Over time, cruising has developed into a highly concentrated industry with three primary carriers. At the end of September 2003, two companies, Carnival Cruises Lines and Royal Caribbean Cruises, Ltd., controlled 86.4 percent of the market in North America, with NCL being the next largest cruise provider, holding a little less than 9 percent of the North American market. (See fig. 1.) These companies are foreign-owned and operate foreign-built vessels. Carnival Cruise Lines is incorporated in Panama with its North American ships flying the Bahamian or Panamanian flag. Royal Caribbean is a Liberian corporation, with ships flying the Bahamian or Norwegian flag. NCL is a subsidiary of Star Cruises, a Bermuda corporation headquartered in Hong Kong, with its ships in North America flying the Bahamian flag. While there are several U.S. companies in the cruise industry, such as Disney and Radisson Seven Seas, these companies also elect to operate foreign-built vessels under a foreign flag in order to operate under the same capital and operating cost structure as their foreign competitors. Currently, there are no large U.S.-flag cruise ships in operation, and no large new cruise ships have been built in the United States since 1958. This use of foreign-built ships is largely due to the higher costs anticipated when building a ship in the United States, rather than in shipyards in Italy, Germany, and elsewhere that have the infrastructure, expertise, and economies of scale for this segment of the market. Over the past decade, several bills have been introduced into the U.S. Congress with the objective of stimulating the development of a U.S.-flag fleet and growth in the domestic cruise ship trade, the travel industry, and port cities, although none have been enacted. Generally, these bills would have allowed foreign ships either to operate in the domestic trade or to be reflagged with the U.S. flag under certain specified conditions. For example, the U.S. Cruise Vessel Act (S. 127), introduced in 2001, would have allowed U.S.-owned, foreign-built cruise ships to enter the domestic market for a limited time if the operators agreed to build replacement vessels in the United States. This law was designed to allow new companies to enter the domestic market with existing vessels and immediately increase the size of the U.S. commercial fleet, thus providing new jobs for merchant mariners. Under the proposal, these foreign-built cruise ships would have been required to fully comply with all applicable U.S. laws, regulations, and tax obligations. Many federal agencies oversee U.S. maritime policy. For example, in the Department of Transportation, the Maritime Administration’s (MARAD) primary mission is to strengthen the U.S. maritime transportation system— including infrastructure, industry, and labor—to meet the economic and security needs of the nation. MARAD also seeks to ensure that the United States maintains adequate shipbuilding and repair services, efficient ports, and effective intermodal water and land transportation systems. MARAD programs are designed to promote the development and maintenance of an adequate, well-balanced, U.S. merchant marine. MARAD originally financed two of the ships that NCL will be operating in the Hawaiian Islands through MARAD’s Title XI loan guarantee program under a project known as “Project America,” that provided loan guarantees to help construct two new cruise vessels for American Classic Voyages in a U.S. shipyard for use in the Hawaiian Islands. Congress also granted American Classic Voyages a monopoly in the Hawaiian market for the life of the vessels. However, American Classic Voyages filed for bankruptcy in 2001, and the partially completed hull of one ship and parts for the other were purchased by NCL for $29 million. Subsequent to the purchase, NCL obtained the exemption, allowing them to complete these ships in a foreign shipyard and still operate them in Hawaii under the U.S. flag. The Coast Guard and Customs and Border Protection (CBP), within the Department of Homeland Security, are generally responsible for administering and enforcing maritime laws and U.S.-flag requirements, including the PVSA and U.S. vessel documentation laws, as well as the Jones Act. The Coast Guard handles documentation requirements for U.S.-flag ships—such as determining whether vessels meet the U.S.- ownership and crewing requirements in order to operate under the U.S. flag—and U.S.-built requirements in order to operate in domestic trade. Through this process the Coast Guard provides endorsements to vessels defining the type of trade in which they are allowed to engage, e.g., foreign trade, domestic trade, or fishing. The Coast Guard also conducts quarterly inspections on all vessels embarking passengers at U.S. ports. CBP also has a role in administering the PVSA, such as publishing rulings on the legality of proposed itineraries. CBP also has civil enforcement authority under the PVSA, with the ability to levy penalties on any passenger vessel operators engaging in service in the domestic market without the relevant Coast Guard endorsements. The current penalty that can be levied against a ship operator for a violation of the PVSA is $300 per passenger. The Federal Trade Commission (FTC) is responsible for ensuring that the nation’s markets are vigorous, efficient, and free of restrictions that harm consumers. The FTC exists to protect consumers by enforcing federal consumer protection laws and conducting economic research and analysis to inform all levels of government. In this regard, FTC conducted an analysis of competition in the cruise market and the potential competitive affects of a merger between two of the largest cruise lines and issued its report in October 2002. After FTC’s study of the cruise market, in April 2003, Carnival Corporation acquired P&O Princess Cruises. Prior to the acquisition, Carnival Corporation was already the world's largest cruise company; after the acquisition, Carnival Corporation became even larger, with 13 separate brands, 66 cruise ships and 17 more on order, and combined annual revenues of $6.9 billion. In 1886, Congress passed the PVSA to protect the U.S. domestic maritime transportation industry from foreign competition. To provide this protection, it penalizes foreign vessels that transport passengers solely between U.S. ports. Many cruises provided by foreign vessels are to international destinations and, therefore, are not affected by the PVSA; however, several rulings and decisions interpreting the PVSA have expanded possible itineraries for foreign cruise vessels between U.S. ports that were once restricted. For example, rulings and decisions have found circumstances where voyages between two U.S. ports by foreign vessels do not violate the PVSA when the primary purpose of the voyage is to visit foreign ports. In addition, rulings and decisions have allowed foreign vessels to visit several U.S. ports on an itinerary, so long as a foreign port is included and the vessel disembarks its passengers at the port of embarkation. In these circumstances, the voyages in question are not considered to be domestic transportation between two U.S. points. The PVSA was originally designed to prevent U.S.-based vessels from facing strong competition in the domestic transportation market from maritime nations, such as Great Britain and Canada. Specifically, there was a concern about competition from Canadian vessels that were transporting passengers across the Great Lakes. The PVSA originally stated “no foreign vessel shall transport passengers between ports or places in the United States, either directly or by way of a foreign port, under a penalty of $2 for each passenger so transported and landed.” Congress originally thought that the $2 penalty per passenger would discourage this practice. Some industry associations and U.S. courts view the PVSA, U.S. vessel documentation laws, and the Jones Act, as serving other purposes, including providing a ready fleet in times of national defense, sustaining a U.S. merchant marine, and supporting the U.S. shipbuilding industry. U.S. courts have said that the PVSA and the Jones Act have helped to secure the national defense by maintaining, “a merchant marine of the best equipped and most suitable types of vessels sufficient…to serve…in time of war or national emergency.” Because vessels in the domestic trade must be U.S.- crewed, labor groups view the laws as protecting jobs for the U.S. merchant marine. According to data supplied by MARAD, over 1,000 passenger vessels are operating under the U.S. flag, employing U.S. seamen, including ferries, steamboats, and small cruise vessels; however, the last large U.S.-flag overnight cruise vessels ceased operations when American Classic Voyages declared bankruptcy in October of 2001. In addition, because the PVSA and the Jones Act protect the domestic maritime transportation market for U.S.-built ships, they also support U.S. shipyards. While several U.S. shipyards routinely build passenger vessels for U.S.-flag operators such as ferry operators and steamship operators, U.S. shipyards have not built large overnight, ocean-going cruise ships, and the last large passenger liner built in the United States was completed in 1958. Several administrative rulings and judicial decisions have identified limited exceptions to the PVSA that allow certain vessel operations between U.S. ports by foreign passenger vessels. One significant decision—which has allowed passenger travel between U.S. ports by foreign vessels as long as a distant foreign port is included—was a 1910 Attorney General opinion. This opinion states that an around-the-world cruise that started in New York and touched numerous foreign destinations and ended in San Francisco did not violate the PVSA because the voyage could not be considered domestic trade. The Attorney General made this determination on the supposition that the purpose of the trip was not to travel from one U.S. port (New York) to another (San Francisco), but to travel to different locations around the world.