Once a U.S. agency determines that a ship is obsolete and no longer useful for the purposes intended, that agency must find a way to properly dispose of it. Ships that are no longer needed are screened for other uses, including transfer to another country under proper legal authority, use by another federal agency, and donation to a state or private recipient for appropriate public use. Ships may also be sunk as part of naval training exercises. Ships not used for any of these purposes are considered available for scrapping. According to a July 1997 MARAD study, ship scrapping is a labor-intensive industry with extremely high risks with respect to environmental and worker safety issues. Ships typically contain environmentally hazardous materials such as asbestos, polychlorinated biphenyls (PCB), lead, mercury, and cadmium. A ship is normally dismantled from the top down and from one end to the other with torches that cut away large parts of the ship. Pieces of the ship are lifted by crane to the ground where they are cut into the shapes and sizes required by the foundry or smelter to which the scrap is to be shipped. Remediation of hazardous materials takes place prior to, as well as during, the dismantling process. If done improperly, ship scrapping can pollute the land and water surrounding the scrapping site and jeopardize the health and safety of the people involved in the scrapping process. Ship scrapping is subject to federal, state, and local government rules and regulations on the protection of the environment and worker safety. These rules and regulations implement pertinent laws in these areas. In the environmental area, these laws include the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, and the Federal Water Pollution Control Act. In the worker safety area, the primary law is the Occupational Safety and Health Act. Various federal and state regulatory agencies work to enforce these laws. (See app. I for more information about these laws.) Historically, government-owned surplus ships have been scrapped both domestically and overseas. As shown in table 1, MARAD has relied primarily on overseas scrapping, while the Navy has relied primarily on the domestic industry to scrap its ships. From 1983 through 1994, MARAD sold almost all of its ships for overseas scrapping. Since 1982, the Navy has not directly sold any ships for overseas scrapping. Federal agencies report that there are about 200 ships awaiting disposal or scrapping and that they are stored at various locations throughout the United States. As shown in table 2, the Navy and MARAD have the majority of ships to be scrapped, but the Coast Guard and the National Oceanic and Atmospheric Administration also have some. The Navy reports that, as of August 1, 1998, it had 127 surplus ships available to be sold for scrap. Seventy-two of these ships are expected to be sold though the Defense Logistics Agency’s Defense Reutilization and Marketing Service (DRMS). The remaining 55 ships are expected to be transferred to MARAD for sale. MARAD, which is the U.S. government’s disposal agent for surplus merchant-type ships of 1,500 tons or more, reports that it had 63 ships available for scrapping. By law, MARAD is required to dispose of all obsolete ships by September 30, 2001. The combined tonnage of Navy and MARAD surplus ships amounts to about 1 million tons—about 600,000 tons for the Navy and 400,000 tons for MARAD. Navy and MARAD officials have estimated that it will cost them at least $58 million (in fiscal year 1997 dollars) for storage, maintenance, and security of surplus ships between fiscal year 1999 and 2003 if they are not scrapped. Some ships are in such poor condition that they may need dry-docking for repairs to keep them afloat until they can be scrapped. MARAD estimates that its dry-docking and repair costs could be as high as $800,000 per ship. A number of factors have caused the current backlog of federal surplus ships awaiting scrapping. They include (1) reductions in the Navy’s force structure following the collapse of the former Soviet Union and the Warsaw Pact; (2) unavailability of overseas scrapping; (3) difficulties experienced by some domestic scrappers in complying with environmental, worker safety, and other contract performance provisions; and (4) a shortage of qualified domestic bidders. Navy force structure reductions following the collapse of the former Soviet Union and the Warsaw Pact have resulted in an increased number of ships to be scrapped. Since 1990, the Navy has reduced its active fleet from 570 ships to 333 ships. The Navy’s inactive fleet has increased by 82 percent since 1990 and the number of ships to be scrapped increased from about 25 in 1991 to 127 as of August 1, 1998. Overseas scrapping by MARAD was suspended in 1994 in response to an April 1993 Environmental Protection Agency (EPA) letter advising the agency that the export for disposal of PCB materials with concentrations of 50 parts per million or greater was prohibited. In accordance with the Toxic Substances Control Act, EPA regulates all aspects of the manufacture, processing, distribution in commerce, use, and disposal of PCBs. In 1980, EPA banned the export of PCBs for disposal. In 1989, the Navy became aware of the presence of PCBs in solid materials on board some of its older ships and sought EPA’s advice on how to properly handle and dispose of these materials. Subsequently, EPA confirmed that surplus ships could not be exported for scrapping if they contained solid materials with concentrations of PCBs at 50 parts per million or greater. In 1997, the Navy and MARAD, each negotiated an agreement with EPA to allow for the export of ships for scrapping provided (1) all liquid PCBs are removed prior to export, (2) items containing solid PCBs that are readily removable and do not affect the structural integrity of the ship are also removed, and (3) countries to which the ships may be exported for scrapping are notified so that they have the opportunity to refuse to accept the ships if they so choose. The Navy and MARAD sought these agreements principally because they recognized a need to reduce their backlogs of surplus ships and the limitations of domestic scrapping efforts. Despite the agreement with EPA, Navy officials decided in December 1997 to temporarily suspend any export of ships for scrapping due to (1) continuing concerns regarding environmental pollution and worker safety in foreign ship scrapping countries and (2) potential impacts on the domestic ship scrapping industry. In January 1998, MARAD also suspended the export of ships. As of August 1998, the voluntary suspension on exports was still in effect. Specific environmental concerns revolve around the export of PCBs and other hazardous materials that could be dumped along the shorelines of developing nations and about the health and safety of foreign workers. For example, domestic industry representatives have stated that foreign ship scrapping operations would not be in compliance with the strict U.S. safety and environmental regulations. U.S. government officials have also stated that many of the major overseas ship scrapping countries have less stringent laws and regulations regarding environmental and worker safety issues than exist in the United States. Domestic industry concerns are related to the history of foreign scrappers bidding significantly higher prices to scrap ships overseas. This is due, in part, to a greater demand and higher selling price for scrap metal in foreign countries and lower costs of overseas operations because of the less restrictive environmental and worker safety regulations and lower labor rates. Between 1991 and 1996, the Navy repossessed 20 of the 62 ships it had sold to domestic firms for scrapping due to environmental pollution and safety compliance problems and other contractor performance issues. For example, the former aircraft carrier, U.S.S. Oriskany, and five other ships located at a contractor’s facility in the former Mare Island Naval Shipyard at Vallejo, California, were repossessed by the Navy due to the contractor’s not obtaining the necessary environmental permits and the dissolution of the contractor’s partnership. Some of these repossessions were costly. For example, according to a Navy official, it had to spend about $2 million to tow 14 ships back to federal storage facilities in Philadelphia from North Carolina and Rhode Island when a ship scrapping contract was terminated due to contractor noncompliance with environmental and safety regulations. Also, the Navy and DRMS incurred additional costs for maintaining, storing, and reselling these ships. The domestic ship scrapping industry has historically been small. During the 1970s, when hundreds of ships were scrapped domestically, the industry was comprised of about 30 firms. However, given the small number of ships available for domestic scrapping since then, many of the firms exited the industry. Currently, there are four private ship scrappers in the United States actively scrapping federal surplus ships. In addition, for national security reasons, one naval shipyard is scrapping nuclear submarines. The typical U.S. private sector ship scrapping site is located in an urban industrial area coincident with other industrial and maritime related facilities. The facilities area is generally small, fewer than 10 acres, and most of the firms, until recently, worked on only one ship at a time. According to a July 1997 MARAD study, ship scrapping companies tend to be thinly capitalized. The study concluded that the industry is a risky, highly speculative business. Following the Navy’s experience with high rates of ship repossessions between 1991 and 1996, both the Navy and MARAD considered fewer firms to be technically and financially acceptable. For example, in response to MARAD’s 1996 solicitation for scrapping eight ships, the agency received only five positive bids, and only one of these was considered technically acceptable by the agency. MARAD awarded the bidder only two ships, in part, because of the bidder’s limited scrapping capacity.