

shipping options that could otherwise be available if we had a viable deep water

fleet engaged in coast-wide trade. I want to give you one small example of what happened.

This impact was confirmed by a decision earlier this year by poultry and swine

producers in North Carolina to buy 75,000 tons of soybean meal from Brazil. This

in the midst of a terrible crisis; farmers are suffering right now in the United States

due to low prices

The livestock producers chose to buy foreign grain because counterproductive

shipping restrictions prevented them from buying U.S. grain at a reasonable cost

and being able to ship it into North Carolina. It was cheaper for them to ship it

from Brazil than to get it from Ohio, Indiana, and Illinois, because of the limited

shipping options we have there due to Jones Act problems.

Madam Chairman, this has been a problem for the agricultural community for

some period of time. It just continues to get worse as the deep water fleet has grown

smaller and smaller. I would hope that as we look at this act on tourism, we would

also take a look at the Jones Act and its impact on agriculture, and our lack of having competitive options for a deep water fleet to move agricultural bulk commodities

within the United States.

With that I would like to thank my colleagues for allowing me to present this out

of step.

UNITED STATES SENATE

WASHINGTON, DC 20510

JOINT LETTER OF SUPPORT FOR S. 1510

THE UNITED STATES CRUISE SHIP TOURISM DEVELOPMENT OF 1999

The undersigned Senators support S. 1510, and hope to see it become law this

year. S. 1510. The United States Cruise Ship Tourism Development Act of 1999 reVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
25

moves an artificial regulatory barrier to commerce in the cruise ship industry. As

the current economic recovery rolls on, Americans will have more disposable income

to spend on leisure items like cruises, and cruise ship operators should have the

freedom to take these customers where they want to go. S. 1510 will break down

unnatural, protectionist barriers to coastwise commerce in the cruise industry. Congress should act expeditiously on S. 1510 so that the traveling public can benefit

from further deregulation of this industry.

In the spirit embodied in S. 1510, we hope Congress will also soon turn to the

deregulation of the coastwise transportation of freight, which is presently restricted

by the Merchant Marine Act of 1929, known as the Jones Act. Farmers and other

bulk shippers in the agricultural heartland of America are affected by the Jones Act

because it removes competitive shipping options that could otherwise be available

if we had a viable deepwater fleet engaged in coastwise trade. That fleet today is

small, antiquated and unserviceable. This is confirmed by the decision earlier this

year by poultry and swine producers in North Carolina to buy 75,000 tons of soybean meal from Brazil. This, in the midst of the terrible crisis farmers are suffering

right now. The North Carolina livestock producers chose to buy foreign grain because counterproductive shipping restrictions prevented them from buying U.S.

grain at a reasonable cost. No doubt, soybean producers in states like Ohio, Indiana,

and Illinois that would normally suppiy North Carolina livestock producers are

counting the cost of opportunity lost to the Jones Act.

The undersigned Senators look forward to supporting passage of S. 1510. Hopefully, the example of deregulation of the U.S. cruise ship industry will lead Congress

to examine the moribund domestic coastwise deepwater shipping industry.

Sam Brownback

Conrad Burns

Richard Lugar

Jesse Helms

Pat Roberts

Peter Fitzgerald

Senator HUTCHISON. Thank you very much, Senator Brownback.

Senator Abraham.

STATEMENT OF HON. SPENCER ABRAHAM,

U.S. SENATOR FROM MICHIGAN

Senator ABRAHAM. Thank you, Madam Chairman. I first want to

begin by indicating that I think the potential for significant expansion of the cruise industry in our country exists. I do not think it

exists just in the areas which we have typically come to think of

as the areas of cruise destinations or cruise activities, but also in

a variety of other areas, including the Great Lakes, where obviously I have a special interest and excitement about that potential.

In fact, the chairman was recently a visitor in an area of our

State which I think has great potential as a possible launching

place or debarkation point for cruise activities.

Senator HUTCHISON. If the Senator would yield, I would say that

I observed that your Lakes are bigger than our Gulf. I certainly

think it would be a wonderful opportunity.

Senator ABRAHAM. There is a lot of interest in that, and I think

probably a number of the witnesses here are not only aware of it,

they may even comment on that as part of the potential for expansion.

One of the concerns I have at the inception, as we look at this

legislation, is the extent to which it would really be applicable, or

have any potential to apply in the Great Lakes, specifically because

of the size of the vessels that are involved, and some of the rules

that would be built into this legislation. So I have some concerns

about the mechanics of the legislation as to whether or not it would

even make an impact, or have a potential to have impact in our

area, where I think the potential for growth is significant.

I also would say, with all due respect to the Senator from Kansas, that if the moving of this legislation is going to be linked eiVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
26

ther in a direct sense or in an indirect sense by virtue of sort of

the precedent it might set, or the sort of atmosphere it might create to efforts to change the Jones Act with respect to the cargo operations and industries in our country, I think it would almost certainly preclude the legislation or any form of this legislation from

going forward.

Because I have a slightly different perspective on the Jones Act

than Senator Brownback, although I certainly respect his views, I

think that this type of legislation will not move if it becomes perceived as either a camel’s nose under the tent or a precursor to a

broader type of Jones Act reform.

So I would hope that we would, as any process moves forward

here, be very clear about that, because I think anything, if we

broaden the scope of the ultimate objectives here, it certainly

makes it impossible to put together the kind of consensus and bipartisan support that would be needed for passage, and that, too,

will be something that I am going to be interested in following as

we move ahead.

But I certainly think that as a committee our efforts, any efforts

we can engage in to try to identify ways to assist in the development of this cruise industry in our country is a really wise topic

on which for us to focus. I think it is a place where we have the

potential to make an impact, and so I thank you for holding the

hearing and look forward to hearing from our witnesses.

Senator HUTCHISON. Thank you very much.

Senator Cleland.

STATEMENT OF HON. MAX CLELAND,

U.S. SENATOR FROM GEORGIA

Senator CLELAND. Thank you, Madam Chairman. I just want to

thank you for your interest and leadership on this important issue.

I realize that you would rather see an end to the Passenger Vessel

Services Act, but I thank you for taking a look at other approaches

to increase consumer access to the cruise market. The passenger

vessel industry has seen drastic changes in the past half-century.

It is disappointing to note that the U.S. once held a considerable

share in the cruise industry, especially in the trans-Atlantic voyages, and while the advent of affordable air travel replaced the

ocean liners carrying passengers to Europe, the industry was able

to shift its focus to entertainment and tourism.

Unfortunately, the shift in focus all but eliminated the U.S.-

flagged cruise industry. In 1960, there were 31 American passenger

vessels. Today, there is only one. Certainly the operating advantages of international vessels over U.S. vessels prohibit American

cruise lines from competing on a level playing field with vessels

registered under the flag of convenience. U.S. vessels are held to

a much higher standard. They must comply with strict U.S. environmental and labor laws, are subject to U.S. taxation, and clearly

fall under the jurisdiction of the American legal system.

While it may be unfeasible for American cruise ships to compete

in foreign markets, I believe the domestic trade holds immense potential. I am greatly encouraged by recent actions in the Hawaiian

Islands and that passenger vessel market to revitalize the U.S.-

flagged cruise industry. This effort includes the registering of sevVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00030 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
27

eral cruise vessels under the U.S. flag, and the commitment to

buildup to five coastal cruise vessels to be operated in the domestic

market.

The Hawaii legislation was a result of industry leaders working

together to find a win-win solution to these problems. I commend

their efforts, and encourage their continued involvement in the revitalization of the U.S.-flagged cruise industry.

In my home State of Georgia, there is great optimism for the establishment of a domestic cruise market. The City of Savannah is

currently using an old cargo terminal for a temporary cruise terminal, and they are in the process of finding funds to build a dedicated cruise terminal as soon as possible. With the construction of

a maritime conference center and hotel on Hutchison Island, the

time is right to pursue this possibility.

Recently, Savannah had the opportunity to host a cruise ship,

the 1,200-passenger vessel ZENITH, operated by Celebrity Cruises.

At the height of hurricane season, low pressure kept the ZENITH

from calling on Bermuda as scheduled, and its contingency port of

Nassau in the Bahamas. After seeking refuge from the storm in

Port Canaveral, the ZENITH had planned to sail north to Savannah before returning to New York.

As I understand it, current law prohibited the ZENITH from calling on Savannah due to the absence of a visit to a foreign port. I

must say, it is curious that an act of Congress superseded an act

of God in this case.

The Savannah Convention Center has since estimated that the

ZENITH could have contributed as much as $1/4 million to the

local economy. I regret the loss of revenue to the Savannah economy, and yet I am reluctant to go against our fundamental commitment to support a strong U.S. merchant marine. We are here today

in order to attempt to find a balance between a vital maritime policy and the future of domestic passenger commerce.

I want to thank the chairman for opening the dialog on how to

revive the U.S. passenger vessel fleet. I look forward to working

with my colleagues in order to find a viable, long-term solution to

revitalize the American passenger vessel industry while maintaining and enhancing the position of American workers, both of which

have suffered from a lack of attention in Congress for over 4 decades.

Thank you, Madam Chairman.

Senator HUTCHISON. Thank you, Senator Cleland. Senator Gorton.

STATEMENT OF HON. SLADE GORTON,

U.S. SENATOR FROM WASHINGTON

Senator GORTON. Well, Madam Chairman, welcome to the spider

web.

[Laughter.]

Senator GORTON. I was looking at our staff memorandum on his

subject, and the first thing that came to mind is that we are now

dealing with the second oldest statute that still creates a great deal

of controversy. Every year, we have eloquent debates on the necessity to amend the Mining Act of 1872. It is exactly 14 years older

than the Passenger Vessel Services Act, and I am not sure which

28

one I would place my money on for any actual revisions within the

foreseeable future.

I have been involved in sponsoring bills of this nature for sometime, and Madam Chairman, if I may say, they all seem to fall into

two categories. Category 1 is a bill relating to passenger vessels

that would actually change the way in which business is conducted

in the real world, and they are opposed by so many people they

have no chance of passage.

Category 2 are statutes that seem to do something but would not

change the way in which the world operates, and they have at least

a remote chance of passage. I am not at all sure that you have not

combined category 1 and 2 in this case with something with very

little chance of passing, the success of which I find relatively dubious, and it certainly is not for want of trying.

It does seem to me, as it does to almost everyone else, that when

we have so significant an industry, or a business as this one, that

we ought to be able to manage it in a way that provides more jobs

and economic opportunity for citizens of the United States as well

as even greater choices for American citizens than the type of

cruises in which they are engaged, but no matter how we try to do

it, there is some major economic interest in the United States

whose ox is gored by an effective way of going at this, at attempting to meet this challenge.

Given the secondary or tertiary nature of this debate—and by

that I do not mean to deprecate its importance, except to say that

it is not something that any Senate Majority Leader is going to

allow the Senate to spend a month on the floor debating in the face

of a filibuster, that it is just extremely difficult to get from here to

there. To get everyone, to get a panel, a representative panel, all

who would say the bill was a good idea would be a true miracle,

but as I say, I suspect would not really have any impact on the way

in which the cruise ship industry is actually conducted.

So I guess I have to say, I am very interested, I admire your

courage and the courage of your cosponsors on this bill, but I

strongly suspect we have not found a way to change the business

and get enough approval to get a bill passed yet, but maybe we will

some day. After all, it is only 113 years since we last dealt with

this issue in any effective fashion. Maybe we will find the charm.

Senator HUTCHISON. Well, on that note——

[Laughter.]

Senator HUTCHISON.——I would love to hear the testimony on

the bill that the Senator from Washington says has very little to

remote chance of passage. That is a wide area of possibility.

But let me just say that I do think there is a chance. We all want

more jobs. We all want more tourism. That is good for every single

State that is affected in our country, it is good for American workers, and I think a 3-year try is perhaps the window.

This does not permanentize the issue, but it does say, until we

have a shipbuilding industry that is viable for passenger ships in

our country, let us see if we can do something good for shipbuilders

and have repairs there, and give them a chance to gear up, and if

we can get a shipbuilder in America that will make cruise ships,

then after 3 years they will be able to gear up.

29

So I think there is a window here, and maybe it is because of

my small tenure as compared to yours, Senator Gorton, that I do

think there is a chance here, but it will take everyone pulling together, because I think what you said is totally true about the patience of our Majority Leader to have a 1-month filibuster on this

issue. Talk about remote, that is remote, but if we can have everyone that has an interest, from the unions to the industry, to the

shipbuilders, then working together and agreeing out of committee

on a bill that will have something good in it for each industry that

would not be there under present law, that is the way to do it.

So I want to hear today from the six of you who give very different opinions, and see if there is a way that we can satisfy each

of you that there is something that can be added that you would

not have if we do not change the law, and realize that a lot of other

opportunities for people not sitting at the table would be presented

if we could have this chance.

So with that, I will call in the order that I have it, listed on my

sheet that I did not prepare, in order to show you this was a lottery, I am just going to go in that order, and I would call first on

Ms. Cynthia Colenda, the President of the International Council of

Cruise Lines.

STATEMENT OF CYNTHIA A. COLENDA, PRESIDENT,

INTERNATIONAL COUNCIL OF CRUISE LINES

Ms. COLENDA. Good morning, Madam Chairman and distinguished members of the subcommittee. It is a pleasure for me to

be here. I am here representing International Council of Cruise

Lines, and we are pleased to outline to the Committee ICCL’s position on S. 1510, the Cruise Ship Tourism Development Act, which

amends the Passenger Vessel Services Act to allow foreign-flagged

vessels to carry passengers in the United States coast-wise trade.

ICCL is a nonprofit trade organization that represents the interest of 17 of the largest cruise lines operating in the North American cruise market. We also represent over 60 associate member

companies that are cruise industry business partners and suppliers

located throughout the United States.

ICCL member cruise lines serve major ports of the United

States, and we call on more than 200 ports worldwide. Last year,

ICCL member cruise vessels carried approximately 5 million passengers on 95 vessels.

We welcome the opportunity to be here before the Committee

today to discuss our industry’s perspectives on this legislation. The

bill, S. 1510, would modify the Passenger Vessel Services Act and

allow certain qualified vessels to engage in coast-wise trade. ICCL

has been requested to present its views on how any changes to the

PSA would impact our industry.

Since the foreign passenger vessel industry from its inception has

been engaged in international voyages, modification to the PSA

would not change our current operations, nor encourage our members to engage in coast-wise trade. For this reason, ICCL has not

taken a position on any legislation that amends PSA, since we do

not anticipate any significant changes to our members’ current

itineraries.

30

We understand the objectives the proponents of the legislation

are trying to achieve. The Cruise America Coalition is comprised

of tourism interests, U.S. ports, many other travel industry partners which the passenger cruise industry works on a host of important issues.

The members of the coalition are interested in bringing expanded

economic development to their cities, States, and regions. We do

not believe that a reformed PSA is necessary to achieve these objectives. We encourage growth in all segments of the cruise industry,

and with the slated expansion of our members’ fleets, passenger

vessels will bring more business and economic activity to additional

U.S. ports of call without any modifications to U.S. law.

The ICCL member cruise lines are operating in an international

market-driven competitive environment. Global passenger cruise

capacity has significantly increased in the past several years. Last

year, there were approximately 223 vessels that carried 9–1/2 million passengers worldwide.

Global capacity in the past 6 years has increased by almost 50

percent. Today’s passenger vessel capacity is based on what the

market will support. While a significant part of our business continues to be in the Caribbean, Alaska, Bermuda, and Trans-Canal,

the largest growth has been experienced outside North America in

the Trans-Atlantic, European, Southeast Asia, and Far East regions.

During consideration of this important issue, we would like to

provide the committee with information regarding the economic

benefits that our industry operations generate in the United States.

A study that was recently conducted by PricewaterhouseCoopers

concluded that the total economic impact of the cruise industry,

their passengers, and their U.S. suppliers, reached $11.6 billion in

1997.

This spending was responsible for creating 176,000 jobs for U.S.

citizens. With the addition of 47 new vessels by the year 2002, both

industry expenditures and the number of U.S. jobs created are significantly going to increase as well.

A second study, which many of the Members mentioned today,

looked at the direct spending that the cruise industry and its passengers spent in select States. That number reached almost $7 billion in 1997, and extended into all 50 States.

It is interesting to note that in the State of Texas we had significant expenditures to the tune of millions of dollars. We also had

major expenditures throughout the U.S.

The cruise industry is proud of the economic partnerships we

have developed with other U.S. industries across the country.

While ICCL member vessels spend most of their time at sea, our

member lines are responsible for stimulating business activity not

only in the U.S. coastal States but in other regions of the country.

Cruise industry operations depend on the vital support of many

U.S. businesses and service sector suppliers. In conclusion, as the

industry continues to expand, it will be able to provide more opportunities for businesses located throughout the United States, and

in addition, as the industry brings new vessels to the North America market, it will provide expanded service to additional U.S. ports

and offer new itineraries for cruise passengers.

31

We appreciate the opportunity to express our views, and will be

happy to answer any questions. Thank you very much.

[The prepared statement of Ms. Colenda follows:]

PREPARED STATEMENT OF CYNTHIA A. COLENDA, PRESIDENT, INTERNATIONAL COUNCIL OF CRUISE LINES

On behalf of the International Council of Cruise Lines (ICCL), we are pleased to

submit this statement outlining ICCL’s position on S. 1510, the Cruise Ship Tourism Development Act of 1999, which amends the Passenger Vessel Services Act

(PSA) to allow foreign-flag vessels to carry passengers in United States coastwise

trade.

ICCL is a non-profit trade association that represents the interests of 17 of the

largest cruise lines operating in the North American cruise market and over 60 Associate Member companies that are cruise industry business partners and suppliers.

ICCL member cruise lines serve major ports in the United States and call on more

than 200 ports around the world. Last year, ICCL’s cruise vessel operators carried

more than 5 million passengers on 94 vessels.

We welcome the opportunity to appear before the Committee today to discuss our

industry perspectives on S. 1510. This legislation would modify the Passenger Services Act and allow qualified vessels to engage in coastwise trade. ICCL has been requested to present its views on how any changes to the PSA would impact our industry.

Since the foreign passenger vessel industry, from its inception, has been engaged

in international voyages, modifications to the PSA would not change our current operations nor encourage our member’s to engage in coastwise trade. For this reason,

ICCL has not taken a position on any legislation that amends the PSA since we do

not anticipate any significant changes in our member’s cruise itineraries.

We understand the objectives that proponents of this legislation are trying to

achieve. The Cruise America Coalition is comprised of tourism interest, U.S. ports,

and many other travel industry partners with which the passenger cruise industry

works very closely on a host of other important issues. The members of this coalition

are interested in bringing expanded economic development to their cities, states and

regions. We do not believe that a reformed PSA is necessary to achieve these objectives. We encourage growth in all segments of the cruise industry and, with the slated expansion of our member’s fleets, passenger vessels will bring more business and

economic activity to additional U.S. ports of call without any modifications to U.S.

law.

The ICCL member cruise lines are operating in an international, market-driven,

competitive environment. Global passenger cruise business has significantly increased in the past several years. Last year, over 223 vessels carried approximately

9.5 million passengers worldwide. Global capacity in the past six years has increased by almost 50 percent. Today, passenger vessel capacity is based upon what

the market will support. While a significant part of the business continues to remain in the Caribbean, Alaska, Bermuda, and Trans Canal cruises, the largest

growth has been experienced outside North American in the Transatlantic, Europe,

Southeast Asia and Far East regions.

During consideration of this important issue, we would like to provide the Committee with information regarding the economic benefits that our industry operations generate in the United States. A study recently updated by

PricewaterhouseCoopers (PwC) and Wharton Economic Forecasting Associates

(WEFA), concluded that the total economic impact of the cruise lines, their passengers, and their U.S. suppliers reached $11.6 billion in 1997. This spending was

responsible for generating over l76,000 jobs for U.S. citizens. With the addition of

47 new ICCL member vessels by the year 2002, both industry expenditures and the

number of jobs created are expected to significantly increase as well.

The PwC and WEFA study not only examined the cruise industry’s nationwide

purchases of U.S. goods and services, it also examined the state by state impact of

industry purchases. The study concluded that the direct spending of the cruise industry and its passenger was almost $7 billion in l997 and extended into all 50

States. The top industries benefiting from the cruise industry are manufacturing;

finance, insurance and real estate; and transportation, communications and utilities.

A listing of cruise industry expenditures by state and by industry is enclosed in the

Appendices.

The cruise industry is proud of the economic partnerships we have developed with

other U.S. industries across the country. While ICCL member vessels spend most

of their time at sea, our member lines are responsible for stimulating business activVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
32

ity not only in U.S. coastal states but also in other regions of the country. Cruise

industry operations depend on the vital support of many U.S. business and service

sector suppliers. Industry purchases range from California, Alaska and Washington

state, to Texas, Louisiana, Tennessee and New York. An example of direct cruise

industry spending in ten selected states follows:

Alaska $363.3M

Arizona $47.4M

Louisiana $107.2M

Massachusetts $120.6M

Michigan $99.7M

Mississippi $10.8M

Oregon $99.7M

South Carolina $21.8M

Texas $123.1M

Washington $162.9M

Of course, the most important component of this industry is our passengers.

Today, the typical cruise passenger is from middle America and comes from every

state and age bracket. The continued success of the cruise industry is in large part

attributable to the fact that a cruise vacation is affordable for the average American. The following provides a selected state listing of passengers who cruised in

l998:

Alaska 969

Arizona 78,161

Louisiana 73,894

Massachusetts 172,542

Michigan 137,546

Mississippi 15,708

Oregon 40,818

South Carolina 55,622

Texas 199,068

Washington 83,682

In conclusion, Mr. Chairman, as the industry continues to expand, it will be able

to provide more opportunities for businesses located throughout the United States.

In addition, as the industry brings new vessels into the North American market,

it will be able to provide expanded service to additional U.S. ports and offer new

itineraries for cruise passengers.

ICCL appreciates the opportunity to express its views to the Committee on this

important issue.

INTERNATIONAL COUNCIL OF CRUISE LINES

MEMBER LINES

Carnival Cruise Lines

Celebrity Cruises

Commodore Cruise Line

Costa Cruise Lines, N.V.

Crystal Cruises

Cunard Line Limited

Disney Cruise Line

Holland America Line

Norwegian Cruise Line

Orient Lines

Premier Cruise Lines

Princess Cruises

Regal Cruises

Royal Caribbean International

Royal Olympic Cruises

Seabourn Cruise Line

Windstar Cruises

33

ICCL ASSOCIATE MEMBERS (62)

AS OF SEPTEMBER 29, 1999

U.S. Members

Atlantic Marine, Inc.

Mobile, AL

SHR Perceptual Management

Scottsdale, AZ

FreshPoint, Inc.

Los Angeles, CA

Kaye, Rose & Partners, LLP

San Diego, CA

Marine Hotel Association

Sausalito, CA

Port of San Diego

San Diego, CA

Strategic Cruise Line Services

Inglewood, CA

Unitor Ships Service Inc.

Long Beach, CA

Air Transport Association

Washington, DC

Amadeus

Miami, FL

Callenberg Engineering, Inc.

Miami, FL

Canaveral Port Authority

Cape Canaveral, FL

Ecolab Inc.

Tampa, FL

Flagship Games International, Inc.

Hollywood, FL

Florida Restaurant Association

Tallahassee, FL

Fuji Photo Film U.S.A., Inc.

Miami, FL

Harbour Marine Systems, Inc.

Miami, FL

Howard Snoweiss Design Group

Coral Gables, FL

Image Photo Services, Inc.

Miami, FL

International Paint

Hollywood, FL

Keller & Houck, P.A.

Miami, FL

Maritime Telecommunications Network,

Inc.

Miami, FL

Onboard Media

Miami Beach, FL

Port of Miami

Miami, FL

Steiner Transocean, Ltd.

Miami, FL

Teakdecking Systems

Sarasota, FL

Tropical Shipping & Const., Co., Inc.

Riviera Beach, FL

Mail-Well Print Group

Atlanta, GA

Oneida Foodservice

Atlanta, GA

The Coca-Cola Company

Atlanta, GA

J.R. Simplot Company

Boise, ID

3M

St. Paul, MN

Hann & DePalmer

Robbinsville, NJ

International Terminal Operating Co.

Inc.

Jersey City, NJ

Konica USA

Englewood Cliffs, NJ

Miller Freeman

Princeton, NJ

American Insurance Group

New York, NY

Berkely Group, The

Garden City, NY

Paul, Weiss, Rifkind, Wharton &

Garrison

New York, NY

Cascade General, Inc.

Portland, OR

34

G.E.T. Enterprises, Inc.

Houston, TX

Hospitality Financial and Technology

Professionals

Austin, TX

Port of Galveston

Galveston, TX

American Association of Port Authorities

Alexandria, VA

M. Rosenblatt & Son, Inc.

Arlington, VA

Mobil Aviation and Marine Sales Inc.

Fairfax, VA

Elgin DDB

Seattle, WA

Port of Seattle

Seattle, WA

Todd Pacific Shipyards Corporation

Seattle, WA

Overseas Members

Multiport Ship Agencies

NetworkLondon, England

Steamship Mutual Underwriting

Association

London, England

Sterling Publications Limited

London, England

Thomas Miller P&I Ltd.

London EC3A 5BA, England

Willis

London, England

Kvaerner Masa-Yards Inc.

Helsinki, Finland

Chantiers De L’Atlantique

Paris, France

Blohm+Voss GmbH

Hamburg, Germany

Jos. L. Meyer GmbH & Co.

Papenburg, Germany

Fincantieri-Cantieri Navali Italiani

S.p.A.

Trieste, Italy

Assuranceforeningen GARD

Arendal, Norway

SKULD

OSLO, Norway

35

36

37

38

Senator HUTCHISON. Thank you. Mr. Al Wallack, the President

of Voyager Holdings.

STATEMENT OF AL WALLACK, PRESIDENT,

VOYAGER HOLDINGS, INC.

Mr. WALLACK. Thank you, Madam Chairman, for giving us the

opportunity to come here and speak in support of S. 1510 today.

If someone said 25 years ago that the cruise industry would carry

6.5 million people in the beginning of the new millennium, I would

think that it would be judged difficult, if not impossible, and highly

unlikely.

If anyone had said that the cruise industry 25 years ago would

have grown 900 percent in the ensuing 25 years, I think people

would have perhaps said that is a difficult or an impossible task,

and maybe some of the tasks have a certain Don Quixote-like aura

about them, but we have some very underdeveloped assets in the

United States that we believe can be developed.

The cruise industry is a very large and dynamic, well-run and

growing industry, yet there are some parts of it that are growing

at a much slower rate, and I refer to, obviously, the U.S.-flagged

portion of the business. The underdeveloped assets on this side of

the world are the tremendous tourism potential that the port cities

of the East Coast, West Coast, Gulf, and Great Lakes have and the

great potential to bring not only Americans cruising to new destinations, but Europeans seeing America in a way that they have

not yet been able to do.

Under S. 1510, Voyager Cruises has a very pragmatic and

straightforward business plan. Our plan is to build modern cruise

vessels in the United States and to finance those vessels with conventional financing and with conventional Title XI application, that

any ship being built in the United States would be afforded. There

is nothing unusual about that, but we understand that building

new ships in yards that have not built them takes time.

In yards that are significantly experienced in building cruise

ships, the general building cycle for a ship that has been a repeat

copy of a previously built ship is approximately 2 years. When one

starts a new venture, that is, a ship to be built for the first time,

with a new design, the building program can take 3 years. In a

new yard that has never built cruise ships before, this program

could take at least 4 years from the time the button was pushed

until the time the inaugural festivities begin pier-side in some U.S.

port.

In order to get from here to there, our strategy is to apply a tried

and true method, one that has been used by cruise lines for the

past 25 years. That is, to acquire existing vessels, and to put them

into a trade so that we can build the brand and train our staff and

do all the things necessary to have a viable business while the new

ships are under construction. These are the steps we have proposed

to take under S. 1510.

We have a willing seller prepared to sell us three modern cruise

ships, 1990 vintage cruise ships. We have conventional financing,

nothing tricky, regular bankers to purchase those vessels and put

them into service. We have a manning agreement with Patriot

39

Holdings on the West Coast to provide us with American crews to

staff these ships.

As we take these vessels into service, modifications, if necessary,

will be done in U.S. yards, and we will put them into service in

the kinds of itineraries I alluded to before, along the coasts of

America, and the Great Lakes of America. This is perhaps an impossible dream, but one, if one applies normal business acumen

and experience, can be actually done. We can actually bring an

American flag business into reality.

Will it be a dominant megabusiness and take over the cruise industry? Only a fool would say that, but we can make significant

growth, and nothing in my experience draws attention to a new

business like a successful business operating in it. I feel confident

that if our plan is allowed to go forward under S. 1510, if we are

able to convert these vessels and build new vessels, then we are

going to attract attention from a lot of other competitors.

Imitation is the sincerest form of flattery, and I believe that we

will be imitated, and additional vessels will be plying the trade

that we will initiate. Thank you very much for giving us the opportunity to tell you our story this morning, and I will be happy to

answer any questions you might have.

[The prepared statement of Mr. Wallack follows:]

PREPARED STATEMENT OF AL WALLACK, PRESIDENT, VOYAGER HOLDINGS, INC.

Mr. Chairman and Members of the Committee:

My name is Al Wallack. I am the President of Voyager Holdings, Inc., a whollyowned subsidiary of the D’Arcinoff Group. The D’Arcinoff Group is a United States

corporation whose present ownership and management consists of cruise, leisure,

and shipyard industry professionals. Voyager Holdings was formed to acquire, operate, and construct large, modern cruise vessels for the United States domestic market.

As for myself, I have spent my entire adult working life in the tourism industry,

first in the airline industry and, since 1981, in the cruise industry. I was a founder

and Senior Vice President of Celebrity Cruises; the Chairman of the Cruise Line

International Association (CLIA) and twice chairman of this cruise industry association’s marketing committee; and, most recently, President of Royal Olympic Cruises,

USA.

Mr. Chairman, the D’Arcinoff Group and Voyager Holdings support your legislation, S. 1510. We support this legislation because the status quo as defined by the

existing statutory and regulatory framework governing the operation of cruise vessels in the domestic trades simply has not and will not work to achieve the goal

of a fleet of large, modern U.S.-built, U.S.-flag cruise vessels. Unless the existing

law is adapted to meet the realities of the cruise industry—as it has been done in

the past to assist companies that want to develop and expand domestic cruise vessel

operations—our country will continue to lose a tremendous opportunity to participate in the economic benefits that are derived from expanded cruise vessel operations.

We support the enactment of S. 1510 because it will allow Voyager Holdings and

any other American company to acquire existing foreign cruise vessels for reflagging

and immediate operation in the United States domestic market under the United

States flag. Based on my personal experience and observations, and the history of

the cruise industry itself, it is clear that virtually every major cruise line has either

started operations or expanded and modernized it operations by acquiring existing

ships and establishing a market presence and identity before and during the time

it expended the capital to build new ships. This pattern, followed by the large cruise

lines at their beginning, serves as a blueprint which can and should ‘‘and must’’ be

followed by companies seeking to enter this highly competitive business today.

The development and growth of a cruise line is market driven, and the decision

to obtain and build cruise ships, and where to operate, is an economic determination. It is, as the lack of an oceangoing United States-flag cruise vessel fleet demonstrates, a decision that is greatly influenced by the relevance of the legal frameVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
40

work governing cruise vessel operations to the nature of the industry itself. Otherwise, the existing law would be working.

As I stated, history repeatedly shows that to be successful, the cruise venture begins with a realistic bridge strategy, a strategy that allows a company to operate

in its chosen markets while it has more attractive and more modern vessels under

construction. This bridge strategy allows the company to offer consumers a new

cruising option, laying the groundwork for the introduction of its new ships.

For Voyager Holdings, therefore, the most significant aspect of S. 1510 is that its

enactment will allow us to implement our bridge strategy and to proceed with our

plans to acquire existing cruise vessels for operation in the United States domestic

market. Given the opportunity authorized in this legislation, Voyager Holdings will

implement our plans to acquire vessels, to place them as quickly as possible under

the United States flag, to provide significant new employment and economic opportunities to American shipboard and shore side labor, and be in a position to offer

Americans new business and pleasure cruise options aboard American ships.

In short, the enactment of S. 1510 will give Voyager Holdings the final ingredient

to start a new American flag cruise line. It will allow us to implement a bridge

strategy, a strategy that will allow us to bridge the gap that would otherwise exist

by operating existing cruise vessels as new vessels are being built in an American

shipyard. The amount of capital required to build cruise vessels, and the amount

of time it takes, added to the fact that many United States domestic markets and

itineraries are untested, make it essential that Voyager Holdings and other companies interested in entering the domestic cruise trades be given the opportunity to

follow the same path to success that other cruise lines have followed. It is, in my

opinion and based on my experience in the cruise industry, unrealistic to expect

American cruise vessel ventures to succeed in any other fashion.

We are also extemely pleased that S. 1510 contains a preference for United

States-built and United States-flag cruise vessels over foreign cruise vessels when

the Secretary of Transportation approves itineraries. This provision of the bill is

necessary to encourage vessel owners to expand United States cruise vessel operations and to eliminate a disincentive to American cruise vessel operations.

Equally important, we support the provision in S. 1510 that is intended to apply

United States laws equally to United States-flag and foreign-flag vessels operating

in the domestic cruise trades. Again, we feel very strongly that cruise vessel development legislation should encourage, not discourage, the operation of large United

States-flag cruise vessels. We are confident that the Secretary of Transportation will

ensure that American law does not work to the disadvantage of the American cruise

industry.

Voyager Holdings is not afraid to compete—provided that our competition plays

by the same set of rules we are obligated by law to uphold. If implemented the way

we believe it is intended, S. 1510 can and should help guarantee that ultimately,

large cruise vessels operating between United States ports will be built in the

United States and operated under the United States flag by American workers.

In conclusion, I would like to thank you, Mr. Chairman, and the cosponsors of

S. 1510 for introducing this important and long-overdue legislation that provides the

incentives to develop a United States flag cruise vessel fleet. Given the authority

contained in this legislation, we are ready and eager to begin operating United

States flag cruise vessels in the United States domestic cruise trades.

Senator HUTCHISON. Thank you, Mr. Wallack.

Mr. Edmund Welch, Legislative Director for Passenger Vessel

Association.

STATEMENT OF EDMUND B. WELCH, LEGISLATIVE DIRECTOR,

PASSENGER VESSEL ASSOCIATION

Mr. WELCH. Thank you, Madam Chairman and Senators. I am

Ed Welch. I am legislative director for the Passenger Vessel Association. I would like to report that our president of our association,

Mr. Chris Hendricks from Norfolk, Virginia, president of Spirit Marina, has come to the hearing and is in the audience.

The Passenger Vessel Association is the national voice of U.S.

flagged passenger vessels of all types, including overnight cruise

ships, and obviously from the earlier statements there are folks

that are under the misimpression that there are no U.S.-flag overVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00044 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
41

night cruise ships, other than the S.S. INDEPENDENCE in Hawaii, but it is just simply not so! There is a vibrant and exciting

market segment in the U.S. trades that consist of a number of

small-ship overnight cruise ships, and these ships will have anywhere from 75 to 250 passengers, and the Passenger Vessel Association represents these U.S.-flag operators.

These passenger vessels, these U.S.-flag passenger vessels are

everything that you in Congress want to have in a maritime policy.

The ships are built by American workers in American shipyards.

They employ American seafarers, and their shoreside staffs, and

their vessels operate on popular American routes throughout the

U.S. Their companies and their employees all pay U.S. and State

income taxes.

In my statement, I describe seven member companies in our association that operate 22 existing overnight cruise vessels, and

there are seven more that are imminent in the next year or two,

some of them being constructed in the yards right now.

In addition to our vessel members, PVA represents a number of

associate members that are smaller shipyards that build these

types of ships, including Nichols Brothers in Washington State,

Senator Gorton, and our message to you is, we are here. We are

here right now. We are U.S.-flagged, we are U.S.-built, U.S.-owned,

and U.S.-crewed passenger vessels, and we have relied on the Passenger Vessels Services Act in establishing and operating our businesses.

Make no mistake, if Congress were to change the law so that foreign-flag vessels entered our markets, we would suffer enormously.

How could we stay in business, paying good wages at American

rates to American citizens, while competing against foreign vessels

paying far lower rates to noncitizens?

How could we continue to pay income taxes on all of our operations, even when we take our vessels to the Caribbean or to Mexico, while our foreign competitors would pay hardly any, or even no

U.S. income taxes? Why would Congress want to favor foreign businesses at the expense of our existing American ones?

Turning to the specifics of the bill before you, we must report

that we have serious concerns about the legislation, although we

recognize that the intent of the bill, and the intent of the sponsors,

is to jump-start the domestic industry for large cruise ships.

We believe that any bill to amend the passenger act should embrace the principle of first do no harm, and we fear that S. 1510

would harm our existing thriving small passenger vessel fleet. In

some cases, it will permit foreign flag vessels of no more than 9,000

gross tons, and carrying no more than 200 passengers, to come into

our domestic service and compete directly against us. That threshold is entirely too low.

Second, the bill attempts to give a preference to coast-wise qualified U.S. vessel operators over other vessels, but because of the

way the bill defines cruise vessel, and because of its comparability

standard, it really provides no protection at all for most of our vessels. A foreign-flag vessel could enter our markets, and under our

bill our vessels would have absolutely no recourse, and it is simply

not right to assume that a larger vessel, foreign vessel entering our

market has no competitive impact on a smaller vessel.

42

Our operators in Southeast Alaska already struggle against foreign flag competition up there, and they can tell you how tough it

is, and an analogy would be, consider a foreign Wal-Mart—not just

a regular Wal-Mart, a foreign Wal-Mart, paying foreign workers

non-American type wages, coming in, competing against American

Main Street businesses. That is what you would have.

A serious shortcoming of the bill is that it fails to make clear

whether or not all the vessels that would be allowed into the coastwise trade have to abide by the same laws. For instance, would the

National Transportation Safety Board have jurisdiction to investigate accidents on their vessels? Under current law, it would not,

because their jurisdiction is restricted to 3 miles, and even under

the bill that is being presented to Congress right now, the NTSB

jurisdiction goes out only to 12 miles on foreign-flag vessels, but

the NTSB has jurisdiction over our vessels wherever they operate.

That is not fair.

Similarly, would the Americans With Disabilities Act apply to

every vessel operating in the U.S. coast-wise service? It applies to

us now, but the foreign-flag industry says that it does not apply to

them, and the bill should clarify this.

Would the Federal minimum wage law apply to all vessels entered into the domestic service under this? It certainly applies to

our vessels. How equitable would it be to exempt one category of

vessels, the foreign vessels, and not provide the same treatment to

us, their competitors.

Madam Chairman, we believe that operators in the U.S. coastwise trade should fly the American flag on their vessels. They

should abide fully with all the laws and rules that affect American

companies. Our vessels fly the U.S. flag. We hire American citizens. We pay them American-level wages. We are fully subject to

all U.S. Federal and State laws. If we can do it, why can’t they?

Why should they receive the favored treatment for at least 7

years without extracting any commitment from these foreign companies that they would have to build vessels in the United States,

or operate passenger vessels under the U.S. flag, but under the

terms of the bill, that is exactly what would happen.

Our members do not fear competition. They compete among

themselves. They compete against shoreside attractions. But they

would hope that Congress would ask them to compete in a fair environment, where all the applicable rules and laws apply to everyone equally.

Thank you, Madam Chairman.

[The prepared statement of Mr. Welch follows:]

PREPARED STATEMENT OF EDMUND B. WELCH, LEGISLATIVE DIRECTOR,

PASSENGER VESSEL ASSOCIATION

Mr. Chairman, and members of the Subcommittee, I am Edmund B. Welch, Legislative Director of the Passenger Vessel Association.

The Passenger Vessel Association is the national voice of U.S.-flag passenger vessels of all types. We represent the interests of owners and operators of overnight

cruise ships, dinner cruise vessels, sightseeing and excursion vessels, gaming boats,

car and passenger ferries, and private charter vessels. The passenger vessel industry carries nearly 200 million passengers each year.

With nearly 500 vessel-operating and associate members, PVA is the industry’s

voice and advocate in the halls of Congress and with the U.S. Coast Guard and

other federal agencies.

43

Our associate members are key suppliers to the passenger vessel industry, including shipyards, marine architects, vessel builders and decorators, insurance companies, publishers, food supply companies, computer software vendors, marine equipment suppliers, engine manufacturers, and others.

You may be under the misimpression that there are no U.S.-flag overnight passenger vessels, other than the S.S. Independence in Hawaii. You may hear such a

statement during the testimony today. But it’s simply not so! There is a vibrant and

exciting market segment in the U.S. trades consisting of small-ship overnight cruise

vessels. The Passenger Vessel Association counts most of these companies as members.You may not be aware of these small passenger vessel companies, but they embody everything Congress wants in a maritime policy. Their vessels are built by

American workers in U.S. shipyards in places such as Rhode Island, Indiana, Florida, Louisiana, Alabama, and Washington. They employ American workers as crew

and on their shoreside staffs. Their vessels operate on popular itineraries throughout the United States. The companies and their employees all pay U.S. income and

other taxes. Let me describe our overnight cruise members.

We are pleased to have Delta Queen Steamboat Company of New Orleans as a

PVA member. The company operates the Delta Queen, Mississippi Queen, and American Queen riverboats. It will soon operate an additional vessel, the 161-passenger

Columbia Queen in the Pacific Northwest. Nichols Brothers Shipyard in Freeland,

Washington, will complete that vessel later this year. And Delta Queen has embarked on a building program of up to five new coastwise passenger vessels to be

known as the Coastal Queens. Each will carry 226 passengers. These vessels will

operate on itineraries on the Atlantic, Gulf, and Pacific Coasts, and may possibly

serve the Great Lakes. Delta Queen has signed a $60 million contract for the first

two Coastal Queens with Atlantic Marine in Jacksonville, Florida, and work is already underway.

American Hawaii Cruises currently operates the S.S. Independence among the

Hawaiian Islands. As a result of enabling legislation enacted by Congress, the company has signed a contract with Ingalls Shipbuiding in Mississippi to construct two

cruise ships of 72,000 gross tons carrying 1900 passengers each. They will operate

in Hawaii. In the interim, American Hawaii Cruises intends to purchase the Nieuw

Amsterdam and place it under the U.S. flag for Hawaiian operations. The vessel will

carry 1214 passengers.

Cruise West is headquartered in Seattle, Washington. The company operates

seven vessels along the West Coast of North and Central America. The vessels accommodate from 52 to 102 passengers. Six of these vessels are overnight cruise

ships. The company fears that if a larger foreign cruise vessel were to enter its domestic markets, its revenues could be impacted, in part because of the dominating

marketing and advertising messages of the foreign-flagged cruise lines.

Special Expeditions Marine is another Seattle-based Company. It operates two 70-

passenger passenger vessels on the West Coast from Alaska to Baja California.

Yet another Seattle company is American West Steamboat Company. They operate the 163-passenger overnight sternwheeler Queen of the West. Their expansion

plans include the 244-passenger Empress of the North, a vessel that has already

been designed with a projected launch in 2002.

American Canadian Caribbean Cruise Line of Warren, Rhode Island currently operates three overnight cruise vessels with passenger capacities of between 84 and

100 along the Atlantic and Gulf coasts. The vessels were built in 1998, 1997, and

1994 in the company’s sister shipyard, Blount Industries of Warren, Rhode Island.

Clipper Cruise Line of St. Louis, Missouri, operates a 138-passenger vessel on

routes in the Great Lakes, Atlantic Canada, and U.S. East Coast. A second 102-passenger vessel sails in Alaska and the West Coast. The company estimates its capital

investment in the two vessels at nearly $28 million.

Glacier Bay Tours and Cruises of Seattle operates four overnight cruise passenger

vessels on the West Coast from Alaska to Baja California; their passenger capacities

range from 48 to 88. The company, owned by an Alaskan native corporation, has

an annual payroll of $4.1 million for 150-200 employees.

Other PVA members, such as The Boat Company and American Safari Cruises,

sail very small overnight cruise vessels (20 passengers or fewer) in Alaska waters.

In addition to vessel-operating members, PVA has associate members that build

and supply small passenger ships. Examples are: Nichols Brothers Boat Builders of

Freeland, Washington; Blount Industries of Warren, Rhode Island; and Atlantic Marine of Jacksonville, Florida

Our message to you today is ‘‘We are here! We are U.S.-flagged, U.S.-built, U.S.-

owned, and U.S.-crewed passenger vessels. We depend upon the Passenger Vessel

Services Act and we fully support all the principles underlying it.’’

44

Make no mistake: if Congress were to change the law so that foreign-flagged vessels entered our markets, we would suffer enormously. How could we stay in business paying good wages to American citizens while competing against foreign vessels paying far lower wages to noncitizens? How could we continue to pay income

taxes on all of our operations, no matter where the vessels sail, while our foreign

competitors pay fewer or even no income taxes to the United States? Why would

Congress want to favor foreign businesses at the expense of existing American ones?

Let’s make one thing clear: the Passenger Vessel Services Act is not the absolute

bar against foreign-flag vessels serving U.S. ports that some erroneously claim.

Under existing law, a foreign-flag passenger vessel can sail on a cruise-to-nowhere

into international waters from a U.S. port anytime it wishes. It can have passengers

embark at a U.S. port, subsequently call upon other U.S. ports (where the passengers can go ashore, but not disembark from the vessel permanently), and then

sail to a foreign destination. In the Great Lakes, it is a simple matter for a foreign

vessel to embark passengers at a U.S. port, call upon subsequent U.S. ports, and

then disembark the passengers at a Canadian port (or vice versa); two foreign passenger vessels will do so next year. In recent years, a foreign passenger vessel has

offered extensive service from Alexandria, Virginia, and advertised these cruises

heavily in the Washington Post.

Does the Passenger Vessel Services Act serve a purpose today? Does it accomplish

that purpose? You bet it does. Under its auspices, there has developed a strong industry of small passenger vessels flying the U.S. flag and serving U.S. coastwise

routes. New U.S.-built vessels continue to enter this market. We have a positive

story to tell about the Passenger Vessel Services Act. Turning to the specifics of S.

1510, Mr. Chairman, we must report that we have serious concerns about the legislation, although we recognize that your intent is to ‘‘jump-start’’ the domestic industry for large cruise ships. Mr. Chairman, we believe that any bill on the Passenger

Vessel Services Act should embrace the principle of ‘‘First, do no harm.’’ We fear

that S. 1510 could harm the existing, thriving small vessel U.S.-flag fleet. In some

cases, it will permit foreign-flag vessels of no more than 9,000 gross tons to come

into domestic service. This threshold is too low. It will bring in vessels that will

compete directly with the 226-passenger Coastal Queens. We recommend that you

scrap the bill’s reliance on tonnage and simply have it apply to passenger ships that

have overnight accommodations for 750 passengers or more. Secondly, the bill attempts to give a preference to a coastwise-qualified U.S.-flag vessel over all other

vessels. However, because of the way the bill defines ‘‘cruise vessel,’’ and because

of its ‘‘comparability’’ standard, it provides no protection at all for most of our vessels. A foreign-flag vessel could enter our markets, and under the bill, our vessels

would have absolutely no recourse. It’s simply not accurate to assume that a larger

vessel entering a market has no competitive impact on a smaller vessel. Our operators in southeast Alaska already struggle against foreign-flagged competition in the

same region. They can tell you how tough that it.

A serious shortcoming of S. 1510 is that it fails to make clear whether or not all

vessels in the coastwise trade will have to abide by the same laws. For instance,

will the National Transportation Safety Board have jurisdiction to investigate accidents on foreign-vessels operating in domestic commerce more than three miles from

our shore? Right now, the answer would be no, although NTSB has jurisdiction over

U.S.-flagged vessels no matter where they operate. That’s not fair. The bill should

specifically provide that NTSB has jurisdiction over any passenger vessel operating

in coastwise service.

Similarly, will the Americans with Disabilities Act apply to every vessel operating

in coastwise service? It applies to us right now, and it would be unfair and contrary

to U.S. policy towards persons with disabilities to allow a vessel to provide domestic

service without being subject to the ADA. However, as of now, the foreign-flag passenger industry strongly maintains that the Americans with Disabilities Act does

not apply to their vessels, even those embarking and disembarking passengers at

U.S. ports. The bill should provide specifically that the ADA applies to every vessel

operating in U.S. domestic service.

Would the Federal minimum wage law apply to the vessels allowed into domestic

service by S. 1510? It certainly applies to our vessels. How equitable would it be

to exempt one category of vessels and not provide the same treatment to their competitors. But, right now, the Fair Labor Standards Act has a statutory exemption

for a ‘‘seaman’’ on a foreign vessel. S. 1510 ought to ensure equal treatment.

Finally, Mr. Chairman, we believe that operators in the U.S. coastwise trades

should fly the U.S. flag on their vessels. They should abide fully with the laws and

rules that affect American companies. Our vessels fly the U.S. flag, we hire American citizens and pay them American-level wages, and we are fully subject to all

Federal and state laws. If we can do it, why can’t they? Why should they receive

45

favored treatment? Unfortunately, we believe that S. 1510 will provide that favored

treatment to foreign companies for at least seven years without extracting from

them any binding commitment to build vessels in the U.S. or operate passenger vessels under the U.S. flag.

Mr. Chairman, our members are providing the type of domestic cruising experiences sought by the Cruising America Coalition, and we are doing it on U.S.-flag

vessels. Our operators are expanding their fleets. If this committee is to act on S.

1510, we ask that it be amended so that it will not have a detrimental or unfair

impact on us.

Senator HUTCHISON. Thank you, Mr. Welch. I certainly do want

to address some of your issues in the question and answer part of

our hearing, because I think you have raised concerns and I think

we need to address them, so let us talk about how we can.

Ms. Veronica Sanchez, Executive Director of Cruising America

Coalition.

STATEMENT OF VERONICA SANCHEZ, EXECUTIVE DIRECTOR,

CRUISING AMERICA COALITION

Ms. SANCHEZ. Good morning, Madam Chair, members of the

Committee. My name is Veronica Sanchez. I am the manager of

governmental affairs for the Port of San Francisco and also the executive director of the Cruising America Coalition.

Our coalition is a grassroots coalition of U.S. ports, cities, convention bureaus, tourism, and maritime businesses, including ship

repair yards, stevedores, tug operators, and vendors to the cruise

industry.

We started this coalition 4 years ago in California out of pure

frustration that we had one of the most scenic coastlines in the

country, and yet we could not market coastal cruises on that coastline unless the cruise included a foreign port. That is a little bit

difficult for most ports in California, because we do not have islands off of our coast, as the East Coast does, and even our port

in San Diego has difficulty with this law, because it loses Hawaii

cruises to Ensenada.

Given California’s leadership on this issue, which started with

the 1995 White House Conference on Travel and Tourism, we are

pleased to have Senator Feinstein’s cosponsorship of S. 1510. I understand that the Senator cannot be here for this hearing, but that

she will submit her testimony for the record. [Refer to Appendix.]

Our coalition group, to include national associations, including

the American Association of Port Authorities, and the three major

travel professional associations, ASTA, ARTA, NACOA. It also includes the American Hotel and Motel Association, and the American Buses Association [latter statement is not available], and for

the record, Mr. Chairman, I would like to submit the statements

of these associations into the record of this hearing. [Refer to Appendix.]

Our coalition also includes consumers who have cruised and

wanted to cruise to other places in the United States and are frustrated by this law.

Our goals are very simple. It is to develop a new U.S. tourism

product by reviving coastal cruising between U.S. cities aboard

large ocean liners. This new product will create new business opportunities for U.S. cities and U.S. businesses. Most importantly,

our goal is to correct the inequity that is created by the Passenger

46

Services Act, where the ports that are closest to foreign destinations have a competitive advantage over others.

International cruise lines are sailing in and out of U.S. ports

today en route to other U.S. ports. This is perfectly legal under the

Passenger Services Act, as long as they stop at a foreign port.

We are pleased that today we are joined by three seafaring maritime unions in support for S. 1510. We have come a long way from

the hearing 2 years ago that Senator Hutchison presided over in

your committee, where you asked us to work toward a compromise

and resolve agreements, and we never thought we would come to

this point, so we have made dramatic progress. We also are thankful for the chairman’s leadership and interest in this legislation,

which has motivated us to work very hard.

S. 1510 benefits U.S. ports and tourism groups because it contains incentives. It is realistic from a business point of view, because we would not have signed on to legislation that would be full

of obstacles, that would not bring the ships in.

As Mr. Wallack noted, it will jump-start the entry of U.S.-flag

ocean liners into this trade. We believe that this legislation has the

best chance for bringing in the ships into the coastal trade. We

want to take advantage of the popularity of cruise vacations and

the market now. We do not want to wait for too much time to go

by for the financing and construction of U.S. flag ships. We need

an interim approach, and S. 1510 provides it by allowing the reflagging of foreign-built ships.

The legislation responds to the consumer’s interest for more

cruise vacations, and it is this interest that is driving the booming

cruise market, which is booming at an annual growth of 8 percent

per year, and 95 percent of those cruises are sold by travel professionals who depend on cruise vacations to offset the losses from the

airlines’ cuts.

But interestingly enough, only 11 percent of the U.S. population

has ever cruised, so that means there is a huge market of people

out there that still need to find reasons to get on a ship, and that

is the biggest challenge for the industry. As stated in the industry’s

own marketing report by CLIA, the 2 to 5-day cruise category, the

short cruises, is one of the hottest-growing markets, and it is here

where this old statute has the greatest impact on U.S. ports, because the ports that are farthest away from foreign ports have the

hardest time being able to offer the 2 to 5-day cruises.

The cruise industry’s theme right now is more choices, more

ships, more attractions, more cities and, indeed, the industry has

added new cities to its itineraries. The best example of this is with

the Texan ports, where 5 years ago there was a lot of doubt that

Houston would become a major cruise port as it is today. In fact,

one cruise official said cruising out of Houston is like cruising out

of Omaha. Well, that same company has now broken into the cruise

business in Galveston and will start cruising there next year.

In Seattle, we are seeing Seattle come back, the entry of a Norwegian cruise line vessel in that port for next year, serving the

Alaska itinerary, made possible because the ship is very fast and

it calls in Vancouver the night before it comes into Seattle.

Savannah will be getting an 1,100 passenger ship, and as Senator Cleland stated, it is building a new cruise terminal but as you

47

see, the development of other cruise ports and increasing business,

you note the fact that it is because they continue to depend on foreign ports, and yet our port officials do see a desire and ability to

serve other U.S. ports so that they can diversify their cruise portfolio.

That is the important point here, is that we want to provide our

U.S. ports with the ability to not just go south to Encinada, not

just go East to the Caribbean. We want to be able to go to different

locations to serve the consumer market.

Our bill is supported by convention bureaus and State tourism

directors, because the statistics are clear that once cruise passengers sample a destination, they will come back. Over 50 percent

of the passengers said they will return, and that is good for our

communities.

The legislation does protect the small U.S. boat companies. It is

interesting, we have had two hearings on this legislation with two

different pieces of legislation, and we have heard the PVA’s concerns and we have addressed those concerns in this legislation by

actually tightening the cutoffs, so whereas the prior legislation,

their concern was about 5,000-ton limits now, we said OK, let us

not allow any foreign vessel into this trade that is under 9,000

gross registered tons, and for all practical purposes, any vessel that

is not an all-suite configuration from 9,000 to 20,000 gross tons

cannot enter this market.

We respectfully disagree with Mr. Welch that smaller vessels are

competing with large ocean liners. Our travel agents are on the

phone every day with consumers. They know the difference in the

products between a small yacht adventure cruise, as those of Alaska sight-seeing, and the larger ocean liners that are sailing. There

is no competition, and in fact the DELTA QUEEN, both vessels

that are to be built, the tonnage on those is less than 2,000 gross

registered tons. Our cutoff is 9,000 gross registered tons, and so

again, the tonnage is different and the product is different.

In summary, Mr. Chairman and members of the Committee,

S. 1510 is about new choices for vacationers, new chances for U.S.

ports to compete for business, and new chances for U.S. seafarers

to get jobs on U.S. flagships.

We thank you for this opportunity, and we are happy to answer

your questions.

[The prepared statement of Ms. Sanchez follows:]

PREPARED STATEMENT OF VERONICA SANCHEZ, EXECUTIVE DIRECTOR, CRUISING AMERICA COALITION

Mr. Chairman and Members of the Committee:

My name is Veronica Sanchez, Executive Director, Cruising America Coalition

and a founding member. I am also the Manager of Governmental Affairs for the

Port of San Francisco. I am honored to speak to you today in support of S. 1510,

The United States Cruise Ship Tourism Development Act of 1999.

The Cruising America Coalition is a grass roots coalition of U.S. ports, cities, consumers, convention bureaus, tourism and maritime businesses, including ship repair

yards, stevedores, tug operators and vendors to the cruise industry. It also includes

consumers and elected and appointed officials.

Four years ago, California’s Ports started this Coalition out of frustration over the

fact that we have one of the most scenic coastlines in the world, but we can’t market

California coastal cruises without including a foreign port. The 113-year-old Passenger Services Act impacts our states’ ports very seriously because we don’t have

foreign islands off our Coast like the Eastern Coast. Even San Diego, the California

48

Port closest to Mexico is disproportionately affected by the PSA, as evidenced by the

fact that cruises to Hawaii are sailing out of Ensenada.

Our Coalition grew nationally to include the support of the American Association

of Port Authorities (AAPA) and individual ports of all sizes throughout the country.

Major tourism groups, like the three major associations (ASTA, ARTA, NACOA) representing travel professionals, joined our Coalition. Other cruise dependant businesses like the American Hotel & Motel Association and American Bus Association

also joined us. Individual travelers and elected City officials have voiced their support for us. Countless times, travel agents and port officials must explain to bewildered vacationers why they must travel to a foreign port as a condition of cruising

between their own countries ports.

Our goal is simple: to develop a new U.S. tourism product by reviving coastal

cruising between U.S. cities aboard large ocean liners. By doing so, we can create

new business opportunities for U.S. cities and U.S. businesses. The PSA creates an

inequity among U.S. ports by enabling those that are closer to foreign destinations

to have a competitive advantage. Even cities closest to foreign ports would benefit

from S. 1510 because they could diversify their cruise business and not be exclusively reliant on cruises to foreign ports.

Today, we are pleased that three prominent maritime unions have joined us in

supporting S. 1510: the Master Mates and Pilots, Marine Engineers and Beneficial

Association and Sailor’s Union of the Pacific. In the past, we have testified on opposite sides of this issue, but over the past few months we’ve reached agreement and

produced a compromise framework that can draw bipartisan support. It contains

real business incentives, not obstacles, for international and U.S. companies to enter

the domestic cruise market. Our Coalition’s members are excited about the prospect

that S. 1510 provides the best chance for U.S. ocean liners to break into the coastal

market. If U.S. ocean liners succeed, we succeed in increasing our cruise calls and

revenues.

The basic principles that we agree on are:

(1) The status quo is not working! The PSA is not serving its original purpose

of preserving jobs for U.S. seamen. The number of U.S. seamen working on the

Independence and Delta Queen is small when considering the dramatic growth of

this industry. The PSA combined with the decline of the U.S. cruise ship industry

has limited job opportunities aboard U.S. ocean liners to one U.S. Flag ship in Hawaii. It took special legislation passed in the 1997 Defense Appropriations bill to

stimulate the prospective entry of new U.S. Flag ships into the Hawaii trade after

a forty-year hiatus.

(2) Creative Incentives Needed! To stimulate U.S. coastal cruising we must be

creative and visionary about laying out a framework of incentives that will work for

the 21st century. If we truly are committed to creating jobs from this new domestic

trade, we can’t be paralyzed with fear about the impact of this change on a separate

maritime law relating to cargo, the Jones Act, which is strongly protected in our

bill.

S. 1510 is Compromise Legislation to Jumpstart U.S. Coastal Cruising

The legislation before you today, S. 1510, is a creative framework and a reasonable compromise. This is a different approach for the Cruising America Coalition.

In past years, we pursued legislation focused on the international cruise industry

because of the availability and size of the international fleet. If we had fifteen U.S.

Flag ocean liners serving all four coastlines, we would not have spent so much time,

energy and resources asking Congress for help. But we don’t want to miss out on

jobs and business opportunities that could be available now with a limited waiver

to the PSA.

S. 1510 works for us because we can sell our Port cities by allowing international flag cruise lines to cruise between U.S. ports for a limited amount

of time (200 days per ship until December 31, 2006). With a proven track

record in these new cruise products, we believe the effect of S. 1510 will be to open

up a host of new opportunities.

The impressive growth of cruise tourism has stimulated the interest of U.S. investors like Voyager Holdings to enter coastal cruises with ships manned by U. S.

crews. S. 1510 provides a fast track for the entry of cruise ships by allowing foreign

built ships to be reflagged U.S. and enter the U.S. domestic market. This means

real dollars in one or two years for ports, travel agents and hotels. Meanwhile, U.S.

investors would simultaneously contract to build a replacement ship. With S. 1510,

we are creating a new market opportunity for the building of the next series of U.S.

Flag ships in U.S. shipyards.

49

1 Cruise Line Industry Association (CLIA), The Cruise Industry-An Overview: Marketing Edition, February 1999. 2 North American market as defined in the CLIA report disignates only U.S. and Canada. The

highest rate being exhibited in the emerging baby boomer category. 3Seatrade Cruise Review September 1999.

S. 1510 proposes to use foreign assets to build the market for domestic cruising

for the benefit of all Americans, including potential U.S. Flag vessel owners. When

the market for new types of domestic cruises is tested, investors will follow.

U.S. Coastal Cruising Will Meet Passenger’s Interest in More Cruise Vacation

Choices

The cruise industry is the most exciting growth category in the entire leisure market, according to the market survey recently completed by CLIA, the international

cruise industries own marketing group.1 Since 1980, the industry has had an average annual growth of 8%. By 2000, 6.5-7 million passengers per year will

cruise. These are very exciting numbers for ports trying to diversify their maritime

portfolios and travel agents striving to offset losses from airline caps.

But most important to the development of U.S. coastal cruises for both international and U.S. Flag cruise lines are the following figures from CLIA’s report:

• Taking a cruise is the dream of 56% of all adults in the North American market. 2

• To date, only 11% of the U.S. population have ever cruised.

• Market potential for the next five years: 75 million people.

✔ Of the number of people surveyed 56% expressed an interest in cruising

over the next five years. The cumulative economic impact over the next five years

from these individuals cruising could be as high as $97 billion.

✔ 31% of the people surveyed, said they will probably cruise in the next five

years, for a cumulative impact of $54 billion.

The industry is responding to these projections with aggressive shipbuilding

plans. Forty-seven ocean liners are on order through the year 2004 for a total of $14

billion dollars. Two of these vessels include the first U.S. built, U.S. Flag ships to

enter the U.S. domestic market: the American Classic Voyages ships for the Hawaii

market, which have an estimated total cost of almost $1 billion.3

As stated in the CLIA report, ‘‘the on-going challenge for our cruise industry is to convert cruise prospects into new cruisers.’’ The international lines

have responded to this challenge with new ship design (ships of all sizes), new on

board/on-shore activities (including rock climbing walls, spas, shopping malls, ice

rink, and alternative dining rooms) and new themes.

New Cruise Destinations Lure First Time Cruisers.

In the last four years since the Cruising America Coalition was started, we have

seen new ports added as major cruise hubs that we never envisioned would be on

the list of major cruise Ports. This proves the industries desire to open up new

cruise destinations to keep the cruise vacation product fresh and exciting. It also

reflects the need to make room for newer and bigger tonnage by testing new cruise

products with older ships.

Here are some examples:

Texas — The entry of Norwegian Cruise Lines (NCL) into Houston for

Texarribbean Cruises was a major turning point in the diversification of cruise

ports. NCL line is capitalizing on the regional market in the Southwest and Midwest to attract customers. The itinerary includes small ports in Honduras where the

infrastructure was not in place. Texarribbean Cruises have been so successful that

this year, NCL positioned a larger vessel, the NCL Sea carrying 1600 passengers.

Another cruise line will begin Yucatan itineraries in 2000.

This year Carnival Cruise Lines announced it will homeport the ‘‘Celebration’’ in

Galveston for 70 cruises per year to Mexican Ports. A new $4.8 million cruise terminal, financed with revenue bonds, will be built to accommodate the new business.

This is an important change for Carnival whose President, Bob Dickinson, once remarked ‘‘Cruising out of Houston was like cruising out of Omaha.’’

Corpus Christi, gateway to San Antonio, will open its cruise terminal next

month. The cruise terminal and waterfront commercial development is funded with

a sizeable grant from the U.S. Department of Commerce (EDA).

If S. 1510 passes, Texas’ Ports can offer new cruise itineraries to New Orleans,

Tampa and Key West. With their proximity to the Gulf Coasts beautiful coastline,

why should Texas’ ports be limited to only Mexican cruises?

50

Seattle — With its proximity to Vancouver, Seattle has been at a severe competitive disadvantage and has seen more cruise passengers move out of SEATAC Airport than its cruise terminal. In 2000, Seattle will generate 21 new cruise calls to

Alaska from one of the fastest ocean liners to be built by NCL. The ship will stop

in Vancouver as a port of call the night before it arrives back in Seattle to get

around the PSA. RCCL will also do 9 short cruises to British Columbia.

Boston — Boston has become one of the top cruise ports in the nation with 77

cruise calls because of the popularity of New England-Canada cruises and Bermuda.

The Cities prominent position as a historical and cultural center and its proximity

to regional markets makes it very marketable as a point of embarkation for Bermuda cruises. Carnival recently gave the City a vote of confidence by positioning

a larger vessel, the Destiny, a 2,600 passenger ship for its New England-Canada

cruises. Boston has certainly established itself as a cruise port but it has the potential for cruises that go South to the Mid Atlantic, South Atlantic and Florida ports.

It is also a prime location for marketing charter and incentive cruises because of

the presence of numerous large corporations and institutions, its large airport and

popular visitor attractions.

Charleston — Charleston will have 23 cruise calls with 21,500 passengers. The

Carnival also been positioned there. The charter and incentive market is also promising for Charleston’s Destiny because of its proximity to fabulous golf attractions

beaches and historical sites.

Baltimore will get 18 cruise calls next year, an increase from seven calls. But

Baltimore is dependent on Bermuda sailings and because of the PSA can’t market

itself as a hub for American historical cruises. Next year, Holland America’s Rotterdam will arrive from a Transatlantic voyage. It will generate hundreds of jobs

for metal trade workers at Baltimore Marine Industries where it will be repaired.

The Rotterdam will embark passengers for a Caribbean cruise terminating in Florida.

Philadelphia completed its cruise terminal last year after rehabilitating an old

cargo pier. In 1999, 17 ships called with 21,000 passengers. The new terminal is

a refurbished a former Navy Yard facility and cost the Port Authority $ 5 million.

Next year, 26 cruise calls are expected with new business from Philadelphia to Bermuda.

Cities like Norfolk and Savannah are planning new cruise terminals. The QE2

already comes into the cruise terminal at Newport News with proximity to Williamsburg and Virginia Beach. Savannah’s business community is strongly behind

our efforts. The need for changes to the PSA were evident when Celebrities’ Zenith

was not allowed to call at Savannah from Canaveral during Hurricane Floyd. U.S.

Customs threatened to enforce the $200 fine under the PSA.

Cruise marketing groups in the Great Lakes have successfully attracted two

international cruise ships with European passengers to Chicago, Cleveland, Toledo,

Saugatuck, Detroit and Duluth. There will be twelve cruise itineraries between

Great Lake’s ports and Canada. These local communities hadn’t seen cruise ships

in decades. But the Great Lakes reports logistical problems in having to work within the constraints of the PSA because some Great Lakes ports are too remote from

Canada, adding days to itineraries.

These statistics show the moving trend towards opening new ports. While

new ports and more calls have been added under the existing PSA structure, the potential for growth among these ports and others is much greater. If cruise itinerary planners weren’t constrained by the PSA they would not have

to include days in foreign ports that may not be as interesting to vacationers as a

day in a U.S. port of call.

Or, smaller ports that are too remote from foreign ports would be able to break

into the market in significant way. In California, and Washington State, we have

prime examples of ports like Eureka, Monterey, and Grays Harbor that desire new

cruise tourism but don’t have a fair chance to pursue it because of the PSA. My own

City of San Francisco, a Conde Naste destination, relies on longer Alaska cruises

(10-12 days) as the core of its business. If two of our Alaska homeported ships leave,

our Cities cruise numbers drop from fifty annual calls to 30. This was our experience in 1998 when local restaurants at Fisherman’s Wharf were directly impacted

by the loss of 43,000 passengers.

Every port (including the larger cruise ports) needs to diversify its cruise business

to anticipate redeployment of vessels from their core business, weather changes or

changes in the consumer marketplace. Additionally, larger cruise ports desire cruise

calls on days besides weekends when the longer seven day cruise ports need facilities. As new cruise terminals are built with public and private capital, there is a

need to keep them busy for more than one or two days a week when ships turn

around.

51

Shorter Cruises are Fastest Segment of Cruise Market

S. 1510 will allow U.S. Ports that are too remote from foreign ports to compete

in the booming short cruise market. According to the CLIA study, the cruise industries hottest growth category has been the 2-5 day cruise category. From 1980 to

1998, there was a 407.5% growth in the 2-5 day cruise market versus 250.9% in

the 6-8 day cruise market and 207.2% in the 9-17 day market. From 1983 to 1991,

there was a steady decline in the length of cruise vacations is a reflection of more

capacity being added in the short cruise market.

Shorter cruises offer travel agents exceptional marketing opportunities to put passengers on the decks of ships. Shorter cruises that cost less are more tempting

for passengers who’d like to explore cruising as a vacation option without committing a longer period of time. They also appeal to baby bloomers who have busy

schedules and/or are juggling retirement and college tuition.

Once you get them on the deck of the ship, passenger satisfaction is very high.

Whether first-time or frequent cruisers, 60% of those surveyed in the CLIA Report rated cruising better than other vacation experiences. This means that

travel agents will get these customers back to their agencies, because 95% of cruises

are sold via travel agents.

Cruise line executives constantly remind travel agents at trade shows of how

cruise vacationers desire for more choices. More choices .. more ships, more attractions ... more cities! These are the marketing themes of the industry. The industry has a huge marketing campaign to capture the other 89% of the U.S. population that haven’t cruised. Lines are aggressively competing for new and repeat

cruises and are venturing to establish new cruise ports.

S. 1510 will provide international cruise lines with new opportunities to meet the

consumer interest in new cruise destinations and shorter cruises. Ultimately, it will

be a business decision for every international cruise line to review the legislation

as passed and assess whether it will take advantage of it. Some may and others

may not. But if market trends continue as they do, the opening of the domestic market will be very attractive to cruise lines competing for new and repeat cruisers. In

the end, our Coalition will have done our job in advocating for legislation that has

the least amount of restrictions to enter this market.

S. 1510 enables more U.S. cities to enable passengers to ‘‘sample’’ their destination, which is one of the reasons cited by passengers (79% of CLIA survey respondents) for why they enjoy their cruise vacation. Nearly 50% of passengers surveyed in the CLIA study stated they expect to return to the same geographical area/destination for another type of vacation. Local tourism businesses (i.e. hotels, buses, restaurants and retailers) will directly benefit from the

cruise Passenger’s visits and their return visits to their cities. For this reason, convention bureaus and state tourism associations have strongly supported the Cruising America Coalition’s efforts.

Protections for Small U.S. Boat Companies

Our Coalition has always sought to fill the void in the market place of cruises

aboard large, overnight, deep sea going vessels without impacting the successful operations of smaller U.S. vessel operators. S. 1510 responds to the

concerns raised in last years hearing in the House Coast Guard Committee from

smaller vessel operators over competition from larger international cruise lines. This

bill prohibits the entry of international vessels under 9,000 GETS from entering the

coastal cruise market. Between the range of 9,000-20,000 GETS, the vessel must

have an all suite luxury configuration with cabin sizes not smaller than 240 square

feet.

This language was drafted with the input of travel professionals who speak daily

with customers and understand the difference in the type of entertainment and

amenities that vessels offer. Smaller U.S. vessel operators highlight the benefits of

a small yacht adventure cruise in their marketing brochures. Travel agents and prospective customers know the differences between large ocean cruises and smaller

vessels. It is similar to travelers who know the difference between hotels and bed

and breakfast. They do not compare and they do not compete.

Smaller U.S. flag vessel companies are thriving because they indeed operate in different niches. Alaska Sightseeing, for example, operates in a market

where there are as many as 30 foreign flag cruise vessels, because both products

are distinct. Similarly, the entry of the smaller Delta Queen vessels with 250 passengers (1580 GETS) will be a distinct product marketed to a certain type of cruise

passengers. The new Delta Queen vessels will truly not be a competitor for the same

customers as large U.S. Flag ocean liners in coastal itineraries.

In summary, Mr. Chairman, we thank you for you your commitment to keep

changes to the PSA at the top of this Committee’s maritime agenda. Your leadership

52

and interest in opening up this U.S. market have been essential in getting us here

today. We have produced a reasonable compromise full of incentives for opening up

a new tourism product for our nation.

S. 1510 is about new choices and new chances! It provides cruise customers with new choices of U.S. ports. S. 1510 provides American ports, businesses and maritime workers with new chances to benefit from the boom in cruise

vacations. Every U.S. port deserves a chance to tap into the growth of this market

for the benefit of their local communities, regardless of their distance from foreign

ports.

Thank you for this opportunity.

CRUISING AMERICA COALITION SUPPORTERS

PORTS AND CITIES

American Association of Port Authorities

Great Lakes:

American Great Lakes Ports

Port of Duluth

Port of Milwaukee

Port of Toledo—Lucas County Port Authority

City of Chicago

East Coast:

North Atlantic Ports.Association (Maine, New Hampshire, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware & Maryland)

South Carolina State Ports Authority (Charleston)

Georgia Ports Authority (Savannah)

MASSPORT (Boston)

Fall River Line Pier, Massachusetts

Port of Philadelphia and Camden

Port of Baltimore

Port of Palm Beach

Gulf Coast:

Texas Port Authorities (13 ports)

Tampa Port 1Authority

Port of Galveston

Port of Houston

Port of Corpus Christi Authority

West Coast:

California Association of Port Authorities

San Diego Unified Port District

Port San Luis Harbor District, California

City of Monterey

Port of Los Angeles

Port of San Francisco

City of Eureka

San Luis Obispo Council of Governments

Humboldt Bay Harbor, Recreation and Conservation District

Port of Kalama, Washington

Port of Grays Harbor (Aberdeen, Washington)

NATIONAL, STATE & REGIONAL TOURISM ORGANIZATIONS

United States Tour Operators Association (USTOA)

National Council of State Tourism Directors

American Society of Travel Agents (AS TA)

Association of Retail Travel Agents (ARTA)

National Association of Cruise Only Agencies (NACOA)

American Hotel and Motel Association

American Bus Association

Society for Advancement of Travel for the Handicapped

STATE AND REGIONAL TRAVEL AND BUSINESS ASSOCIATIONS

Southeast Tourism Society (private businesses in 10 Southeast states)

Travel South USA (Southern travel directors in 12 states)

Great Lakes of North America Tourism Association (6 states)

Western States Tourism Policy Council. (8 states)

Mississippi River County Tourism Association (10 states)

California Tourism Commission

53

California Travel Industry Association (CALTIA)

California Trade & Commerce Agency

California Hotel and Motel Association

California Roundtable on Recreation Parks & Tourism

California Chamber of Commerce

Meeting Professionals International, Northern California Chapter

Illinois Bureau of Tourism

Texas Economic Development Council, Inc.

Texas Department of Economic Development

South Carolina Department of Parks, Recreation & Tourism

State of Maine Department of Economic Development

CONVENTION BUREAUS & LOCAL BUSINESS GROUPS

Philadelphia Convention and Visitors’ Bureau

Greater Boston Convention & Visitors’ Bureau

Baltimore Area Convention & Visitors’ Bureau

Charleston Area Convention & Visitors’ Bureau

Tampa Hillsborough Convention & Visitors’ Bureau

Monterey Peninsula Convention & Visitors’ Bureau

San Diego Convention & Visitors’ Bureau

Los Angeles Convention & Visitors’ Bureau

San Francisco Convention & Visitors’ Bureau

Humboldt County Convention & Visitors’ Bureau

Saugatuck Convention and Visitors’ Bureau, Saugutuck, MI

Charleston Metro Chamber of Commerce

Greater Boston Chamber of Commerce

Galveston Chamber of Commerce

Corpus Christi Hispanic Chamber of Commerce

San Francisco Chamber of Commerce

The CHAIRMAN. Thank you very much, Ms. Sanchez. Mr. O’Toole.

STATEMENT OF LAWRENCE H. O’TOOLE, PRESIDENT,

MARINE ENGINEERS’ BENEFICIAL ASSOCIATION

Mr. O’TOOLE. Good morning, Mr. Chairman and members of the

Committee, and thank you for this opportunity to speak to you

today on S. 1510, the U.S. Cruise Ship Tourism Development Act.

My name is Larry O’Toole, and I am the president of the Marine

Engineers’ Beneficial Association, the MEBA. I am also testifying

on behalf of my own union as well as the International Organization of Masters Mates and Pilots, the MM&P, and the Sailors’

Union of the Pacific, the SUP. I hope that all the Committee members realize that they should not construe my testimony today to

be any change in our position on the Jones Act. All our unions

strongly defend it, and this testimony should have no impact on it.

Now, less than a year ago I was serving on board a U.S.-flag

tanker in the Persian Gulf. It is one of my many assignments in

my career in the United States Merchant Marine that has taken

me to places around the world, far from home and family, doing a

job that demands a high degree of training and responsibility, but

also one that I and other Americans who serve on U.S. flag ships

are justifiably proud.

Today is the first time that I have testified before a congressional

committee since my election last December as president, and I am

pleased that at my first opportunity to appear before you I can

speak on a bill that our maritime labor unions believe can make

our industry stronger, provide badly needed maritime jobs, and

offer new opportunities for our Nation’s economy to grow.

The American working men and women of our maritime labor

unions strongly support S. 1510 because it represents the only realVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00057 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
54

istic, workable approach to give American companies and American

workers a fighting chance to make it in the U.S. domestic cruise

industry.

Today’s market for vacation and business-related cruises on

large, modern cruise vessels is served almost entirely by foreignflag vessels. If this situation is ever to change, and we believe it

can, it will only be through the innovative approach envisioned in

S. 1510.

The bill calls for a temporary, limited waiver of the Passenger

Vessels Services Act. This would create a short-term opportunity to

use large, foreign-built, foreign-flag vessels and foreign-built, U.S.-

flag vessels to test the viability of new domestic cruise markets.

There should be no mistaking the fact that such a waiver represents a marked departure for us, maritime labor. Maritime labor

has long defended America’s domestic shipping statutes, including

the Passenger Vessels Services Act, but it has become abundantly

clear to us that if something is not done, if a new and different approach is not tried, the cruise market in America will continue to

be dominated by foreign-flag vessel operators, and there will be no

opportunities for American workers and American companies to

make any inroads into this constantly growing market.

S. 1510 contains language specifically stating the limited use of

foreign-built, foreign-flag cruise vessels in the domestic trades shall

not affect or modify the requirements applicable to the carriage of

cargo under the Jones Act. This bill also recognized the undeniable

fact that the conditions in our Jones Act cargo trades and in the

domestic cruise trades could not be more different. The Jones Act

will not be altered as a result of this legislation.

Once you come to the conclusion, as we have, that American

workers are being shut out of their country’s own cruise markets,

it becomes clear that a new approach is called for. What we are

proposing is an opportunity, a limited window of opportunity that

has the potential to pay off in a big way for American companies

and American workers. This window of opportunity will allow foreign vessels and foreign-built, U.S.-flag vessels to come into new

and undeveloped cruise markets and provided that if their efforts

succeed, the market will ultimately be served by U.S.-flag, U.S.-

built, and U.S.-citizen crewed vessels.

I want to emphasize that S. 1510 is aimed at encouraging a rapid

transition from a foreign-flag test market to a permanent, thriving

U.S.-flag market. More importantly, it is the clear intent of this

legislation, which we strongly support, that U.S. laws apply equally

to all vessels in our U.S. cruise trade.

Any foreign-flag vessels brought into the domestic trades under

this bill will have to comply with all U.S. rules and regulations relating to health, safety, environmental protection, and other operating standards, as set forth by the Secretary of Transportation,

and these foreign-flag vessels will be subject to U.S. corporate income tax on the income they earn during the domestic portion of

their operations.

I want to emphasize that this bill, as we understand it, does not

adversely affect any American company. It represents opportunities

for American companies, pure and simple. If someone can show

that they will be economically disadvantaged and harmed by this

55

bill, we would be happy to work with them to find a solution that

meets their needs, but as I have said, this bill represents real opportunity and hope for U.S. companies and American workers,

while the alternative, the status quo, offers us nothing.

In closing, I would like to thank you once again, Mr. Chairman,

for your leadership and for this opportunity to express our strong

support for S. 1510. We also wish to thank the cosponsors of this

important piece of legislation, Senators Hutchison, Feinstein, and

Murkowski. The MEBA, the MMP, and the SUP together hope to

see our Nation’s domestic cruise market served by large, modern,

attractive cruise vessels flying U.S. flags and carrying trained,

loyal American-citizen merchant mariners.

I would be happy to answer any questions later. Thank you.

[The prepared statement of Mr. O’Toole follows:]

PREPARED STATEMENT OF LAWRENCE H. O’TOOLE, PRESIDENT, MARINE ENGINEERS’ BENEFICIAL ASSOCIATION

Thank you for this opportunity to speak to you today about S. 1510, the U.S.

Cruise Ship Tourism Development Act. My name is Larry O’Toole, and I am the

President of the Marine Engineers’ Beneficial Association (MEBA). I am testifying

today on behalf of my own union as well as the International Organization of Masters, Mates & Pilots (MM&P) and the Sailors’ Union of the Pacific (SUP).

Less than a year ago, I was serving on board a U.S.-flag tanker in the Persian

Gulf. It was one of many assignments in my career in the United States merchant

marine that has taken me to places around the world, far from home and family,

doing a job that demands a high degree of training and responsibility, but also one

that I and other Americans who serve on U.S.-flag ships are justifiably proud.

Today is the first time that I have testified before a congressional committee since

my election last December as president. And I am pleased that at my first opportunity to appear before you I can speak about a bill that our maritime labor unions

believe can make our industry stronger, provide badly needed maritime jobs, and

offer new opportunities for our nation’s economy to grow.

The American working men and women of our maritime labor unions strongly

support S. 1510, because it represents the only realistic, workable approach to give

American companies and American workers a fighting chance to make it in the U.S.

domestic cruise industry. Today’s market for vacation and business-related cruises,

on large, modern cruise vessels, is served almost entirely by foreign-flag vessel operations. If this situation is ever to change, and we believe it can, it will only be

through the innovative approach envisioned in S. 1510.

The bill calls for a temporary, limited waiver of the Passenger Vessel Services Act,

to allow a short-term opportunity to use large, foreign-built and foreign-flag cruise

vessels to test the viability of new domestic cruise markets. There should be no mistaking the fact that such a waiver represents a marked departure for us. Maritime

labor has long defended America’s domestic shipping statutes, including the Passenger Vessel Services Act. But it has become abundantly clear to us that if something is not done, if a new and different approach is not tried, the cruise market

in America will continue to be dominated by foreign-flag vessel operators, and there

will be no opportunities for American workers and American companies to make any

inroads into this constantly growing industry.

S. 1510 represents a thoughtfully crafted compromise among a broad range of interests—including maritime labor, representatives of American ports and others

who are members of the Cruising America coalition. Under the leadership of Chairman McCain, our maritime labor unions have sought compromise with other interests, and we are proud to have played a role in producing a proposal that gives our

members and the American companies they work for a real shot at success.

Our support for S. 1510 in no way conflicts with our continuing and wholehearted

support for the Jones Act. Our maritime labor unions have always been, and will

continue to be, strong defenders of the Jones Act, because it remains essential to

the economic and national security of the United States. S. 1510 contains language

specifically stating that the limited use of foreign-built, foreign-flag cruise ships in

the domestic trades shall not affect or modify the requirements applicable to the

carriage of cargo under the Jones Act. This bill also recognizes the undeniable fact

that the conditions in our Jones Act cargo trades and in the domestic cruise trades

could not be more different.

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Clearly, maintaining the status quo will never lead to the development of a largevessel, American domestic cruise industry. The status quo has not and will not ever

lead to more American maritime jobs. And the status quo has not and will not give

American vacationers an American alternative to foreign-flag vessels—vessels that

are crewed by Third World nationals, and whose owners use their foreign-flag status

as a way to avoid the jurisdiction of American laws and to avoid paying state and

federal taxes.

Once you come to the conclusion, as we have, that the status quo is not an acceptable situation, and that American workers are being shut out of their country’s own cruise markets, it becomes clear that a new approach is called for. What we are proposing is an opportunity—a limited window of opportunity—that has the potential

to pay off in a big way for American companies and American workers. This window

of opportunity will allow foreign vessels to come into new and undeveloped cruise

markets, and provide that, if their efforts succeed, the market will ultimately be

served by U.S.-flag, U.S.-built and U.S.-citizen crewed vessels.

I want to emphasize that S. 1510 is aimed at encouraging a rapid transition— from foreign-flag test market to permanent, thriving U.S.-flag market. For the first

year after enactment of S. 1510, only U.S.-flag vessels will be allowed to offer domestic cruise service, so ships brought under the U.S. flag will have first shot at

the best new markets. Only U.S.-flag vessels will be able to offer the ‘‘convention

tax deduction,’’ so U.S.-flag vessels will have an undeniable edge in the business

convention market. And, U.S.-flag vessels will be able to ‘‘bump’’ competing foreignflag vessels off an itinerary comparable to its own. And only U.S.-flag vessels will

be able to remain in the domestic trades after 2006.

Most importantly, it is the clear intent of this legislation, which we strongly support, that U.S. laws apply equally to all vessels in our U.S. cruise trade. Any foreign-flag vessels brought into the domestic trades under this bill will have to comply

with all U.S. rules and regulations relating to health, safety, environmental protection and other operating standards, as set forth by the Secretary of Transportation.

And these foreign-flag vessels will be subject to U.S. corporate income tax on the

income they earn during the domestic portion of their operations.

I also want to emphasize that this bill as we understand it does not adversely

affect any American company. It represents opportunity for American companies,

pure and simple. If someone can show that they would be economically disadvantaged and harmed by this bill, we would be happy to work with them to find a solution that meets their needs. But as I have said, this bill represents real opportunity

and hope for U.S. companies and American workers, while the alternative—the status quo—offers us nothing.

Right now, the only place in the United States where a large U.S.-flag cruise ship

can be found is in the Hawaiian Islands. Outside of the Hawaii trades, no one has

operated a large cruise vessel in the United States in more than 40 years. But it

is obvious that there is a market for vacation cruises outside the Hawaiian islands,

because large, modern cruise ships leave American ports outside Hawaii every day,

carrying thousands of American vacationers. S. 1510 represents the best, most reasonable, most workable approach to give our country’s workers an opportunity to

benefit from those vacation dollars.

In closing, I would like to thank you once again, Chairman McCain, for your leadership and for this opportunity to express our strong support for S. 1510. We also

wish to thank the cosponsors of this important piece of legislation—Senators

Hutchison, Feinstein and Murkowski. The Marine Engineers’ Beneficial Association,

the International Organization of Masters, Mates & Pilots, and the Sailors’ Union

of the Pacific together hope to see our nation’s domestic cruise markets served by

large, modern, attractive cruise vessels flying the U.S. flag and carrying trained,

loyal American-citizen merchant mariners. I would be happy to answer any questions you might have.

The CHAIRMAN. Thank you, very much, Mr. O’Toole. We appreciate very much your being here, and by the way, we also appreciate your many years of service to our country.

Mr. Walker, welcome.

STATEMENT OF ALLEN WALKER, PRESIDENT,

SHIPBUILDERS COUNCIL OF AMERICA

Mr. WALKER. Thank you, Mr. Chairman, and thank you for the

opportunity to testify this morning. My name is Allen Walker. I am

the president of the Shipbuilders Council of America. SCA is the

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national trade association representing the domestic shipyard industry that builds and repairs commercial and Government vessels.

We represent 50 shipyard companies that own and operate over

100 shipyards in 20 States.

Mr. Chairman, we share your goal of expanding the cruise ship

industry in the United States. An industry offering wide consumer

choice and providing shipbuilding and repair opportunities for

American yards would certainly be a win-win situation for everyone.

In that regard, SCA worked during the last Congress with Senator Breaux’s office and several of the parties testifying here this

morning on legislation aimed at encouraging growth in our domestic cruise ship industry while protecting U.S. shipyards against further harm from the infusion of heavily subsidized foreign-built

ships.

As I understand it, the bill before us today would basically create

incentives aimed at encouraging foreign-flag cruise ships to enter

the U.S. market with the eventual goal of creating an expanded

U.S.-flag cruise ship industry.

We believe to be successful any initiative aimed at cruise ship

growth in the U.S. must address the reasons why our domestic industry’s growth lags behinds its foreign competition and also encourages expansion of the U.S.—flag fleet. We believe that these efforts should be focused on easing entry into the marketplace for

U.S. companies that are committed to operating the U.S.-built and

U.S.-crewed vessels.

For example, one of the biggest obstacles to market entry for new

operators is the difficulty of finding adequate financing to build

vessels. One way we think that would solve this problem would be

for Congress to accelerate the depreciation schedule for newly built

U.S.-flag cruise ships. We think this would significantly ease the

financing requirement at no cost to the American taxpayer. Measures like this would accomplish the same goal as S. 1510, the one

we share.

Mr. Chairman, any legislation that encourages the use of used

foreign-built vessels in the U.S. marketplace without a strong requirement that they be replaced in a timely manner with U.S.-built

tonnage will harm our domestic shipbuilding industry. Our industry has been crippled in the international marketplace by foreign

Governments that subsidize the cost of vessel construction in their

shipyards. In fact, the cost of construction of every single cruise

ship eligible to enter the U.S. market under this legislation was

subsidized by a foreign Government.

For example, the SUN PRINCESS, which cost at least $417 million to build at the Fincanterry Shipyard in Italy in 1993 was sold

to Princess Cruise Lines for $300 million. The $117-million difference was paid for with a subsidy from the Italian Government

to the shipyard.

To put that figure in perspective, that one subsidy payment alone

is more than the entire title XI loan guarantee appropriation for

the past 4 years.

At this point, Mr. Chairman, I would like to thank you, Senators

Breaux and Lott, Senator Hutchison, and others for your efforts to

rectify this situation with your support for the OECD shipbuilding

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agreement, but despite all our best efforts, foreign subsidies have

denied American shipyards any real opportunity to participate in

the boom in cruise ship construction. Now allowing these subsidized foreign-built vessels to operate in our coastwise trades at a

competitive advantage over U.S. operators would stop the momentum that has finally begun to build in the U.S. cruise ship industry.

Today, small- and mid-size cruise ship operations between U.S.

ports are expanding. Two 226-passenger coastal steamers are currently under construction at Atlantic Marine in Jacksonville, Florida, and the company has an option to build another identical vessel. Nichols Brothers Boat Builders in Freeland, Washington is converting an unfinished casino vessel into a state-of-the-art 161-passenger cruise ship, and America West Steamboat Company is in serious discussions with several yards to add another cruise ship to

its U.S.-flag fleet.

Furthermore, two additional operators are negotiating with U.S.

yards right now to build two more medium-sized cruise ships.

These are real shipbuilding opportunities, and the operators involved have already hired naval architects, at considerable cost, to

design these vessels.

Mr. Chairman, the changes proposed in S. 1510 would have a

negative impact on the current growth of the U.S.-flag cruise ship

fleet. Without a doubt, operators would be forced to reevaluate each

of these building projects in light of added foreign competition.

I know there are those that argue that the provisions in S. 1510

would not slow the growth of the small and mid-size U.S.-flag

cruise ship industry, because the targeting vessels would be different, or much larger than the vessels under construction today.

We could agree with that assertion, except for the fact that the foreign-flag vessels would operate with considerable tax, labor, and

capital asset cost advantages, allowing them to charge significantly

less for cruises in the same markets.

U.S.-flag cruise ship operations both big and small will be hurt

by foreign-flag operations that can charge less for a cruise in the

same market due to the competitive advantages they enjoy.

Now, having expressed our concerns about the direction of the

legislation, we also believe that there are provisions in the legislation that could benefit American shipyards. We are pleased that

the bill includes a U.S. repair provision, but we are concerned

about how the provision will be enforced, in light of the fact that

these foreign-flag vessels can move in and out of the U.S. trades

at will.

Mr. Chairman, in the final analysis, Congress must make a decision whether to encourage growth in the domestic cruise ship industry by offering incentives to foreign-flag vessels to enter our

trades, our by looking for ways to expand U.S.-flag operations. We

respectfully urge the Committee to adopt the latter option. Our economic and national security depends on a strong and vibrant shipbuilding industry. We must not allow this vital industry to be further harmed by an international marketplace where successful

shipyards are determined by how much of the construction cost of

a vessel their Government is willing to underwrite.

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In closing, let me again emphasize how much we appreciate your

efforts to expand the cruise ship industry, and express our willingness to work with you and others to accomplish the goal.

Thank you, and I would be happy to answer any questions.

[The prepared statement of Mr. Walker follows:]

PREPARED STATEMENT OF ALLEN WALKER, PRESIDENT, SHIPBUILDERS COUNCIL OF AMERICA

Mr. Chairman and members of the Committee, thank you for the opportunity to

testify this morning on the United States Cruise Ship Development Act of 1999.

My name is Allen Walker and I am the President of the Shipbuilders Council of

America (SCA). SCA is the national trade association representing the domestic

shipyard industry that builds and repairs commercial and government vessels. SCA

represents 50 shipyard companies that own and operate over 100 shipyards in 20

states. Our members employ approximately 35,000 workers, more than 70 percent

of the total domestic shipyard workers primarily engaged in non-Navy shipbuilding.

SCA also represents 30 affiliate companies that provide goods and services to the

shipyard industry.

SCA member companies build, repair and service passenger vessels including

cruise ships, ferries, tugboats, towboats, barges of all kinds, vessels and rigs for the

offshore oil industry, fishing vessels, large yachts, Coast Guard and other government craft and any other type of workboat you can name. The owners and operators

of these companies are true entrepreneurs in every sense of the word. They operate

in an extremely competitive environment without government subsidies and they

are good at what they do.

The Passenger Vessel Services Act (PVSA) is important to the continued success

of a large number of SCA shipyards and to the U.S. shipyard industry in general.

Many of our shipyards are building, have built or have the capability to build small

and mid-sized cruise ships. Companies like Atlantic Marine, Gladding Hearn,

Blount Industries and Chesapeake Shipbuilding on the East Coast; the Halter Marine Group, Bollinger Shipyards, Bender Shipbuilding & Repair, First Wave Marine

and Leevac Shipyards on the Gulf Coast; Nichols Brothers Boat Builders, MARCO

Seattle and Todd Shipyards in the Pacific Northwest; Marinette Marine and Bay

Shipbuilding on the Great Lakes; and, Jeffboat in the nation’s heartland have the

know-how, experience and capacity to build passenger vessels. Let me assure you

that the U.S. shipyard industry is ready, willing and able to meet the shipbuilding

needs of anyone interested in operating cruise ships in our domestic coastwise

trades.

Mr. Chairman, thank you for holding this hearing and for your interest in expanding the cruise ship industry in the United States. This morning I would like

to make some general comments about the shipyard industry and how the legislation under consideration today would affect it. As I understand this legislation, the

bill would basically create a number of incentives aimed at encouraging foreign-flag

cruise ships to enter the U.S. market with the eventual goal of creating an expanded, U.S.-flag cruise ship industry.

Certainly, SCA shares your goal of expanding our coastwise cruise ship industry.

A U.S.-flag cruise ship industry offering wide consumer choice and providing shipbuilding and ship repair opportunities for American shipyards would be a win/win

situation for everyone. We also agree that the speculative and untested nature of

much of the U.S. market requires that incentives of some kind be offered to speed

growth in our domestic cruise ship industry. No one can question the fact that the

U.S.-flag cruise ship industry has not kept pace with the dramatic growth of the

industry worldwide.

SCA supports efforts to encourage growth in this industry and, in the past, has

worked with other interested groups to craft legislation with this goal in mind. In

fact, during the last Congress we worked with Senator Breaux’s office and several

of the parties testifying this morning on legislation that would encourage growth in

the domestic cruise ship industry and protect U.S. shipyards against further harm

from the infusion into our domestic market of heavily subsidized, foreign-built cruise

ships.

However, SCA believes strongly that any initiative aimed at cruise ship industry

growth in the U.S. must address the reasons why our domestic cruise ship industry

lags behind its foreign competition and encourage U.S.-flag cruise ship growth. We

believe that failure to address these issues will result in, at best, a temporary fix

at the expense of current U.S-flag cruise ship operators, operators with plans to

enter the market and our domestic shipbuilders.

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SCA believes that efforts to promote growth in this industry should be focussed

on easing entry into the marketplace for U.S. companies that are committed to operating U.S.-built and U.S.-flag vessels, not on encouraging further growth on the foreign side. U.S.-flag cruise ship operations have been disadvantaged for too long by

foreign-flag cruise ship companies operating with considerable competitive advantages. Foreign-flag cruise ships today operate virtually tax exempt, while U.S.-flag

operators pay U.S. corporate income taxes; foreign-flag operators employ third world

crews at a fraction of the cost of U.S.-flag vessel crew costs; they operate outside

U.S. environmental laws, and last, but not least, they have long had and continue

to have the ability to purchase heavily subsidized vessels in foreign shipyards. U.S.

consumers, through lack of domestic cruising options, and U.S. shipyards, through

lack of shipbuilding opportunities, have paid a high price for these market inequities.

SCA members are committed to working with Congress to find ways to accelerate

the growth in the U.S.-flag cruise ship industry. For example, we have found that

one of the biggest obstacles for new U.S.-flag operators wishing to enter our market

today is the difficulty of finding adequate financing to build vessels and establish

their operations. Right now, more than one potential cruise ship operation is on hold

waiting for adequate financing to construct a vessel. At this point, cruises between

U.S. ports are speculative operations and credit requirements for loan applications

are difficult to meet for start-up companies. Congressional action aimed at alleviating this problem would go a long way towards meeting our goal of building more

cruise ships in the U.S. and expanding cruising opportunities for U.S. consumers.

One way to ease the financing difficulties of U.S. operators wishing to enter this

market under the American flag would be for Congress to enact legislation allowing

companies building new cruise ships in the U.S. to depreciate vessels over a much

shorter period of time than is currently allowed. This would significantly ease financing requirements at no cost to the American taxpayer. This is just one example

of the kind of measure that we believe would accomplish the same goal as S. 1510,

without putting U.S. companies at a competitive disadvantage in the U.S. marketplace and jeopardizing U.S. shipbuilding opportunities.

I will focus the remainder of my remarks this morning on how changes to the

PVSA contained in S. 1510 would affect the segment of the U.S. shipbuilding industry that I represent. Mr. Chairman, any legislation that encourages the use of used,

foreign-built vessels in the U.S. marketplace, without a strong and enforceable requirement that these vessels be replaced in a timely manner with U.S.-built tonnage, will harm our domestic shipbuilding industry.

As all of you are aware, in many areas the U.S. shipbuilding industry has been

crippled in the international marketplace by foreign governments that subsidize the

cost of vessel construction in their shipyards. No segment of the industry has been

more affected by foreign subsidies than the cruise ship industry. In fact, the cost

of construction of every foreign-built cruise ship that would be eligible to enter the

U.S. market under the terms of this legislation was subsidized by a foreign government, some as much as 33 percent in direct subsidies plus incalculable indirect subsidies.

It should come as no surprise given the magnitude of foreign shipbuilding subsidies that their effect on U.S. shipyards has been devastating. Our shipyards have

been denied any real opportunity to participate in the boom in cruise ship construction. Now, allowing these heavily subsidized, foreign-built vessels to operate in our

coastwise trades at a competitive advantage over U.S. operators would compound

the problems caused by foreign shipbuilding subsidies and stop the momentum that

has finally begun to build in the U.S.-flag cruise ship industry.

Yes, it is true that no large, U.S.-flag cruise ships are currently operating between

coastal ports in the continental U.S.; however, it is not true that no U.S.-flag cruise

ship industry exists. In fact, small- and mid-sized cruise ships are operating between U.S. ports and the industry is growing. Two 300-foot, 226 passenger cruise

ships that will serve the domestic coastal market are currently under construction

at Atlantic Marine in Jacksonville, Florida and the same company has an option to

build another identical vessel. The operator has also announced its intentions to

continue its building program. Nichols Brothers Boat Builders in Freeland, Washington is converting an unfinished casino vessel into a state-of-the-art, 218-foot, 161-

passenger overnight cruise ship and America West Steamboat Company is in serious

discussions with several yards to add an additional cruise ship to its U.S.-flag fleet.

In addition, two other cruise ship operators are in serious discussions with U.S.

shipyards about building two more U.S.-flag cruise ships—one for the East and Gulf

Coast market and another for the West Coast market. These are real shipbuilding

opportunities and the operators involved have already hired naval architects, at considerable costs, to design these 375-foot long vessels.

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Mr. Chairman, we fear that the changes proposed in S. 1510 would have a negative impact on the current growth of the U.S.-flag cruise ship fleet and the shipbuilding opportunities that come with that growth. Without a doubt, operators

would be forced to reevaluate each of these building projects in light of added foreign-flag competition that would come as a result of S. 1510.

There are those that argue that the provisions in S. 1510 will not slow the growth

of the small and mid-sized, U.S.-flag cruise ship industry, because the vessels eligible to enter the U.S. market under the terms of this bill are different or much larger

than the vessels under construction today in SCA member shipyards—even that the

larger, foreign-flag vessels will complement, not compete against, our domestic fleet.

We could agree with that assertion except for the fact that the foreign-flag vessels

will operate with considerable tax, labor and capital asses cost advantages, allowing

them to charge significantly less for cruises in the same markets. Mr. Chairman,

U.S.-flag cruise ship operations, both big and small, will be hurt by foreign-flag operations charging significantly less for a cruise in the same market.

Having expressed our concerns about the direction of the legislation, we also believe that there are provisions in the legislation that could benefit American shipyards. SCA is pleased that this bill includes a provision requiring foreign-flag vessels obtaining a waiver to participate in the U.S. trades to have all necessary repair

work to enter the U.S. market and subsequent repair work performed in a U.S.

shipyard. We are concerned; however, about how this provision would be enforced,

especially in light of the fact that these foreign-flag vessels can move in and out

of the U.S. trades at will. Moreover, there is no requirement that any upgrades performed after entry must be in a U.S. shipyard.

Mr. Chairman, in the final analysis Congress must make a decision: whether to

encourage growth in the cruise ship industry in the U.S. by offering incentives to

foreign-flag vessels to enter our trades or by looking for ways to promote U.S.-flag

operations. We respectfully urge the Committee to adopt the latter option. It may

be the more difficult option, but it is the right option to choose. Our economic and

national security depend on a strong and vibrant shipbuilding industry. We must

not allow this vital industry to be further harmed by an international marketplace

where successful shipyards are determined by how much of the construction cost of

a vessel their government is willing to underwrite. Mr. Chairman, I would like to

take this opportunity thank you, Senators Lott and Breaux and others for your unwavering support for the OECD Shipbuilding Agreement, which we believe would

have gone a long way towards eliminating the international shipbuilding subsidies

that are wreaking havoc in the world shipbuilding market.

In closing, I want to again emphasize that SCA greatly appreciates your efforts

to expand the cruise ship industry and express our willingness to work with you

and other interested parties to accomplish that goal. We understand that this will

not be easy and that our goals will not always coincide with those of other interested parties, but we believe that the benefits are worth the effort. A vibrant U.S.-

flag cruise ship industry will mean more American shipbuilding and merchant marine jobs, enhanced national security, more tax revenue for federal, state and local

governments and more cruising options for our citizens—a win/win situation for all

concerned.

Again, thank you for the opportunity to testify. I will be happy to answer any

questions.

The CHAIRMAN. Thank you very much.

Senator Hutchison.

Senator HUTCHISON. Thank you, Mr. Chairman.

Mr. Chairman, I want to thank you first for your leadership in

having this hearing. Again, we have come a long way since 2 years

ago when we had our last hearing. I really think there is a nugget

here, after listening to each of the individuals, and so I do want

to ask a couple of questions.

I think Mr. Welch brought up some valid points, and I just wanted to ask you if you think that the fact that the bill does give the

Secretary, in conjunction with other Federal agencies, the power to

enumerate all the rules, regulations, and operating requirements

relating to health, safety, environmental protection, and anything

else that would be required for any foreign-flag vessel to come into

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our U.S. ports, if that would not level the playing field to an extent

that you would feel comfortable on those issues.

Mr. WELCH. Two comments to that, Senator. First, the way I

read the bill, the Secretary of Transportation does not have the authority to make decisions about a wide range of laws such as the

Americans with Disabilities Act, the Fair Labor Standards Act, a

variety of other economic type of laws.

There is the authority for the Secretary to make judgments about

operating laws or environmental laws, so the Secretary’s authority

is not as broad. It does not cover the full range of laws that apply

to our ships.

Second, we are really hesitant about Congress deferring that decision to an individual, the Secretary of Transportation. We see all

too frequently inequitable results when Congress refers tough

choices to the agencies.

My brother is general counsel of the FCC, and they are struggling with the Telecom Act, and they are catching all sorts of grief,

because Congress did not give sufficient direction as to what they

wanted, and I think deferring that decision to a single individual,

no matter how well-intentioned, is not the way to go.

If Congress is going to pass legislation, Congress should say specifically this law or that law does or does not apply. They should

not defer it to the Secretary of Transportation. Of course, all my

comments about what laws apply would be solved if what you were

talking about were American flag ships.

So, for example, Mr. Wallack’s ships, the way I understand, he’s

proposing a reflag. None of the observations I make, or made earlier, would apply in that situation.

Senator HUTCHISON. Let me take that, because that is something

I have just been discussing with our staff counsel, and that is,

would it be feasible, and would it add to the industry in reality to

allow foreign-built ships be reflagged to U.S.-flagged ships? Would

that increase the capabilities, and would, in fact, enough ships

come into the market that we would be increasing the opportunities for consumers in the tourism industry and the ports?

Mr. WELCH. Well, last Congress our association was in discussions with Senators and staff folks about, and some of the folks

here at the table about possible legislation that would allow reflagged ships to come in under certain circumstances, and there

was an effort also at that point to try to protect our size smaller

ships from this type of lower capital cost competition, and so we

would be willing to reengage in discussion on something like that.

We prefer to see U.S.-built, U.S.-flag ships, but the real difficulties about the application of laws comes when you allow foreignflag ships in, and under the bill, the way I read it, there is a period

of up to 7 years when foreign-flag ships can operate without making any legal binding commitment that they have to replace their

tonnage with U.S.-flag vessels.

The CHAIRMAN. Can I interrupt one second, Senator Hutchison?

We kind of free-flow sometimes here. We would prefer to see U.S.-

built and U.S.-flag ships, too, but it has been 40 years since one

has been built. We just saw a recent example of Newport News

that was going to get into the business and failed. It is nice to say

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that we would prefer these things. We would prefer a lot of things,

but I do not share your optimism, in view of the record.

I am sorry to interrupt, Senator Hutchison, but I think it is a

logical follow-up to your question.

Mr. WELCH. If I could, Senator, I testified about how there is a

market segment right now that I represent of smaller U.S.-flag

passenger vessels.

The CHAIRMAN. This legislation only affects larger vessels.

Mr. WELCH. But, sir, the way we read it, this would allow vessels

to carry as few as 200 passengers, foreign-flag vessels that carry

as few as 200 passengers, and I can identify the vessels for you,

to come into the trade, and we see that as competing with our vessels that carry roughly the same number of passengers, so we do

not believe—with all due respect I do not see—the protection you

are citing I do not think is effective for our existing U.S.-flag vessel

operators.

The CHAIRMAN. Thank you.

Senator HUTCHISON. Let me just say that I think that of course

what Senator McCain says is true, and we are talking about big

vessels, and even with the encouragement and cajoling and also

pressure from the Senate Majority Leader, he cannot even get a big

ship built in Mississippi for cruise purposes, and so I think we are

talking about apples and oranges, and I think we may be seeing

the potential here for U.S. flagging giving shipbuilders repair and

replacement part opportunities which would add to their business,

trying to level the playing field in every possible way. That is what

we want to do.

There is no question, certainly in the income tax area on any

business that is done in our ports we need to level the playing

field. There is no question about that. So I would just ask you all

to look at ways that we can add to everyone’s opportunities, and

add something to every segment, and let us forge a coalition and

get this bill out.

We will not be able to get it to the floor without the agreement

and consensus of everyone that has an interest, but I think we are

missing a huge opportunity for our country in jobs, in use of our

ports, and adding to the shipbuilding capabilities, and we are talking about 3 years. If we do so well that we encourage a U.S. shipbuilder to say, hey, I see the potential here and I am going to build

a ship, then we are out of here. Then that has created a market

that is not there now, and we will readdress, because this would

go out of existence in 3 years.

So I think we need to open our minds and look at the opportunities here, and I do see a nugget of agreement, and I want to get

all of our heads together and make this happen, and Mr. Chairman, I am willing to do that, and work with you, and with them,

and see if we cannot do something good for everyone here.

Thank you.

The CHAIRMAN. Thank you very much, Senator Hutchison. I am

very grateful for your considered involvement in this issue. Senator

Burns.

Senator BURNS. Thank you, Mr. Chairman. I just have a couple

of questions. We do not get a lot of big cruise ships that stop in

Montana.

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[Laughter.]

Senator BURNS. But one more earthquake, and we may.

[Laughter.]

Senator BURNS. I am interested in this because—and Mr. Welch,

I was told that we have only got one flag, and that is in Hawaii.

Where are the rest of them?

Mr. WELCH. Sir, we have approximately 22 existing U.S.-flag vessels. All except for one right now are what we would call medium

or small U.S.-flag vessels, and we are talking anywhere from the

75 to 250 passenger range. Several of them operate with headquarters in the Seattle area, and they serve Southeast Alaska in

the summer, and then as the winter progresses they move down to

the Columbia River.

Some of them, one of them the operators goes into San Francisco

Bay and up the Sacramento River, and then down to Southern

California in the winter.

We also have operators on the East Coast that have selected

routes up and down the East Coast and the Gulf, and a couple of

them go into the Great Lakes.

You need to understand that these routes are not permanent

routes. In other words, the vessels will sail two or three times a

year on one particular itinerary, and then they will move to another itinerary. The market is not such that you can keep your vessel in the same route the entire year, but I can provide you—in my

testimony I provide the names of the companies and a little bit of

information about the vessels.

We also have seven vessels, additional, that are either under construction or will be in yards in the next year or two, so this is a

growing and workable segment of the U.S. maritime industry, and

we fear that the way the bill is written in its shot at large vessels

is going to perhaps unwittingly have some negative impacts on our

smaller vessels.

Senator BURNS. Tell me, do we have access to foreign ports with

American flags? Is not the playing field level? Are we prevented

right now—a foreign-flag, he can come in, but he cannot stop in a

second port in the United States? In other words, his next stop has

to be at a foreign port. Are those requirements made in any other

country other than this country?

Mr. WELCH. Senator Burns, there are various—first on the international voyages, any U.S.-flag vessel, just like any other foreignflag vessel, can make an international voyage to another country’s

port, so that is pretty much standard. There are different types of

cabotage laws around the world, and there are some restrictions.

For example, some of the Mediterranean countries restrict their

passenger carriage between their own individual ports to either

their own flag vessels or perhaps some other EU-flag vessels. They

are beginning to expand the cabotage of the Europeans. For example, restricting the Greek Isles to only Greek Isle ships, that is beginning to be—the EU is pressing them to say, open that up to

other EU-flag vessels.

Senator BURNS. Mr. Wallack, you have shown some interest in

the last question I asked.

Mr. WALLACK. Yes, because it has not been a level playing field

up to now, but it really was irrelevant, because there were not any

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American ships to go into it. None of the smaller vessels could

transit, or were transiting the ocean to get to the other side to compete. Until January of this year if you wanted to cruise round-trip

from the Piraeus in Greece, you had to have the Greek flag. As of

the first of this year, now any EC-flagged ship can do that kind of

cruising.

So it is not a matter of not having the opportunity, it is just that

there are not any U.S.-flag ships to do that. If we develop a cruise

industry here, we could begin to challenge these kinds of exclusions.

Senator BURNS. Do you think this legislation would enable that?

Mr. WALLACK. Yes, I think it will. I think we are not going to

create a U.S.-flag cruise industry full-blown from the head of Zeus.

I think we have to have a beginning, and great companies begin

by taking small steps. Carnival Cruise Lines, probably the best

cruise line, largest cruise corporation in the world, started with one

converted liner.

A great guy, Ted Arenson, who recently passed away, acquired

one old liner—I think it was a Zim Line—and began Carnival

Cruise Lines with it, and knew if he was successful with these

older ships, he could afford to build and buy new ships.

I am encouraged by the fact that American Hawaiian is able to

move forward with the building of a ship in the United States. I

know that it is not profitable for shipyards to build one ship, or

even two. They have to build three or four, or six, in a series in

order to make it a profitable operation. The shipbuilding industry

in the United States needs the support of U.S.-flag cruise lines to

step up to the table and order those kinds of vessels.

In our case, we want to order blue water ships, large, economical,

big cruise ships, the kind that compete in the world today, and we

believe that American shipyards can produce these kinds of ships.

We do have confidence that the small ship business can work and

coexist within that environment. It does now.

We have so much of a commitment to that idea that we have recently negotiated an agreement with Goldbelt, a Native American

corporation in Alaska, to take over their four-ship overnight cruise

operation based in Seattle. So we have a commitment on both sides

to do both small-ships and large-ships, because we believe it is part

of the same marketing grab, if you will, and can be comarketed

very, very nicely, and very profitably.

Senator BURNS. I was a cosponsor of last year’s bill, and I am

also a cosponsor—I assume I am. We have been doing other things

around here—because I just think it opens up the market. I really

do not see where the big vessels of the 2,500 to 3,000 capacity is

going to make much of an impact on your business, Mr. Welch, because I think it is two different markets.

Mr. WELCH. Well, Senator, all I can report is the amount of operators that feel that they are to some degree in competition with

large. In fact, part of the problem is not just the size of the ships.

Part of the problem is the cost of the cruise.

For example, if you go out on an international-flag cruise ship

you are going to see a wide range of ticket prices. The cost of the

cruise, I do not know exactly what their marketing strategies are,

but they range from high to low, and there will be lots of folks on

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those cruise vessels that are paying less than what our U.S.-flag

operators—so I agree that the type of service that we are operating

is somewhat different, but it is not totally different, and it is also

somewhat price-dependent, and when you have foreign-flag vessels—and that is what we are concerned about.

We are not so concerned about a U.S.-flagged vessel, a larger

U.S.-flagged vessel competing against us. That is the breaks, you

know. We will compete against them however best we can. But

when we have to compete against a foreign-flagged larger cruise

vessel, and they are offering a price that is lower than what our

fellows can offer, that is where we start having problems.

Senator BURNS. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much.

Mr. O’Toole, what is it that prompted you and your organization

to be involved in this issue?

Mr. O’TOOLE. Well, Mr. Chairman, let me just give a little story.

When I was 28 years old I sailed on the SS BRAZIL. It was a

cruise ship. I sailed on the SS UNITED STATES, when that owned

by was U.S. Lines. I sailed with Grace Lines, on the SS SANTA

PAULA. That was when I was 28. I am 58 now, and I have not

seen a U.S.-flagged passenger ship since then, and I think my time

is running out. In fact, it has run out.

I was just up at Kings Point for my homecoming. I saw graduates, potential graduates from the Merchant Marine Academy in

their splendor. It was a glorious day up there, this past weekend,

and I thought to myself as I was watching them parade around,

they are going to come to me in a few years and ask for a job, and

I am going to have only a few jobs to give them, and so our union

decided to go into this for the opportunity of jobs for our members,

and we see this as an opportunity, a real opportunity. That is why

we joined this coalition.

The CHAIRMAN. Well, I thank you, and your support is of significant importance to us.

Mr. Welch, I do not want to have this Committee beat up on you

just because we have some disagreement here. We want you here

in this debate and discussion, because as Senator Hutchison said,

I hope that we can arrive at some agreement.

Did your organization support the action taken by Congress to

allow the use of a foreign-built cruise vessel in Hawaii?

Mr. WELCH. We did not have a position on that as an organization. Now, the company is a member of our association.

The CHAIRMAN. Well, has that exemption hurt the Jones Act?

Mr. WELCH. That exemption is going to bring in an additional

U.S.-flag vessel, and it is going to bring in two newly constructed

U.S.-flag large passenger vessels, and they are going to be U.S.-flag

vessels, so we think that that is going to be a positive benefit to

the entire industry.

The CHAIRMAN. Ms. Sanchez, you heard Mr. Welch say there is

room for optimism, I believe he said because we have U.S.-flag carriers. Do you share that optimism?

Ms. SANCHEZ. Mr. Chairman, the U.S.-flag vessels that he is

talking about that he has well-described, they are a fleet of smaller

passenger ships. In fact, if you look at the marketing brochures reVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00070 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
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ceived by the travel agents that are given to consumers, they state

they are small yacht adventure cruises.

They talk about the differences between their vessels and the

large ocean liners, and so it is interesting that for marketing purposes they highlight the differences, but for legislative purposes,

they highlight the similarities, and I do want to clarify that the

legislation, the vessels of the 200-passenger range that Mr. Welch

referred to, the international vessels that he is referring to, those

would be required to be all suites, with a minimum cabin size.

Those are vessels that the PVA’s vessel owners do not have vessels of that category, so you can see the length to which we tried

to make sure that there were wide gaps so that there would not

be head-to-head competition, so I think that is an important point

to point out.

The CHAIRMAN. Ms. Colenda, recently there have been some very

serious transgressions committed by foreign-flag operators, environmental abuses, major fines, and on a couple of occasions in the

past I have been assured that these violations have been brought

to a halt, and yet we see recurrences of them.

I have a reputation for speaking somewhat candidly. It hurts our

efforts if these kinds of infractions of law, violations of law continue. Can you enlighten the Committee, or give us some comments

and commitments as to this situation being remedied?

Ms. COLENDA. Thank you, Senator McCain. The International

Council of Cruise Lines has recently adopted, and the top executives of our companies have recently adopted, several major initiatives to deal and respond specifically to some of the issue areas, the

major issue areas where there have been some concerns.

We just recently released an environmental policy statement

where the cruise industry is committed to protecting the environment, is working to enhance, as an industry to enhance and further

strengthen environmental programs, in recognition of the fact that

there have been some issues. So the top executives of this industry

association have set policy goals for the future to look for ways to

improve.

In particular, another thing that we responded to, another issue

we responded to this summer is incidents of on-board passenger security. The number 1 priority for our industry is protecting our

passengers, providing for the safety of our passengers, providing security for all passengers on board, so as an industry association,

and representing 17 of the major companies, we have strengthened

our commitment in many major areas and look forward to working

with Congress.

We listen to regulators, we listen to the international community,

and we look for ways to improve in the future, and that is what

we are doing as an association.

The CHAIRMAN. In the case of an allegation of assault, can you

assure me that every allegation will be reported and treated as if

it were a crime that were committed in the United States of America?

Ms. COLENDA. That is exactly what our policy does, Senator

McCain. What we have agreed to do as an industry association is

that when there is any allegation of any sort which we do not tolerate, we have issued a zero tolerance policy. We would report it

68

to the appropriate authorities. When it is a U.S. citizen, the appropriate authority is the Federal Bureau of Investigation.

The lines involved independently have a security officer on board

every ship who would conduct a preliminary investigation, collect

evidence, and turn over to the appropriate authorities immediately

any kind of serious allegations that occur on our ships, because our

primary goal is to keep passengers coming back year after year,

and we do carry 5 million passengers.

As an association, our industry carried 5 million passengers last

year, and our primary commitment is assuring the safety and security of these passengers so they will come back year after year. Our

success has been that we have a good record in that regard.

The CHAIRMAN. This policy statement, you have been working

with the EPA on it?

Ms. COLENDA. Yes. What we are going to do is—we are conducting the primary work through our Coast Guard partnership,

working with the Coast Guard, because we have a formalized partnership with them. But we will also work with environmental organizations like the EPA and others, like the President’s Council on

Environmental Quality, and other high-level environmental associations or administrations.

The CHAIRMAN. I would like for you to work with them, and I

would like for you to get letters from them endorsing, or making

additional recommendations to your policies, because these are the

people who I think you need to get their endorsement and support

of your efforts.

You have got a credibility problem right now, and I think to have

our various agencies of Government to oversee these issues will be

very helpful.

Mr. Walker, do you think that S. 1510 would not test new markets?

Mr. WALKER. I think S. 1510 would test new markets.

The CHAIRMAN. You think that smaller cruise vessels will be

hurt by larger foreign cruise vessels, because larger vessels can

charge less?

Mr. WALKER. Larger foreign-flag vessels can charge less than

smaller U.S.-flag vessels can charge. I think—I do not have the

numbers, but I think it is fairly well-documented that you can take

a foreign-flag cruise now significantly less than you can go on a

250-passenger U.S.-flag cruise.

The CHAIRMAN. The difference in cost is because?

Mr. WALKER. The difference in cost is labor cost in the U.S. All

of our cruise ships, U.S.-flag cruise ship operators have to pay U.S.

taxes on all of their operations, whether they be in the U.S. or outside the U.S.

As I said, I am happy to—I mean, I am not happy to say it, but

I fully admit that the vessel cost in the U.S. is higher than it is

on the international market due to the massive amount of Government subsidies that the foreign shipyards receive from their home

Governments. All of those things enter into it.

The CHAIRMAN. Ms. Sanchez, how many American citizens are

employed just in Miami by the foreign cruise lines?

Ms. SANCHEZ. Mr. Chairman, I would defer that question to Ms.

Colenda.

69

The CHAIRMAN. Ms. Colenda.

Ms. COLENDA. In Miami, it is about 50,000 to 60,000 U.S. citizens are employed.

The CHAIRMAN. Fifty thousand to sixty thousand U.S. citizens

employed, and, say, San Diego how many are employed by foreign

cruise ships?

Ms. COLENDA. I am not sure of that number, Senator McCain.

The CHAIRMAN. Maybe a couple of hundred?

Ms. COLENDA. I would think in the California ports, where we

have significant vessel operations—for example, two of our companies are headquartered, one of them is in Los Angeles, and we have

some of the companies headquartered in California, that the headquarters alone would, in the case of—Princess Cruise Lines employs probably several thousand people.

Ms. SANCHEZ. Mr. Chairman, if I may, I would like to add to

that, because I think it is important to note there are Americans

employed on international cruise ships on board the ships, and in

fact we looked at this, and looked at the 30 cruise ships that typically serve the Alaska market, and when we looked at the number

of Americans that are employed, we discovered there are over 2,000

Americans employed on those ships, which is much greater than

the amount of Americans employed on U.S.-flag cruise ships,

whether it is the Hawaii ocean liner, the INDEPENDENCE, or

even the smaller vessels that Mr. Welch has referred to.

The CHAIRMAN. Mr. Welch, you are eager to respond. I can tell

because you are sitting up straight there.

[Laughter.]

Mr. WELCH. Well, thank you, Senator. The only thing that concerns me is the tendency that sometimes we feel like that we, our

industry, get kicked because of our high cost structure, but we do

not have a high cost structure, we have an American cost structure. We pay the same types of wages as shoreside folks.

We are not out of line with the American economy. We are very

efficient within the American economy, but it is tough for us to

take somebody that implies you must be doing something wrong

because you cost more than a foreign-flag ship that pays most of

their people far below the U.S. minimum wage, that does not have

to pay U.S. taxes to any meaningful amount, and that is able to

have a capital cost structure far better, more favorable than we

are.

We are not knocking the foreign-flag companies for being able to

do that. They are entitled to do that. But we do have a problem

when somebody kind of looks at us and says, your cost structure

is out of line compared to them. It is not a fair comparison, and

allowing them to compete with us—and it is not just the cost structure.

They are not subject to the Americans With Disabilities Act. We

are. They are not subject to the Transportation Safety Board. We

are. They are not subject to a number of economic laws that your

bill does not deal with. We are. It is just tough for us to compete

head-to-head in that environment.

The Chairman: Mr. Wallack, without this legislation there is at

least one venture that claims it will enter the U.S. cruise industry

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by building cruise vessels without reflagging. Do you believe that

is a realistic strategy?

Mr. WALLACK. I think if we look at the history of the cruise industry—I have been involved in it since the early eighties—the

ability of a line to enter service by building a new ship and taking

all of the expense up-front without any existing organization has

been marginal. In fact, most of them have either failed or become

acquired by larger lines who have a different set of economics and

infrastructure, et cetera, to make it profitable.

I think off the top of my head of Seaborne, a very good company

and the excellent new ships they built. But, until a large part of

it was acquired by Carnival Cruise Lines, it was floundering. This

is not an exception to the rule. It has been the rule so far. Our

business plan just calls for the tried-and-true, ‘‘do not reinvent the

wheel’’ way of doing business, the same way Carnival started, the

same way many other cruise lines started, and we think it is practical, especially considering that building ships in the United

States—building ships takes time. Building ships in the United

States is going to take more time.

We feel confident that it can be done, but we should be using

that time productively to build a business to acquaint Americans

with the kind of itineraries we can operate, to form our allegiances

and make our product known to the travel agency community, and

in training workers who come on board these ships, who have had

no opportunity to do so, even though they have been attempting to

work in the maritime sector.

So we think there is a logical bridge strategy. Can they be successful? How deep are your pockets?

I mean, even large ships like the very fine cruise line, Crystal

Cruise Lines, required the very deep pockets of a company called

NYK, one of the largest maritime companies in the world, to get

its beginnings. That is a tremendous commitment from a very, very

big company.

I do not see in this particular plan that you referred to, Senator

McCain, that kind of deep pockets, so I would be concerned about

the business approach, but more power to them. If he wants to do

it and can do it, I applaud the effort.

I would make—if I may, I would just like to comment on the economic issue. Although I am 100-percent in agreement that we

should have a level playing field wherever possible, in a coalition

we sometimes take a bump or two in order to make things happen.

I heard this referred to as ‘‘pie-in-the-sky’’ and ‘‘it is never going

to happen,’’ so if we do not take a few little bumps, if we do not

take a few little hits, if you will, real things will not happen.

I think this is about real things, and in the economics of the

cruise ship business, size has more to do with the cost of the ticket

than what you pay in wages. Wages are a significant contribution,

but we feel that with the wage scales in the American maritime industry today, that we could live with that, but size is important,

and the structure of a small company, if you look at small companies, their ticket prices are all very high.

All of the successful small companies under the foreign-flag are

companies like Seaborne and Silver Seas, et cetera. Their ticket

prices are very similar to the ticket prices offered by U.S. flag lines.

71

But big ships have different economics, and that is why our intention is to build those ships. You only need one driver for 2,000

passengers. That is a big difference.

The CHAIRMAN. Mr. O’Toole, does it intrigue you that it is now

more expensive, as far as labor and other costs are concerned, for

foreign shipbuilders than it is in the United States of America, and

yet still, we have been unable to get that business started by any

major shipbuilder in America. They are very good at building Navy

ships. They make the finest warships in the world, obviously, and

unique warships.

We just had the Newport News experience. We have had other

experience, where supposedly in Philadelphia they have been sending workers over to Korea to be trained and come back, and yet

still we do not have a viable industry.

The argument used to be, well, it costs so much more in the

United States to build a ship than it does in Italy, or the Netherlands, or wherever else. Now their costs are higher, yet they are

still building the cruise ships, and we have not been able to do

that.

Given your more than 30 years of experience in this business,

what do you think about that?

Mr. O’TOOLE. Well, actually, we had a good discussion on that,

and it was pointed out our shipyards are specialists. Newport

News, aircraft carriers, Bath, cruisers, destroyers down in the Gulf

States. Because of that, they are specialists in that, and that

makes them good at it.

The CHAIRMAN. Also, could part of it be that they are not too concerned about cost overruns?

[Laughter.]

Mr. O’TOOLE. Well, I think they have a guaranteed profit margin

built in. If they are going to go out and build a cruise vessel, now

they are at a risk as to whether or not they can succeed. I think

Mr. Wallack, as he pointed out, the time it takes to build cruise

vessels, if you have not done it before, varies with your experience,

but I think for us, if we are going to do it, now is the time to do

it. Our opportunity is now, and I think that this bill, S. 1510, provides for that, and I think it gives an opportunity for the shipyards

to have time to develop an industry in building cruise vessels, and

I would hope they would join and support this legislation.

The CHAIRMAN. Any final comments, Mr. Welch, beginning with

you, or do you want me to end with you?

[Laughter.]

Mr. WELCH. Your choice, Mr. Chairman.

The CHAIRMAN. Please go ahead, Mr. Welch.

Mr. WELCH. Mr. Chairman, my message is that in your efforts

to construct a bill aimed at large cruise vessels, and of course we

support the goal of getting more U.S.-flag large cruise vessels,

please craft that bill in a way so that it deals only with large cruise

vessels, and does not have a negative effect on the existing, vibrant

U.S. flag small cruise vessels. We think there possibly is a way of

doing that, but we feel like the way the bill is written now, it has

too many questions.

The CHAIRMAN. Ms. Sanchez.

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Ms. SANCHEZ. Thank you, Mr. Chairman. In closing, I wanted to

just remind the Committee that the waiver for the international

cruise lines under S. 1510 is very limited. We have come a long

way from prior legislation. We are talking here about only allowing

200 days per international vessel until the year 2006.

Now, there have been suggestions that we submit the international cruise lines to a fair playing standard with the U.S.-flag

industry. While we agree on environmental health and safety, because they are already doing that, they are within the reach of the

U.S. Government already as we have seen lately, we do not think

that requiring additional standards is going to help.

That, in fact, what it would be, it would be a poison pill in the

bill, and that the international vessels will not come in, and we do

not want to create the result that Senator Gorton talked about

when he opened earlier in this hearing, when he said, if it is a good

political solution, but it will not generate the business, so that I

just wanted to expand about what our rationale is behind that.

So our interest is to fill the void with the large ocean liners. Our

language for the smaller boats we think is tight. I am not comfortable that if we increase the tonnage limit to 30 to 50,000 gross

registered tons, that I could get Mr. Welch’s support for this bill,

regrettably.

Thank you.

The CHAIRMAN. Thank you. Mr. Walker.

Mr. WALKER. Mr. Chairman, I cannot let that pass. I need to

know if I understand what Ms. Sanchez just said. If she just said

that if foreign-flag operators have to operate like U.S.-flag operators have to operate, they would have no interest in our market,

if that is true, that seems to me to be the real reason why we do

not have a U.S.-flag fleet now.

If even the foreign flags do not want to operate here under our

current structure, maybe we should look, and we want to expand

the U.S. flag cruise ship industry, but maybe we should look at

ways to make it easier to operate here in the U.S. Why should our

own companies——

The CHAIRMAN. How do we know, until we give them a chance?

Mr. WALKER. That just seems to us to be an alternative way. We

want to work with you to expand the industry. It is good for everybody. Nobody doubts that. But we just want to make sure that we

do it in a way that does not stop the momentum that the smaller

commercial yards have begun to build in building the smaller and

medium-sized cruise ships. They need those contracts very badly.

The downturn in the oil industry is—lay-offs are happening left

and right on the Gulf Coast, and we are not sure a lot of these

shipyards will be around in 6 years to take advantage of this unless something is done.

The CHAIRMAN. Mr. O’Toole.

Mr. O’TOOLE. To reiterate my earlier testimony that my testimony today in no way deters from the support that both the

MEBA, MMP, and SUP have to protect the Jones Act. These are

two separate issues. I have heard the analogy about the camel’s

nose under the tent with regards to that, and I would like to say

that I think that maybe—I am going to use the analogy of the ostrich head in the sand with regards to the future of American pasVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00076 Fmt 6633 Sfmt 6601 75053.TXT SCOM1 PsN: SCOM1
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senger ships. I think that too often people are waiting for something to happen. I think now is the time for it to happen. I think

the bill, S. 1510, is the vehicle on which we could develop a domestic cruise industry, and quoting George Allen, I think the future is

now.

Thank you.

The CHAIRMAN. You are showing your age again, Mr. O’Toole.

[Laughter.]

The CHAIRMAN. Mr. Wallack.

Mr. WALLACK. Thank you, Mr. Chairman. I wanted to use a different camel analogy, because I have heard a lot about the camel’s

nose under the tent. I want to talk about S. 1510 perhaps as a coalition getting together to build a horse and we came out with a

camel that has got a few bumps, but it is great for transportation,

and it is particularly good to get us over rough ground, and to last

a long time until the job gets done. That is what camels do.

I think we have built one, and I think we can make something

happen here, and we can employ Americans on American flag

cruise ships, and we can expand the kind of itineraries we can offer

Americans, and do all of the things that you intended, Mr. Chairman, with this bill.

I think it is realistic, and not a ‘‘pie-in-the-sky.’’ It is certainly

a beginning, and you have our undying pledge that we are going

to do everything possible to make that happen.

The CHAIRMAN. Thank you, sir. Ms. Colenda.

Ms. COLENDA. Thank you, Chairman McCain.

One of the things I would like to point out is that our industry

believes—we last year created jobs for 176,000 U.S. citizens. We brought $11.6 billion to the U.S. economy, and we think that the

objectives that you are trying to achieve can be achieved with expansion of our industry.

We have brought on new itineraries. We have visited new U.S.

ports. We have added Galveston and Houston; we have added the

port of Seattle; we have expanded operations in Boston; we have

expanded tour operations in New Orleans; we have expanded our

operations in San Diego; we are calling on San Francisco, and 2

years ago our vessels were not doing that.

So there are broad opportunities for the industry, but our primary market still has been outside. It has been primarily in the

Caribbean area. Worldwide, we had 95 vessels call on over 200

ports last year, and so we are a worldwide market, and I think we

are a very competitive and responsible industry, and we welcome

the opportunity to work with you, and thank you for asking us to

come today.

The CHAIRMAN. Thank you. The aspect of it that appeals to my

constituents is the fact that, especially out of Miami now, but hopefully other places if we pass this legislation, the incredible variety

of enjoyment they can get out of a cruise, a weekend cruise, singles

cruise, old geezers cruise—I mean, the weekend, the month-long,

we can—the incredible selection now that Americans and others

who may come to this country have is really quite remarkable.

That is what has impressed me more about the growth of your

industry, and the growth has been dynamic, and if it is true in

Miami and other places where the Jones Act really does not affect

74

them, and the Passenger Cruise Vessel Act does not affect them,

then I think it opens up incredible opportunities for American citizens to have an experience that unfortunately some citizens who

live in different parts of the country do not have. It is remarkable.

In just 5 or 10 years, the incredible expansion, the different

kinds of experiences that American citizens can have, at frankly

prices that are not as high as—once upon a time, cruising was for

the very rich, and now this industry has been able to allow most

levels of income, certainly not all, but at least down to middle income Americans, an opportunity to have some very unique experiences, and that is I think what your industry has to be congratulated for.

But I want to caution you one more time. I am appalled when

I see some of these environmental violations, and some of the allegations that have taken place. It has got to stop. It has to stop, otherwise the Congress and the Government very justifiably are going

to have to take some action, and it would inhibit our ability to get

legislation like this through the Congress of the United States, but

I do congratulate you on enormous progress, besides all the economic aspects of the cruise industry in America, the enjoyment

that so many Americans have been able to have as a result of this

dynamically growing industry.

I want to thank you all for being here. I do want to reiterate the

words of my esteemed dear friend from Texas, Senator Hutchison,

who said we would like to try to work together, and we would like

to get it to a point where perhaps we could get this legislation

through the Congress without having some kind of bitter floor

fight, which obviously is something that none of us look forward to.

I thank you for being here. This hearing is adjourned.

[Whereupon, at 11:35 a.m., the Committee adjourned.]

(75)

A P P E N D I X

PREPARED STATEMENT OF HON. DIANNE FEINSTEIN, U.S. SENATOR FROM CALIFORNIA

Mr. Chairman:

I would like to begin by thanking you for the opportunity to testify today in strong

support of S. 1510, the United States Cruise Ship Tourism Development Act of

1999, and to thank you for your leadership on this issue.

California’s ports and many cruise related businesses have been working on modifying the Passenger Services Act since the 1995 White House Conference on Travel

and Tourism when California first brought this issue to the convention. That Conference identified the PSA as a barrier to developing new domestic tourism products

and also urged incentives for development of a U.S.-flag cruise ship industry. This

legislation does that.

I have worked with these groups and with you to form a compromise that would

bring benefits to all U.S. ports, cruise-related businesses, and American maritime

unions. This process has also received the strong support of the travel agents and

tourism industry associations throughout California and the United States.

When I met last year with the Cruising America Coalition and the Maritime

Unions, I urged them to work closely together without friction and bring me a compromise that would be meaningful to both sides. I felt the need to jumpstart an

American cruise ship industry that would bring benefits to U.S. seafaring labor, the

ports and the travel industry. Even after last year’s reverses I did not give up hope

that there was something Congress can do to help bring back a fleet of U.S.-flag

ocean liners.

I am especially pleased with how hard both sides have worked on drafting this

bill, and want to thank them for their efforts. I am especially pleased with the bill

that resulted from this balanced approach.

This legislation is a compromise, a product of hard work from both sides. I am

very happy that it has broad support of major maritime unions; notably, the Sailors’ Union of the Pacific, which is headquartered in San Francisco; the Masters, Mates

and Pilots; the Marine Engineers Beneficial Association; and the Marine Firemen’s Union. It is also supported strongly by ports in California in cooperation with most

of the ports in the United States, almost every nationwide tourism group of note,

hotels, bus operators, and travel agents who together are members of the Cruising

America Coalition.

Let me now take a moment to explain why this legislation could.help California’s ports. All but one of the ocean going cruise ships serving the United States is registered under a flag other than the flag of the United States.

Consequently, when these internationally flagged ships visit the United States,

which they can do legally and do very often, in order to carry passengers between

U.S. ports, these ships must also touch a foreign port in order to drop off passengers

without facing legal consequences. As a result, U.S. ports that are close to foreign

destinations benefit by their location; ports such as Miami close to the Bahamas and

the Caribbean and San Diego near Mexico.

California has a long and historic border with the sea, but California’s ports are

not close to many foreign destinations. In Northern California, there are no islands

off the Coast, and San Francisco, Monterey, and Eureka must work especially hard

just to get some port visits. The community of Eureka is a rural community trying

to transition away from the logging industry, and they see this as one path open

to them. They are strongly behind this measure.

In Southern California, there is a similar example in Monterrey. The city is an

active supporter of the Coalition, as is the Aquarium there and Pebble Beach. Because they are small and distant from Mexico, they must work especially hard to

get any cruise visits, because cruise visits mean more revenues. Throughout California food and service providers tell me that they, too, can feel the positive effect

of increases in the cruise ship business. Some of the cruise ships who visit Northern

California ports will load up an entire year’s worth of wine from California’s vineyards at one time.

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As an example of what this bill could mean to California, I have heard from the

hotel operators and restaurateurs, especially from San Francisco, who tell me that

whenever a cruise ship calls on their port, they add more workers. This equates to

more revenue for the businessmen and women, the City and the State.

The Cruising America Coalition estimates this legislation could increase the number of port calls in California—this includes San Diego, L.A., Eureka, Monterey and

Eureka—to 485 annually from both U.S.-flag and international flag cruise lines.

The legislation would result in entry of two U.S.-flag cruise ships operating off

the California Coast adding 125 calls to California. Additionally, 360 new cruise

calls from international cruise lines could result under the limited waiver in the bill.

The combined economic impact to tourism and maritime industries from opening up the California Coastal cruise market is projected to be $168 million to the State.

Let me explain briefly how this bill will work in California. This bill will allow

international-flag cruise ships to call on California ports, and pick up and drop off

passengers, without having to visit a foreign port. Remember, every one of these

international-flag ships can legally enter and depart any U.S. port. What this legislation intends is to do is to use these existing international-flag assets to rejuvenate

a moribund industry. It intends to allow these ships, on a temporary and limited

basis, to carry passengers in the domestic trade without touching a foreign port.

Thus bringing more business to California’s port areas and in the process proving

to the American financial institutes that there is potential in this trade.

Even though San Diego is getting an increased number of cruise ships, the San

Diego port personnel still sit there and watch many more bypass them and go to

Ensenada just so that they will be ‘‘legal.’’ A cruise ship that is to sail from San

Diego to Hawaii, can load all its baggage and supplies in San Diego, but the passengers must be bussed down to Ensenada and be boarded there. Some ships do not

even make the stop in San Diego, but go right on past. I believe this bill will help

ease that problem, and also provide incentives for international-flag ships to reflag

U.S.

This bill allows for American businessmen and women to much more easily reflag

foreign-built cruise ships into the U.S. domestic industry with the commitment to

build replacement cruise ships in the U.S. Until now, each time an owner wanted

to reflag a cruise ship it required a special piece of legislation for that cruise ship

to be added to the U.S. fleet. This legislation would allow reflagging of any ship that

the owner would commit to replace in the future with a U.S.-built ship. These first

cruise ships, even though built in foreign yards, would be manned by American seamen, officers and support crew, and they will help to rebuild the human infrastructure needed to revitalize the American cruise ship industry.

This bill is not perfect; no bill is. The Cruising America Coalition believes there

are too many restrictions on the use of existing assets, while the maritime unions

believe there are too many concessions to these foreign assets. Consequently, it is

probably a good bill, but we will work with all parties to continue to refine it as

we move forward in the process.

Thank you for your attention and your leadership and support in this effort.

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

AL WALLACK, PRESIDENT, D’ARCINOFF GROUP AND VOYAGER HOLDINGS, INC.

Question 1. As a company seeking to operate American cruise vessels, are there

aspects of S. 1510 that you believe need to be strengthened or changed?

Answer. We are confident that if properly implemented, the provisions of S. 1510

will allow for the operation of United States-flag cruise vessels in the domestic

trades. We believe it is extremely important that the Committee on Commerce,

Science and Transportation and the Congress as a whole make clear its intention

that the implementation of S. 1510 not discourage or penalize United States-flag

cruise vessel operations. The so-called ‘‘bumping’’ provisions contained in this legislation must ensure that foreign flag cruise vessels cannot operate on itineraries that

are comparable in scope, nature, and purpose to those offered by American flag

cruise vessels. Equally important, United States laws should be applied equally to

American flag and foreign flag cruise vessels. It is, in our opinion, critical that all

cruise vessels in the domestic trade operate under the same rules, regulations, and

tax obligations.

Question 2. It is argued that S. 1510 is contrary to the 1997 Cruise Ship Pilot

Project and unfair to the company operating cruise ships in Hawaii. Do you agree?

Answer. No, we do not agree. On the contrary, we believe the approach taken by

S. 1510 regarding the operation of cruise vessels under the United States-flag and

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the construction of cruise vessels in an American shipyard properly reflect the realities of the cruise industry outside the intra- Hawaiian Island trade.

The so-called ‘‘pilot project’’ legislation enacted in 1997 enabled the operator in

Hawaii to proceed knowing he has the exclusive right to operate cruise vessels in

this market. Obviously, the approach taken in that legislation is not available to

any other American operator or to any other domestic cruise market. It is, however,

the approach advocated by the Hawaii operator and the approach that has proven

effective as that company proceeds with its plan to build cruise vessels in the

United States.

In contrast, S. 1510 takes another approach which we believe can be effective and

which we strongly support. As we testified, S. 1510 would allow us to implement

our strategy to acquire existing cruise vessels for operation under the United Statesflag in the domestic cruise trades, while we negotiate for the construction of replacement vessels in an American shipyard.

This approach is, in our opinion, the most realistic to help generate United Statesflag cruise vessel operations. It acknowledges the fact that the existing operator in

Hawaii and operators seeking to enter new coastwise itineraries, have different considerations that must be reflected in legislation. For example, it was appropriate to

require the operator in Hawaii to enter into a ship construction contract as a precondition to his operation of a foreign built cruise ship in that trade because:

(1) The Hawaii market has been developed for approximately twenty years and

the operator in this market, unlike those of us who are seeking to operate cruise

vessels in other domestic markets, had firsthand knowledge of the size and type of

vessel and the amenities suitable for this particular market and could thereby enter

into a contract with the benefit of firsthand, direct experience in the trade;

(2) The operator in Hawaii was able to maintain his market presence while he

engaged in negotiations with an American shipyard; and (3) The operator in Hawaii

has been given the exclusive right to operate cruise vessels in this market, a protection not available to us or to any other operator in any other domestic cruise market.These factors are not applicable to other domestic markets. It is therefore appropriate, right, and fair to give operators who are seeking to develop new domestic

itineraries an opportunity to operate cruise vessels before entering into a ship construction contract. To do otherwise would be unfair to Voyager and other companies

seeking to serve American ports outside Hawaii.

Question 3. Since foreign flag cruise vessels would be eligible to operate in the

domestic cruise trades under this legislation, why would someone choose to operate

a U.S.-flag cruise ship?

Answer. We believe there are a number of reasons why it is advantageous to operate United States-flag cruise vessels:

(1) United States-flag cruise vessels, and not foreign flag cruise vessels, can offer

regular service between American ports during the first year after the enactment

of S. 1510;

(2) United States-flag cruise vessels can bump all comparable foreign flag cruise

vessels from a comparable itinerary;

(3) Only United States-flag cruise vessels can operate in the coastwise trade after

December 31, 2006, and serve the domestic cruise markets that have been developed

under this legislation; and

(4) Only United States-flag cruise vessels can offer passengers the opportunity to

deduct up to $2,000 of the cost of attending a convention, business meeting, or seminar on a vessel traveling between American ports.

Question 4. Without S. 1510, there is at least one venture that claims it will enter

the U.S. cruise industry by building cruise vessels without reflagging. Do you believe such a strategy is realistic?

Answer. Based on years of experience in the cruise industry it is readily apparent

that such an approach has not been utilized by successful cruise companies. We believe that reflagging, and the authority to operate reflagged vessels in the domestic

trade, is critical as construction proceeds on larger, more modern cruise vessels.

This has been the approach that led to the creation of Carnival Cruise Line and

the approach being used today by American Hawaiian Cruises. Having the ability

to operate a reflagged cruise vessel as a bridge to the delivery of a newly-built cruise

vessel is in our opinion, the most realistic and proven strategy.

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RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN

TO ALLEN WALKER, PRESIDENT SHIPBUILDERS COUNCIL OF AMERICA

Question 1. Not one large cruise vessel has been built in a U.S. shipyard in more

than 40 years. What leads you to believe, as you state in your testimony, that current ‘‘serious discussions’’ will lead to anything more than ensuring that none will

be built for the next 40 years?

Answer. American Classic Voyages has signed a contract to build two large cruise

ships in a U.S. shipyard with an option for a third vessel. In addition, numerous

smaller cruise ships have been built in medium-sized U.S. shipyards in recent years.

In fact, two smaller cruise ships are under construction right now at Atlantic Marine in Jacksonville, Florida and Nichols Brothers Boat Builders in Freeland, Washington is in the process of converting a casino vessel into an overnight cruise vessel.

Operators are also in discussions with U.S. shipyards to build at least three other

275 passenger overnight cruise ships. The industry believes strongly that the market in the U.S. for small and medium-sized cruise ships will continue to grow over

the next few years. Once the door is open for large cruise ships, we believe that the

small and mid-sized market will be the next target fororeign-built, subsidized and

often less safe cruise ships.

Question 2. In an attempt to change the status quo and jump start U.S. shipbuilding, S. 1510 provides limited opportunity of 200 days over five years for foreign

cruise vessels to test the domestic market to determine if the high cost of building

is warranted. S. 1510 offers a way to get from no cruise ships to some ships, from

no U.S.-built cruise vessels to some U.S.-built cruise vessels. Short of government

subsidies or tax breaks, can you recommend a realistic alternative to S. 1510, which

would not intrude on our other cabotage laws and still offer a realistic expectation

for U.S.-built large cruise vessels?

Answer. We understand and agree with the goals in S. 1510; however, we differ

with the methods in S. 1510 to reach the goal of building a vibrant coastwise cruising industry in the U.S. SCA is anxious and willing to work with you, members of

the Commerce Committee and others to devise legislation that offers a realistic expectation of new cruise ship itineraries in the coastwise trades and protects our domestic shipbuilding industrial base. We believe that the premise of any legislative

initiative should include provisions that require vessels operating in the U.S. trades

to be U.S.-flag, that the proposal should include enforceable requirements that all

necessary conversion work and subsequent repair work on foreign-built vessels be

performed in U.S. shipyards, and that an enforceable provision be included that will

require foreign-built tonnage to be replaced by U.S.-built tonnage in a timely manner or that coastwise trading privileges be revoked. SCA believes that in exchange

for coastwise operating privileges, these companies must make these minimum commitments.

Question 3. You argue in your testimony that accelerated depreciation of vessels

would enhance U.S. shipbuilding. If I were to agree that an accelerated depreciation

proposal would be beneficial to facilitate financing, how would it create economic opportunities today for American ports and for those who are ready to operate cruise

vessels in the domestic trades when it takes 4 years or more to construct large

cruise vessels?

Answer. One of the major obstacles to cruise ship construction in the U.S. is the

lack of financing for untested operators and markets. We believe that accelerated

depreciation would ease this situation and lead to more construction opportunities

in U.S. shipyards. Certainly, ports and operators would not enjoy the benefits of accelerated depreciation immediately. In the interim, SCA may support waivers for

foreign-built cruise ships for operators willing to make a commitment to the U.S.

marketplace if it is apparent that such support would result in U.S. built cruise vessels. Evidence of this commitment would include a willingness to abide by all U.S.

laws, including payment of U.S. taxes, willingness to begin discussions immediately

with U.S. shipyards to replace foreign-built tonnage with U.S.-built tonnage and

reasonable assurances that binding and enforceable contracts for replacement vessels would be signed in a timely manner.

Question 4. When you argue against allowing foreign-built vessels into the domestic trade, do you include the foreign built vessel that will soon be operating in Hawaii and did your organization oppose the legislation that granted American Hawaii

Cruises permission to use a foreign-built cruise ship in Hawaii?

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Answer. SCA was not asked to and we did not take a position on the legislation,

which allowed American Hawaii Cruises to operate a foreign-built cruise ship in Hawaii. However, had we been asked, we would have supported this legislation and

would support similar proposals in the future. We believe that the American Hawaii

Cruise is the template and sets the bar for allowing foreign-built vessels into the

U.S. domestic trade. American Hawaii Cruises agreed to sign a contract to build two

large cruise ships in a U.S. shipyard and to operate the foreign-built cruise ship

under the U.S.-flag before receiving a waiver to operate one foreign-built vessel in

Hawaii. Furthermore, it is our understanding that the foreign-built cruise ship will

be removed from U.S. service in a timely manner after delivery of the second U.S.-

built cruise ship. We believe that this type of proposal could be used as a model

for other efforts to grow the U.S. cruise ship market.

Question 5. You argue that small, existing American cruise vessels will likely be

hurt by larger foreign cruise vessels because larger vessels can charge less for a

cruise in the same market. As you know, it is the intent of S. 1510 that American

cruise vessels not be adversely affected by this legislation. How would you suggest

S. 1510 address this problem.

Answer. One of the major reasons why we believe that small cruise ship operators

would be damaged by provisions in S. 1510 is that the bill would allow certain foreign-flag cruise vessels of 9,000 gross tons or larger to operate in the U.S. marketplace. These vessels would be able to offer luxury accomodations at prices similar

to or below smaller U.S.-flag cruise ships in the same markets. They can offer

cruises at lower prices because of unfair tax and labor advantages that foreign-flag

vessels enjoy. Foreign-flag cruise ships operating in the U.S. market would be tax

exempt on all voyages except those voyages made between U.S. ports, while U.S.-

flag vessels pay U.S. corporate income taxes on all voyages whether domestic or foreign. In addition, in markets where small U.S.-flag vessels have been operating, the

infusion of large, foreign-flag cruise ships that offer substantially lower rates due

to their tax and labor advantages would most assuredly hurt existing or new small

U.S. cruise ship operators. To alleviate this situation, we suggest that the tonnage

level of cruise ships covered under S. 1510 be raised to include only vessels greater

than 30,000 gross tons and that all foreign-built vessels receiving waivers to operate

in the U.S. market be required to operate under the U.S.-flag.

Question 6. There is an impression in some quarters that U.S. repair yards charge

U.S.-flag vessels more than foreign-flag operators for comparable work, on the theory that if the U.S.-flag repairs were done in a foreign yard the operator would have

to pay Ad Valorem duty. To your knowledge is this the case?

Answer. I have no knowledge of U.S. ship repairers charging U.S.-flag operators

more than foreign-flag operators for comparable work. There is ample ship repair

competition in all areas of the U.S. market. Multiple shipyards compete for all ship

repair work, both U.S.- and foreign-flag. Even if a U.S. shipyard decided on this

strategy, they would most assuredly be undercut by another U.S. ship repair yard.

In addition, there is anecdotal evidence that foreign government subsidies for ship

repair work is on the rise, which has reduced the amount of foreign-flag repair work

in U.S. shipyards leading to more competition for U.S.-flag repairs.

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

LAWRENCE H. O’TOOLE, PRESIDENT, NATIONAL MARINE ENGINEERS’ BENEFICIAL

ASSOCIATION

Question 1. Why do you support S. 1510?

Answer. The American working men and women of the MEBA strongly support

S. 1510 because it represents the only realistic, workable approach to give American

companies and American workers a fighting chance to make it in the U.S. domestic

cruise industry. S. 1510 will provide critically important U.S.-citizen maritime jobs,

and it will be a vital first step toward providing a real American presence in the

large vessel cruise market. Today’s market for vacation and business-related

cruises, on large, modern cruise vessels, is served almost entirely by foreign-flag

vessel operations. If this situation is ever to change, and we believe it can, it will

only be through the innovative approach envisioned in S. 1510. I believe that S.

1510 is the only feasible way for potential U.S.-flag cruise operators to test the market before making the huge capital investment in vessels for the U.S.-flag trade.

Currently, American citizens are by far the largest group of cruise vacation passengers in the world. U.S. companies operating U.S.-flag vessels ought to share in

80

this enormous and growing cruise market, a market that would deflate to virtually

nothing were it not for the vacation dollars of American citizens.

Question 2a. Both proponents and opponents of S. 1510 agree that certain aspects

of the legislation are unprecedented. They particularly point to the fact that it will

permit, temporarily, foreign-flag vessels into America’s domestic cruise trade for the

first time. You. MEBA, and its members have always been strong supporters of the

Jones Act and the Passenger Vessel Service Act. Why do you think this change is

necessary?

Answer. This legislation calls for a temporary, limited waiver of the Passenger

Vessel Services Act. This would create a short-term opportunity to use large, foreign-built and foreign-flag cruise vessels and foreign-built, U.S.-flag vessels to test

the viability of new domestic cruise markets. There should be no mistaking the fact

that such a waiver represents a marked departure for us. Maritime labor has long

defended America’s domestic shipping statutes, including the Passenger Vessel

Services Act. But, it has become abundantly clear to us that if something is not

done, if a new and different approach is not tried, the cruise market in America will

continue to be dominated by foreign-flag vessel operators, and there will be no opportunities for American workers and American companies to make any inroads into

this constantly growing industry. Further, our support for S. 1510 in no way conflicts with our continuing and wholehearted support for the Jones Act. MEBA always has been, and will continue to be, a strong defender of the Jones Act. The

Jones Act will not be harmed as a result of this legislation. But, remember, S. 1510

is about passengers; it’s not about cargo. We would agree wholeheartedly with the

approach of Chairman McCain to keep these two areas entirely separate. I do not

know how it could be made more clear. This legislation is not about the Jones Act;

it’s about building the foundation of a U.S.-flag, U.S.-built, U.S.-crewed presence in

the United States cruise trade. It’s a practical way to get from where we are today—

only one large U.S.-flag cruise vessel—to where we ought to be in the future—a fleet

of cruise vessels with the American flag flying with pride.

Question 2b. Do you believe this legislation (S. 1510) gives an American cruise

vessel a realistic opportunity to compete against a foreign flag cruise vessel?

Answer. Yes, I do. I believe this legislation is designed to create a strong and expanding market whereby an American cruise passenger can travel on a U.S.-flag

vessel from one U.S. port to another without first stopping at an intermediary foreign port either for pleasure or as part of a business convention. Only U.S.-flag

cruise vessels can offer their passengers the advantage of the ‘‘convention tax deduction’’. And, only U.S.-flag cruise vessels will be allowed to operate between American

ports without stopping in a foreign port after December 31, 2006.

Question 2c. Do you think that the protections built into this legislation concerning foreign vessel operations are adequate?

Answer. Yes, I do believe the protections are adequate because under S. 1510:

• Foreign-flag cruise vessels cannot operate on a route that is comparable to

a route served by a U.S.-flag cruise vessel, and further, if a U.S.-flag cruise vessel wants to enter a market where a comparable foreign-flag vessel already has

existing service, then the U.S.-flag cruise vessel can ‘‘bump’’ the foreign-flag vessel from that route;

• only a U.S.-flag cruise vessel can operate regular cruise service between two

American ports during the first year after enactment of this legislation; foreignflag cruise vessels must comply with all U.S. rules and regulations relating to

health, safety, environmental protection and other operating standards as set

out by the Secretary of Transportation;

• foreign-flag cruise vessels will be subject to U.S. corporate taxes on the income earned during the domestic portion of their operations; and

• only U.S.-flag cruise vessel passengers can deduct up to $2,000 of the cost

of attending a convention, business meeting, or seminar on a cruise vessel traveling between American ports—a potentially huge market not available to foreign-flag ships.

In short, U.S.-flag incentives are significant; foreign-flag vessels will have to meet

Department of Transportation requirements; and the foreign-flag presence will be

out on a date certain.

Question 3. A great deal of concern has been expressed that the legislation does

not specifically state which U.S. laws would apply to foreign vessels. Do you think

the process contained in S. 1510 is sufficient?

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Answer. Yes, I do. I believe it is the clear intent of this legislation that U.S. laws

apply equally to all vessels in our U.S. cruise trade. Any foreign-flag vessel brought

into the domestic trades under this bill will have to comply with all U.S. rules and

regulations relating to health, safety, environmental protection and other operating

standards, as set forth by the Secretary of Transportation. And these foreign-flag

vessels will be subject to U.S. corporate income tax on the income they earn during

the domestic portion of their operations. I have full confidence in the process set

forth in S. 1510, and I have full confidence that the Secretary of Transportation will

ensure that the playing field is level and fair to U.S. entrants.

Question 4. Are you concerned about the impact of this legislation on other domestic shipping statutes and trades?

Answer. Absolutely not. The MEBA has always been, and will continue to be,

strong defenders of the Jones Act, because it remains essential to the economic and

national security of the United States. S. 1510 contains language specifically stating

that the limited use of foreign-built cruise ships in the domestic trades shall not affect or modify the requirements applicable to the carriage of cargo under the Jones

Act. Furthermore, the cruise industry and cargo industry are two totally different

industries and two completely different markets. As I said in my answer to question

2a, S. 1510 will in no way affect the Jones Act. We have a strong domestic seagoing

cargo industry in the United States, and we have a minuscule U.S.-flag cruise industry, except for relatively small commercial passenger vessels. I can assure you

that we would never be part of any plan that would weaken the Jones Act. Far from

weakening the Jones Act, I believe that in the long run, S. 1510 will actually

strengthen it, because if we succeed, then we will prove that it is possible, that we

can get the job done, and that there can be an American alternative in the cruise

market.

Under the leadership of Chairman McCain, our maritime labor unions have

sought compromise with other interests, and we are proud to have played a role in

producing a proposal that gives our members and the American companies they

work for a real shot at success.

October 5, 1999

The Honorable Daniel Inouye

United States Senate

Senate Commerce Committee

Washington, DC 20510

RE: S. 1510, Senate Commerce Hearing on October 6, 1999

Attention: Cameron Naron

Dear Senator Inouye:

On behalf of the thousands of workers employed by the shipbuilding industry, we

urge you to oppose S. 1510, the United States Cruise Ship Tourism Development

Act, which would gut the Passenger Vessel Services Act (PSA) by allowing foreignbuilt and owned cruise ships to operate in the U.S. domestic trade.

U.S. shipbuilders have recently reentered the commercial cruise ship construction

market, after a 40-year absence. Ingalls Shipbuilding of Pascagoula, MS is constructing two large 1900-passenger oceangoing cruise ships, with options for more.

The state-of-the-art passenger cruise ships will be built to meet U.S. safety and environmental standards, and this construction project will create thousands of highly

skilled jobs in U.S. shipyards, in the supplier base, and on board the vessels once

delivered.

S. 1510 would allow foreign built vessels to operate in the U.S. domestic trade

for up to 200 days. After 200 days, or the year 2006, the foreign-built and owned

cruise ship would be required to re-flag in the United States or lose its coastwise

privileges. Although the bill states that a U.S.-built, U.S.-flag ship could bump a foreign ship from the trade, in practice a bumping provision would not be executable

for a myriad of reasons. Additionally, amending the Passenger Vessel Services Act,

as proposed by S. 1510, will jeopardize thousands of shipbuilding manufacturing

jobs and the multi-billion dollar market potential for construction of cruise ships in

the United States.

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Accordingly, we ask you to oppose S. 1510.

Sincerely,

Ande M. Abbott,

Director of Legislation & Shipbuilding,

International Brotherhood of

Boilermakers, Iron Ship Builders,

Blacksmiths, Forgers & Helpers

Luckie McClintock,

Legislative Director,

United Association of Plumbers &

Pipefitters

Vincent A. Panvini,

Director of Governmental Affairs,

Sheet Metal Workers’ International

Union

Rick Diegle,

Legislative Director,

International Brotherhood of Electrical

Workers

Alan Reuther,

Legislative Director,

International Union, United Automobile,

Aerospace,

Agricultural Implement Workers of

America - UAW

Richard P. Michalski,

Director of Legislation,

International Association of Machinists

and

Aerospace Workers

Michael E. Mathis,

Government Affairs,

International Brotherhood of Teamsters

Donald Kanlewski,

Legislative Director, Laborers

International Union

H. Page Groton,

Legislative Director,

Metal Trades Department, AFL-CIO

William J. Klinefelter,

Assistant to the President, Legislative

Political Director,

United Steelworkers of America

INTERNATIONAL BROTHERHOOD OF PAINTERS AND ALLIED TRADES

October 5, 1999

The Honorable Daniel K. Inouye

United States Senate

722 Hart Senate Office Building

Washington, DC 20510-1102

Dear Senator Inouye:

On behalf of the several thousand members of the International Brotherhood of

Painters Allied Trades who are directly employed in the shipbuilding industry, we

urge you to oppose S. 1510, the United States Cruise Ship Tourism Development

Act. This bill would effectively gut the Passenger Vessel Services Act (PSA) by allowing foreign-built and owned cruise ships to operate in the U.S. domestic trade.

U.S. shipbuilders have reentered the commercial cruise ship construction market,

after a 40-year absence. Ingalls Shipbuilding of Pascagoula, Mississippi is constructing two large 1900-passenger oceangoing cruise ships, with options for more.

The state-of-the-art passenger cruise ships will be built to meet U.S. safety and environmental standards, and this construction project will create thousands of highly

skilled jobs in U.S. shipyards, in the supplier base, and on board the vessels once

delivered

S. 1510 would allow foreign built vessels to operate in the U.S. domestic trade

for up 200 days. After 200 days, or the year 2006, the foreign-built and owned cruise

ship would be required to re-flag in the United States or lose its coastwise privileges. Although the bill states that a U.S.-built, U.S.-flag ship could bump foreign

ship from the trade, in practice a bumping provision would not be executable for

a variety of reasons.

Amending the Passenger Vessel Services Act, as proposed by S. 1510, will jeopardize thousands of shipbuilding manufacturing jobs and the multi-billion dollar

market potential for construction of cruise ships in the United States.

Accordingly, we ask you to oppose S. 1510.

Sincerely yours,

MICHAEL E. MONROE

General President

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AMERICAN SHIPBUILDING ASSOCIATION

October 1, 1999

The Honorable Daniel Inouye

United States Senate

722 Hart Senate Office Building

Washington, DC 20510-1102

Dear Senator Inouye:

On behalf of the American shipbuilding industry, the American Shipbuilding Association asks you to oppose S. 1510, the United States Cruise Ship Tourism Development Act. This legislation would amend the Passenger Vessel Services Act to the

detriment of the shipbuilding industrial base of the United States.

S. 1510 would allow foreign-built and foreign-owned vessels to operate in the U.S.

domestic trade for up to 200 days, or the year 2006, which ever comes first. Only

then would those foreign-flag ships be required to re-flag in the United States, or

lose their coastwise privileges. Even though the bill provides for a ‘‘bumping provision’’ whereby U.S.-built and U.S.-flagged ships would have a preference and could ‘‘bump’’ foreign-built and foreign-flagged ships from the trade, in practice, it is

doubtful that any ship would be removed from the trade. Furthermore, the fact that

a foreign-built ship is operating in the domestic trade would make it very difficult

for art American company to secure financing to build a ship for a market that is

already being served.

Understandably, some American ports would like to have more cruise ships calling at their docks—regardless of where they are built or registered. This increase

in traffic would increase revenue for the ports, the local food service companies, and

local tourism. While these jobs are important, they only touch the surface of a potentially tremendous economic boost that the U.S. economy would realize through

the expansion of the high-tech ship engineering and manufacturing sector that

should rightfully serve this market. Building an American cruise industry will create thousands of highly skilled engineering and manufacturing jobs in our shipyards

and in the supplier base that is located in 17 states.

At a time when U.S. Navy shipbuilding is at a historic low, commercial shipbuilding contracts must be secured by U.S. shipbuilders if the defense industrial

base is to be sustained. Oceangoing cruise ships comprise a large market potential

for U.S. shipyards. This year, Ingalls Shipbuilding of Pascagoula, MS began construction of two state-of-the-art 1,900-passenger cruise ships, with options for more.

Other U.S. companies also plan to place orders soon with U.S. shipyards for the construction of large oceangoing cruise ships. This market should he nurtured to provide maximum benefit to the U.S. economy, not jeopardized by legislation that

would surrender it to foreign interests.

American ownership, construction, and operation of cruise ships for the U.S. domestic trade benefits all Americans. Accordingly, I ask you to oppose S. 1510 and

declare your support for a true American cruise industry — one built by Americans

for Americans.

Sincerely,

CYNTHIA L. BROWN

President

AMERICAN CLASSIC VOYAGES CO.

October 5, 1999

The Honorable John McCain

Chairman

Senate Commerce, Science, and Transportation Committee

United States Senate

Washington. DC 20510

Dear Mr. Chairman:

Thank you for inviting me to testify at the Senate Commerce Committee’s hearing

on S. 1510, the United States Cruise Ship Tourism Development Act of 1999. Unfortunately, I will be unable to do so.

As you may know, American Classic Voyages is currently in the midst of a major

program to expand its U.S.-flag, U.S.-crewed, U.S.-built fleet of passenger ships. Indeed, this is an especially busy time for us. In May, our Delta Queen line acquired

and is currently rebuilding the Columbia Queen to begin operations on the ColumVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00087 Fmt 6601 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
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bia River next year. It will be our fourth river cruise ship. In August, we began cutting steel to construct two new passenger ships that will sail along the east and

west coasts beginning in 2001. In addition, we are well underway to constructing,

at Ingalls Shipbuilding, the two largest cruise ships ever built in the United States.

Design work is being finalized, key components are being ordered, and fabrication

is set to begin next summer on these 1,900 passenger ships. We also have a contract

to purchase an interim, foreign-built vessel—which we will redocument under U.S.

flag—for operation in Hawaii beginning in the fourth quarter 2000. Finally, we will

he unveiling a new ‘‘brand’’ for our large passenger ships in the next three weeks.

We very much support increasing cruising opportunities for Americans through

the expansion of the U.S.-owned, U.S.-crewed, and U.S.-built passenger fleet. We

commit to you, as we did to Mr. Rob Freeman, to work with you on legislative proposals that will promote and expedite the development of such a U.S.-flag cruise

fleet. Unfortunately, we believe S. 1510, as currently drafted, does not do so. It

would allow foreign-flag cruise ships to operate in our domestic trades, would adversely affect ourplanned operations, and we would have to oppose the bill.

We do, however, look forward to working with you and your staff to develop legislation that would further develop the U.S.-owned, U.S.-flag, U.S.-built cruise industry. We already have discussed with Mr. Freeman a meeting with our General

Counsel for later in October to work on substantive proposals.

Best regards.

Sincerely,

PHILIP CALIAN

President and Chief Executive Officer

October 6th, 1999

The Honorable John McCain

and Members of the Committee

I am forwarding a statement by the National Association of Cruise-Oriented

Agencies in support of S. 1510, the ‘‘United States Cruise Ship Tourism Development Act of 1999.’’

NACOA is composed of more than 800 specialized travel agencies across the country. Together, the membership sells over half of all cruises in the United States. We

are made up of retirees, minorities, stay-at-home moms and small business owners.

We represent ‘‘bread and butter’’ America. The impact of the proposed legislation

on our businesses, our port communities and for our clients can be very substantial

and very positive.

We urge you to support S. 1510.

On behalf of NACOA, please contact me if I can provide further information or

otherwise assist you on this matter.

Thank you.

Yours truly,

MARY S. BRENNAN, MCC

Chairperson, Legislative Committee

The National Association of Cruise-Oriented Agencies endorses the ′′United States

Cruise Ship Tourism Development Act of 1999,′′ S. 1510 as intelligent, proactive and

bipartisan legislation.

NACOA is composed of more than 800 specialized travel agencies across the country. Together, the membership sells over half of all cruises in the United States. We

are made up of retirees, minorities, stay-at-home moms and small business owners.

We represent ′′bread and butter′′ America. The impact of the proposed legislation

on our businesses, our port communities and for our clients can be very substantial

and very positive.

Mr. Chairman. Our cruise customers come from every State and Territory in the

United States, and they are growing in number and influence rapidly. The fastest

growing segment of the travel industry is cruising. The United States of America

has thousands of miles of coastline. Over 80% of Americans live within 500 miles

of coastal waters. Americans love to cruise. Yet, despite the natural opportunity that

has existed since the advent of leisure cruise vacations in the 1960’s, there is still

virtually no large, ocean-going U.S. cruise industry. We can book cruises on small

coastal ships, but I cannot book passengers on any U.S. ocean-going cruise ship outside of Hawaii.

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The Passenger Services Act of 1886 protected US ferryboats by prohibiting Canadian competition among US ports in the Great Lakes. The ferryboats have long

since disappeared, but the law prohibiting foreign vessels from operating among US

ports remains in effect. Today, the Act protects a small American fleet of mostly riverboats and small ships catering to a tiny segment of the travel market. There are

no oceangoing, sizable U.S. cruise ships, except for one ship in Hawaii, with potentially two more new ships in that State after their operator received a 30-year monopoly.

In the 1960’s, bright entrepreneurs turned the tragedy of a dying trans-Atlantic

ocean liner industry into the rise of a creative new vacation product. The ships

evolved from modes of transportation to a vacation destination. They invented a luxurious vacation at a price accessible not only to the wealthy but to the middle class.

Today, cruise ship vacations allow the Baltimore City worker, the Hibbing schoolteacher, and the Kansas City postman to feel special and be pampered in Ritz like

conditions. The foreign-flag cruise industry has opened up new vacation choices to

a whole new segment of Americans that never traveled before.

We believe that S. 1510 represents a compelling compromise that should move

this industry forward. It is bi-partisan, and includes port authorities, the travel industry, maritime labor and Americans across the country. This bill has achieved

wide support from those who can so clearly see its possibilities.

Over four decades, innovative cruise products, skillful marketing and public recognition of great vacation values resulted in cruise sales growing faster than any

other segment of travel, year after year. Because of PSA-imposed restrictions, cruise

clients have to leave the US during their vacation. They cannot board at one US

port and disembark at another, and the voyage must include a foreign port.

What is cruising and who does it? An exhilarating escape from everyday reality

and stress, a cruise takes vacationers on a voyage of pampering, relaxation, sightseeing and soft adventure, with a bit of education tossed in. With the choices offered

for dining, activities and entertainment, cruising allows people with differing tastes

to still enjoy their vacations together. Within the anxiety-free environment of a

cruise, my clients have had wonderful vacations and rediscovered many things

about themselves and the world around them.

I speak to passengers every day on the telephone, and they want more cruise vacation choices. The profile of the typical cruiser has changed over these past four

decades. Once, the passengers may have been quite well to do and advanced in

years, and they had the means and time to afford longer cruises. Today, the passengers could be seventy-year-old pensioners, baby boomers paying their kids’ college tuition and saving money for retirement; a thirty-five year old couple with two

kids, or a newlywed couple. Annual incomes for these new passengers can start

below $30,000. In fact, families make up the swiftest growing demographic in cruising. And the middle class represents the greatest number of cruisers in America.

With the huge, new, efficient fleet of ships in the cruise industry, a middle class

family can experience luxury usually available only to the wealthy.

Cruising is also the safest form of travel in the industry, safer than driving, flying

or traveling by train. Those who claim that cruising is not safe or desirable seem

to find their voices only when this legislation comes up for a hearing. Yet, their concerns do not bear up under scrutiny. As I stated in past testimony, we do not put

our clients on unsafe ships.

We need and want a US cruise industry that meets the requirements of our demographics. When I qualify a prospective cruise passenger, I learn what cruise products they can afford—mass market versus a high-end cruise. I also learn about their

interests, whether they prefer soft adventure cruising close to glaciers or lots of entertainment on a big ship. Based on a detailed evaluation, I know whether to recommend Alaska Sightseeing versus Holland America. The products are totally different. The marketing brochures for Alaska Sightseeing or Clipper cruises highlight

those differences by promoting the ‘‘small ship’’ adventure nature of their cruises.

Both the U.S. smaller cruise lines and the large foreign cruise lines have unique

niches. Alaska Sightseeing is indeed thriving in its business in an area where during any given season there as many as 30 foreign flag cruise vessels, because both

products are distinct.

If S. 1510 passes, who wins? We all do! This bill opens up cruises to many more

Americans who are limited by time, funds or mobility from enjoying these vacations

now. It spreads the increasing wealth of cruising to more and more of our port communities, through seasonal home-porting and delivering more international and domestic visitors on day visits during voyages. Cruising stimulates tourism by creating

a tide of interest wherever it goes, benefiting hotels, restaurants, and local tour operators and shop owners. Under this bill, U.S. shipyards must be awarded repair

jobs while ships run domestic routes.

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In a few years, assuming the expected demand for cruising in America booms and

this bill passes, cruise lines will want to reflag vessels U.S. American shipyards will

win new orders, American pilots would begin to reverse their shrinking numbers,

and American sailors will find new jobs.

If the bill fails, who loses? We all do. There will still be only one or two ships

plying between the Hawaiian Islands and the fleet of U.S. small boats and ships

will not find their vessels filling from the growing ranks of cruisers in America and

from abroad. Our dockworkers will lose out on ship calls, and our shipyards will lose

out on repairs and new construction. America’s 100,000 travel agents will lose out

on sales, and there will be less cruising opportunity for the American public!

S. 1510 opens the door to test the large, ocean-going U.S. domestic cruise ship

market with itinerary lengths and destinations that will bring in new customers

and bring back repeat customers interested in new trips.

The current law is not working, Mr. Chairman, and I believe this compromise provides us with the opportunity to try something new. This industry needs that

chance. Please pass S. 1510.

AMERICAN ASSOCIATION OF PORT AUTHORITIES

September 23, 1999

The Honorable John McCain

Chairman

Senate Committee on Commerce, Science, and Transportation

Washington, DC 20510-6125

Dear Mr. Chairman:

The U.S. public port community applauds your leadership in seeking a solution

to stimulate the domestic cruise market in the United States. We support your introduction of S. 1510, the U.S. Cruise Ship Tourism Development Act, as an appropriate compromise approach.

As you are aware, AAPA represents virtually all major public port authorities and

agencies in the United States. AAPA members are public entities mandated by law

to serve public purposes, primarily the facilitation of waterborne commerce and the

consequent generation of local and regional economic growth.

U.S. public ports have seen many business opportunities lost because of the restrictions contained in the 113-year old Passenger Services Act (PSA). Passenger

cruise business results in tremendous economic benefits for ports and port cities.

Unfortunately, many ports have not been able to reap those benefits because of the

restrictions in the PSA.

Unfortunately, the current law has not resulted in any significant job protection

for U.S. citizens. Rather, it has cost U.S. jobs that a revived U.S. coastwise cruise

industry would create on the waterfront and in related tourism and supplier industries.

S. 1510 will permit testing of market conditions by foreign-flag ships and also provides significant incentives to jump start a U.S.-flag industry. AAPA believes that

the bill will promote cruise opportunities and help stimulate the economic benefits

that our members are charged to develop for their states and local areas. We look

forward to working with you on this important legislation.

Sincerely,

KURT J. NAGLE

President

October 1, 1999

The Honorable John McCain

United States Senate

Washington, DC 20510

Dear Senator McCain:

On behalf of the American Hotel & Motel Association, I applaud your sponsorship

of S. 1510, the U.S. Cruise Ship Tourism Development Act. This legislation is important to the tourism industry, particularly in coastal and Great Lakes states. The

American Hotel & Motel Association (AH&MA), a federation of state and local lodging associations, represents this nation’s hotel and motel industry. Over 47,000 lodging properties with more than 3.6 million rooms and over 1.1 million employees

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exist in the United States. Our industry’s annual sales exceed $60 billion and our

payroll exceeds $17 million. AH&MA’s membership ranges from the smallest independent properties to the largest convention hotels. S. 1510 will create new job opportunities for all sectors of the tourism industry, including the lodging industry,

which would benefit from the rapid growth in cruise vacations. Cruise customers

utilize lodging accommodations before and after their cruises. Their visits provide

a great marketing opportunity for communities to encourage cruise visitors to return at a later date. If this bill becomes law, cruise passengers will have greater

opportunities to spend more time in U.S. cities, thereby creating more jobs and revenue. AH&MA strongly endorses S. 1510. Your leadership and support can make a difference in helping generate new business and job opportunities for the lodging industry.

We appreciate your consideration of our views.

Sincerely,

JOHN P. CONNORS

ASSOCIATION OF RETAIL TRAVEL AGENTS

5 October 1999

The Honorable John McCain

Chairman

U.S. Senate Committee on Commerce,

Science, and Transportation

Washington, DC 20510-6125

Dear Chairman McCain:

On behalf of almost five thousand small-business-sized retail travel agents who

belong to our association, I want to thank you for introducing S. 1510 (the U.S.

Cruise Ship Tourism Development Act) as a means of stimulating free and open

competition in the domestic cruise market.

Our member agents are the ‘‘moms and pops’’ who own and operate America’s hometown neighborhood travel agencies. These businesses would benefit greatly

from the ability to sell more domestic cruises as part of a revitalized U.S.-flag industry. Beyond our members, the millions of consumers we serve would benefit from

the greater levels of competition and new business opportunities that S. 1510 would

foster.

We appreciate the fact, that you recognized the need for changes in the existing

Passenger Services Act, which has unfortunately dampened domestic cruise competition and the creation of new jobs at U.S. ports which would result from U.S.-flag

business.

You have our members’ full support for this measure, and we look forward to

working with you to insure its passage.

Respectfully yours,

John K. Hawks, APR

President

October 5, 1999

The Honorable John McCain

Chairman

Senate Commerce Committee

Washington, DC 20510

Dear Mr. Chairman:

The American Society of Travel Agents, ASTA, salutes your leadership role in addressing the inequities of coastwise cruising created by Passenger Service Act of

1886 (PSA). Your bill, S. 1510, the United States Cruise Ship Tourism Development

Act of 1999, provides a viable and reasonable approach of allowing international flag

cruise lines to cruise between U.S. ports for a limited amount of time (200 days per

ship until December 31, 2006). As a member of the Cruising America Coalition,

ASTA is in full support of S. 1510 and looks forward to its passage.

The travel agency community sells approximately 95 percent of all cruises. Today,

cruise vacations are among the best valued travel products on the market but diverVerDate 11-MAY-2000 11:06 Jul 09, 2002 Jkt 075053 PO 00000 Frm 00091 Fmt 6601 Sfmt 6621 75053.TXT SCOM1 PsN: SCOM1
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sity in U.S. cruise itineraries are lacking. By allowing more cruise ships into the

U.S. domestic trade, the public will have more choices. Since 1980, the cruise industry has had an average annual growth of eight percent and the two-day and fiveday cruises have emerged as the hottest segment of the cruise vacation business

with a 407.5 percent growth. By the year 2000, 6.5 million passengers per year will

cruise. With the prospect of 47 new ocean liners being introduced into the marketplace by 2004, U.S. port cities in Texas, Washington, Massachusetts, South Carolina, Pennsylvania and Maryland have already developed infrastructures in anticipation of this growth market.

Legislatively, S. 1510 is a good example of righting a wrong. Changes to the PSA

are long overdue. As each year goes by, consumers are denied the wonderful experience of exploring the U.S. coastlines through coastwise cruising opportunities. More

importantly, without this legislation the U.S. economy stands to lose thousands of

tourism dollars generated for ports-of-call by cruise ships.

Again, Mr. Chairman. ASTA applauds your efforts in this worthwhile cause.

Sincerely,

JOSEPH L. GALLOWAY

President & CEO

October 4, 1999

Senator John McCain, Chairman

U.S. Senate Committee on

Commerce, Science, and Transportation

Dear Senator McCain:

SeaAmerica Cruise Lines, Inc. (′′SeaAmerica′′) thanks you for your invitation to

comment on S. 1510 and appreciates your interest in promoting the U.S. cruise market bill. As we previously advised, SeaAmerica regrettably had prior commitments

and will be unable to attend the hearing. Unfortunately, SeaAmerica feels that

S. 1510 falls short of what is truly needed to benefit the U.S. cruise market.

SeaAmerica has been organized to own and operate a U.S.-flagged cruise line—

operating U.S. port to U.S. port—to meet the demands of the business meeting and

convention business, as well as the leisure cruise traveler. SeaAmerica will build

three 41,000 ton passenger ships designed to provide a conference center hotel environment aboard luxury cruise ships. The ships will be completely built in America.

SeaAmerica is actively negotiating with several U.S. shipyards who have expressed an interest in building SeaAmerica’s vessels. SeaAmerica has engaged one

of the world’s leading cruise ship design firms which is currently working on the

design for SeaAmerica’s vessels. SeaAmerica has also entered into strategic partnerships with a number of industry leaders and labor, all of whom support the

SeaAmerica project.

SeaAmerica does support the provisions of S. 1510 that give U.S. built cruise

ships a priority over foreign-flagged vessels in certain markets. But, SeaAmerica opposes any bill that would allow foreign-flagged operators to operate foreign-flagged

vessels in the U.S. coastwise trade. Those provisions will only deter U.S. investment

in the U.S. cruise market, and instead will encourage foreign-flagged operators to

do the minimum required to operate within the U.S.

Instead of focusing on trying to get existing foreign-flagged, foreign-owned operators to enter the U.S. cruise market, SeaAmerica believes that the U.S.-flagged

cruise industry needs incentives that will encourage U.S.-based owners and operators to enter the market and increase competition with the current foreign-flagged

fleet. To do this, the U.S.-flagged cruise industry needs, among other things, tax incentives, favorable financing schemes, and itinerary priorities for U.S.-flagged passenger vessels.

While there are a number of issues that have been adequately addressed by other

interested parties that are opposed to S. 1510, SeaAmerica would like to emphasize

two points. First, in its current form, S. 1510 would allow large foreign-flagged operators to rotate two foreign flagged vessels under the provisions of S. 1510 such that

the foreign-flagged operators could offer cruise passengers a year round U.S.

itinerary, without the requirement for a U.S. crew. At the same time, S. 1510 provides little or no definition as to the nature of the plans a foreign-flagged operator

would have to have for the construction of a cruise vessel in the U.S.

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Second, the $5.00 per passenger surcharge will do little or nothing to promote the

U.S. cruise industry. Even if a foreign-flagged vessel was operating at full capacity,

with 2,000 passengers per week, this would result in only $520,000 per year being

generated by each foreign-flagged vessel being operated under the Act. Compared

to the extremely high capital costs of entering the cruise industry, and in particular

the extremely high price for construction of new vessels (in the U.S. or elsewhere),

any funds that could be generated by the $5.00 per person fee would be insignificant

toprovide any meaningful economic incentives for an emerging U.S. cruise fleet.

Again, SeaAmerica is encouraged by your interest in promoting the American-flag

cruise industry. SeaAmerica is eager to work with you to achieve the goals of the

U.S.-flag cruise industry. Unfortunately, SeaAmerica feels that S. 1510 does not

meet the goals of the U.S.-flag cruise industry and in many respects is in conflict

with those goals. For these reasons, SeaAmerica opposes the passage of S. 1510.

Albert L. Frevola, Jr.

General Counsel, SeaAmerica

MARITIME CABOTAGE TASK FORCE

— Summary —

Cabotage In U.S. Domestic Passenger Transportation

• The cabotage principles embodied in the Passenger Vessel Services Act (PVSA)

are not unique to the maritime industry—similar requirements exist in every other

mode of domestic passenger transportation, including aviation. The prohibition on

foreign registered ships transporting passengers in U.S. coastwise trade is no different than U.S. laws prohibiting foreign registered air carriers from engaging in

domestic air transportation.

The PVSA Is Working Well

• Although over 3,600 U.S-flag passenger vessels carry approximately 100 million

passengers each year and the United States hosts the world’s largest ocean cruising

industry, the U.S. industry is continuing to grow and modernize—

• 23 new vessels recently delivered or under construction, including 10 carrying 300 or more passengers;

• new 200-250 passenger U.S-flag coastal cruise ships are under construction

for U.S. East, Gulf and West Coast markets; and

• 2 new 1,900 passenger U.S-flag cruise ships are under contract for the Hawaii market.

• The fact that today there is only one U.S-flag passenger vessel greater than

10,000 grt in the ocean cruise segment of the industry or that there are U.S. ports

not served by such vessels has little to do with the PVSA and a lot to do with other

factors such as:

• The easy access of foreign ships to the U.S.-based cruise market;

• U.S. tax and other laws that make it difficult for American cruise ships to

compete directly against foreign ships not subject to those laws; and

• The over 40 years that have passed since a U.S. shipyard built a large oceangoing cruise ship—a fact being remedied by the U.S.-Flag Cruise Ship Pilot

Project.

Building a U.S.-Flag, U.S.-Built Ocean Cruise Industry

• The Task Force strongly supports the Committee’s objective of increasing domestic ocean cruising opportunities for the American traveling public and for U.S.

ports—but with U.S. owned and operated, U.S-flag ships, built in U.S. shipyards

and employing American crews. A strong U.S. industry cannot be achieved by opening the domestic cruise market to foreign-flag, foreign crewed ships, operated largely

outside U.S. laws by foreign owners—such as would be allowed under S. 1510, the

United States Cruise Ship Tourism Development Act of 1999. For that reason, the

Task Force has noted its opposition to S. 1510.

• The radical departures from U.S. maritime and transportation policy urged by

proponents of S. 1510, with no guarantee that when the benefits conferred on foreign operators by the Act, expire after 2006 there would be any commitment to a

U.S. industry, are not necessary to the goal of creating a viable U.S. ocean cruise

industry. We do not need to transfer the economic benefits of domestic cruising to

foreign shipowners to build a viable U.S. ocean cruise industry.

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• As Congress faces the challenge of fostering future growth in the U.S. ocean

cruise industry, the Task Force urges it to pursue only solutions embodying the following principles:

• U.S. flag

• U.S. crew

• U.S. owned and operated

• U.S. new construction

[Full 37-page statement is retained in the Committee’s files.]

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