Statement Of Philip J. Loree, Chairman Of The House Committee On Merchant Marine and Fisheries On H.R. 1126 September 23, 1992 My name is Philip J. Loree and I am Chairman of the Federation of American Controlled Shipping (FACS). FACS membership comprises American companies with an economic stake in owning, operating, managing, chartering, financing, or otherwise utilizing open registry vessels, and which over the past three decades have shared a common interest in opposing efforts in this country and elsewhere in the world to erect artificial barriers to the free movement of vessels in international trade. Our starting point is that international shipping is a service industry whose sole and essential task is to facilitate trade. Our industry cannot provide such service if its ability to operate vessels internationally is unreasonably impeded by unilateral port state regulation such as that envisioned by H.R. 1126. H.R. 1126 is yet another in a series of efforts spanning more than three decades in which some U.S. maritime union officials have campaigned to have federal labor laws applied to foreign vessels based on their participation in international trade and/or equity ownership by Americans. The preoccupation of these union representatives with alien crews on foreign vessels is mystifying and misdirected, because, as pointed out herein, even if H.R. 1126 ever became law, it would do nothing to improve the competitive standing of their membership. H.R. 1126 follows hard on the heels of H.R. 3283 which was introduced in the last Congress. The earlier bill was unequivocally opposed by the Administration and precipitated protests by 13 friendly foreign nations as well as the European Community. The opposition of the various governments was grounded on the fundamental objection that legislative action applying U.S. labor relations and wage/hour laws to alien seafarers on non-U.S. flag vessels would arrogate jurisdiction which under long standing principles of international law and comity are reserved exclusively to the laws of the flag state. This basic objection and related international considerations are discussed in Point I of this statement. There are other compelling reasons for rejecting any such unilateral port state regulation of shipboard labor matters involving alien seafarers on foreign vessels. Representative William Clay in introducing H.R. 1126 on February 27, 1991 indicated clearly that his primary reason for sponsoring the present bill was to improve the competitive position of the U.S. flag merchant marine. Yet, as explained in Point II herein, enactment of H.R. 1126 could actually hurt, rather than help, the U.S. flag shipping industry, and certainly would do nothing to make the U.S. flag fleet more competitive. In Point III the potentially adverse effects of H.R. 1126 on national defense and national security are examined. Point IV details the relatively new and internationally acceptable multilateral mechanism that exists for protecting the welfare of alien seafarers in U.S. waters. Point V summarizes the potentially adverse U.S. trade and economic ramifications of H.R. 1126. 2 I. The Bill Would Contravene International Law and Comity, H.R. 1126 would fly in the face of international law, would give rise to some serious problems involving our foreign relations, and would contravene U.S. treaty obligations. The primary reason against unilaterally attempting to apply the elaborate regulatory framework of federal labor relations law to foreign flag vessels temporarily visiting U.S. ports is rooted in international law and the sovereignty of nations. International shipping has endured many centuries and thus there are long established principles of international law and comity governing jurisdiction over the employment relationship between master and crew. One of the most fundamental principles is that the nationality of the vessel is determined by its flag, and that jurisdiction over the vessel's internal order (including most certainly its shipboard labor relations) belongs exclusively to the flag state. There are sound, practical reasons for this rule. Vessels cannot be equated to factories or other essentially permanent installations. Vessels are inherently mobile and typically spend most of their time on the high seas, outside the territorial waters of port states and flag states. Frequently their future trading patterns are unpredictable, and may be determined by a host of diverse factors such as the weather, the change of seasons, new technology, general economic conditions, political changes, labor problems and war to mention just a few. A port state has, at best, a transitory interest in a vessel in its territorial waters. Its interest is even less when foreign nationals are employed on board. - It would be, at the very least, presumptuous for a port state to seek to apply its own labor relations laws to foreign nationals on a foreign flag vessel based primarily on the fact that the vessel happens to trade in and out of U.S. ports. By its very nature international trade is not a one-way street. It involves at least two nations and often many others as well, with no guarantee that trading contacts with any of the states will remain the same in the future. The only constant is the vessel's nationality, and that probably explains why over the centuries the exclusive jurisdiction of the flag state over shipboard labor relationships has become so firmly established in international law and comity. No doubt another reason is that regulatory jurisdiction over such relationships cannot, like a faucet, be turned on and off without giving rise to chaotic conflicts of law, legal uncertainties and shipboard disorder. American labor relations law exemplifies the problem. It is truly sui generis, with its own maze of peculiar yet important rules regulating employment relationships rules that are not mirrored by any other maritime nation in the world. Most labor relations laws of other countries have very little in common with our elaborate and highly regulated legal structure. In short, there would be predictable, systemic conflicts if the United States sought to superimpose its legal system governing labor relations on that of the flag states. Equally noteworthy is the fact that U.S. labor relations law is, in large part, prospective in nature. For instance, the American framework of unfair labor practices (e.g., a case involving a refusal to bargain, a discriminatory discharge or an interference with Section 7 rights) generally is remedied at least in part by regulating conduct in the future. In the same vein, a See extracts from U.S. Supreme Court decision in Appendix hereto. 3 certification of collective bargaining agent and its many ancillary rules (e.g., certification bar) is essentially directed at an ongoing future relationship. The very same can be said for laws and regulations setting minimum wages. In a nutshell, the application of U.S. labor laws to a foreign flag vessel temporarily in U.S. waters would by its very nature seek to regulate shipboard labor relations long after the vessel sailed from the United States. This means that application of American law predictably would conflict with the law of the flag state not only while the vessel was in U.S. waters, but also while it was on the high seas and in the ports of other countries. ** Here it bears emphasis that labor relations matters involving problems of union organization and collective bargaining cannot be effectively regulated by two competing sovereign nations, each with its own concept of how labor-management relationships should function. At the very least, such relationships would be destabilized, leaving the various parties unsure of what their respective legal rights and obligations actually were. Owners, masters, employees and unions alike would risk running afoul of the law of one jurisdiction while honoring the law of another. The end result would be continuing uncertainty, conflict and disruption the very conditions which labor relations laws generally are designed to prevent. H.R. 1126 would unilaterally export uniquely American labor laws an arrogation of jurisdiction which other nations would surely view as overreaching and highly objectionable. Consequently, H.R. 1126 would most certainly give rise to thorny problems involving international relations with friendly allies, and even the possibility of retaliation in kind against U.S. manned vessels. H.R. 1126 would also be violative of treaty commitments between the United States and foreign nations in which the contracting parties have agreed to recognize vessels on the basis of whose flag is flown and to accord consular officers exclusive jurisdiction over controversies arising out of the internal order of vessels. In a footnote to his concurring opinion in the landmark 1963 Supreme Court cases, Justice Douglas declared that the latter provision in both the Honduran Treaty and the Liberian Convention "grant those nations exclusive jurisdiction over the matters here involved." (372 U.S. at 22) The United States has entered into similar treaty commitments with numerous foreign nations. II. The Bill Would Hurt, Rather Than Help, The Competitive The sorry fact is that U.S. manned vessels, whether they carry cargo or passengers, have not been commercially competitive *Obviously there is a fundamental distinction between **By analogy, similar problems could arise domestically if a on their own in international shipping during our lifetimes. Almost without exception, the only way U.S. manned vessels can make a go of it outside the protected domestic trades (where competition from foreign flag vessels is not allowed) is with substantial direct or indirect subsidization from U.S. taxpayers. That is why the United States directly subsidizes most liner vessels with an average subsidy payment of almost $3,000,000 per ship per year. It is why the U.S. Treasury pays rates as high as 400% or 500% of world market rates to ship government impelled agricultural cargoes abroad, and why it spends hundreds of millions of dollars each year to ship military cargoes, on U.S. manned vessels. The very fact we make such payments is incontrovertible proof that U.S. manned vessels cannot compete on their own for cargoes or passengers in the international commercial charter markets. The primary reason why U.S. manned vessels are noncompetitive is that their labor costs exceed comparable costs of typical foreign manned vessels by a factor of roughly five to seven times. The standard of living in this country is high, but quite obviously it is not that high compared to many foreign workers. Rather than face up to the truth that their own bargaining excesses over many years are the paramount reason why U.S. manned vessels cost so much to operate, the maritime union proponents of H.R. 1126 seemingly believe that their competitors are to blame. This is analogous to the golfer who finishes last in a tournament and then attributes his poor showing to the expert play of those who posted better scores. Like the golfer who cannot compete, the union proponents of H.R. 1126 would be better advised to work harder at improving their own game rather than pointing fingers at the competition. Simply stated, H.R. 1126 holds out no promise of jobs for American seafarers. The application of domestic labor relations laws and their potential for labor disputes caused by U.S. maritime unions certainly would make the foreign flag vessels controlled by American companies less competitive. But the number and tonnage of these ships have been dwindling ever since certain 1986 tax law amendments placed them at a severe disadvantage with respect to foreign owned shipping. During the period from January 1987 through June 1990 the carrying capacity of American controlled vessels, known as the Effective U.S. Control fleet, decreased by 37%. During the same period the carrying capacity of the world fleet increased by 5%. The 1986 tax revisions were another brainchild of the same union proponents who are now advocating enactment of H.R. 1126. The tax changes have done nothing for US. manned vessels, and indeed will hurt them in the long run since they have weakened the American companies which operate both domestic and foreign flag vessels. The tax changes have already deprived the United States of a substantial amount of emergency sealift tonnage as American companies have disposed of their controlled vessels to foreign interests. They have also reduced the number of shoreside jobs for Americans whose companies used to operate those vessels. They have, on the other hand, provided some very desirable market opportunities for foreign controlled shipping. They have only hurt American interests and stand as a sorry example of shooting ourselves in the foot. H.R. 1126, if ever enacted, would rival the tax changes as a destructive and misguided legislative effort. First, the bill would single out American controlled foreign flag shipping which for decades has been the only realistic and available means by which American shipping and industrial companies can compete head to head, without subsidy of any kind from U.S. taxpayers, against foreign controlled shipping. The bill would simply speed up the transfer of control over such ships to foreign interests whose vessels would then be immune to the labor relations problems 5 inherent in H.R. 1126. Today, at best, the American controlled fleet represents less than 5% of the foreign flag vessels in international shipping against which U.S. seafarers would have to compete, so disadvantaging the American controlled fleet would do nothing for high cost U.S. seafarers. On the contrary, such action could well cost them jobs, because, as noted earlier, many of the companies that would be further disadvantaged also operate U.S. flag vessels and employ U.S. seafarers. Second, the bill would also apply to foreign flag lightering vessels regardless of their beneficial ownership. Lightering is by no means a major business activity. It involves only about 200 to 350 seafaring jobs. These are typically smaller vessels, which enable larger deep draft vessels, primarily tankers, to offload many miles offshore. This system is highly efficient in that it permits the use of large vessels for long haul voyages and the use of smaller vessels to complete the transportation of the cargo to U.S. terminal facilities which are unable to accommodate the larger vessels. If U.S. law were amended to assert labor law jurisdiction over the lightering vessels, the system could readily switch to somewhat less efficient transportation arrangements such as transshipments from terminals in nearby deepwater foreign locations and the deployment of smaller vessels from the original sources of supply. American importers and consumers would have to bear the added costs of a less efficient system, but there would be no new jobs for American seafarers. Third, H.R. 1126 would apply to all foreign flag vessels regularly transporting passengers to or from U.S. ports. This is an obvious attempt by maritime union proponents to assert organizing jurisdiction over the passenger cruise business which has grown impressively over the past two decades and brought considerable prosperity to port cities in Florida and elsewhere in this country. The proponents of H.R. 1126 fail to recognize that passenger ships are highly mobile and also that it is entirely feasible for cruise passengers to fly either to a port in Florida or to a port in a nearby foreign country such as The Bahamas. The cruise business runs on very tight schedules and quick turnarounds. It simply cannot function with chaotic and disruptive labor relations, which means that the operations predictably would be shifted offshore if labor disputes caused by U.S. maritime unions threatened those operations. The real losers under such circumstances would be the U.S. ports and the Americans who earn their livelihoods from servicing the cruise industry. The U.S. maritime unions advocating enactment of H.R. 1126 also seem to forget that their record of manning passenger vessels has not been very promising. Many knowledgeable industry observers identify them as the primary reason for the early demise of the subsidized U.S. flag passenger fleet in the late 1950's and early 1960's due to their escalating costs and endless labor disruptions. Today there are no U.S. manned passenger vessels sailing on international voyages. The overriding reason is high labor costs, a particularly significant item on such vessels, any one of which may have more than 500 crew members, most of whom are engaged in providing services to passengers. The wage differentials between U.S. manned and foreign manned cruise vessels are so great that the labor costs of one U.S. manned vessel would equate to the aggregate labor costs of a fleet of a minimum of five foreign flag *H.R. 1126 also purports to extend jurisdiction to "vessels |