Maritime Subsidy Requirements Hinder U.S.-Flag Operators' Competitive Position

CED-82-2: Published: Nov 30, 1981. Publicly Released: Nov 30, 1981.

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GAO evaluated the effectiveness of the operating differential subsidy program through which the Maritime Administration provides a subsidy to U.S. operators to cover the difference between certain U.S. vessel costs and similar costs of foreign competition. The policy was enacted to help U.S. operators compete with their foreign counterparts. The review primarily focused on the liner or general cargo segment of the subsidized U.S.-flag fleet. However, most of the issues discussed also affected the bulk operators.

Some program requirements and procedures imposed on U.S.-flag operators increase costs and create other disadvantages which tend to negate the competitive position the program is supposed to provide. To promote U.S. shipyards, the operating subsidy program requires that vessels be built in the United States. However, the construction subsidy rate does not always compensate the operator for the higher construction financing costs, longer construction times, and other costs incurred by using U.S. shipyards. Thus, building vessels in the United States limits subsidized operators' ability to compete with foreign competition. Policies to promote U.S. ship repair yards also hurt subsidized operators by limiting their ability to compete with foreign-flag operators who can schedule their maintenance and repairs in any geographical location that best suits the efficiency and economy of their operations. Steps have been taken to reduce some of the restrictive requirements placed on subsidized operators that become costly and time-consuming such as the hearings that are held on issues relating to operating subsidy applications. Additionally, the subsidy payments are delayed due to an extensive and time-consuming process used to compute final liner wage subsidy rates. This process precludes the operators from timely receipt of monies due them and hurts their cash management position. Maritime officials are not optimistic about future subsidy reductions because of increasing competition from foreign operators which have lower wage costs and manning levels.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Legislation to deal with this recommendation was introduced in the 98th Congress but failed to pass. Presently, it is not known whether legislative action to deal with this recommendation is to be reintroduced.

    Matter: Congress should amend the Merchant Marine Act of 1936 to extend and clarify the Secretary of Transportation's authority to allow subsidized operators to build vessels overseas. Congress should require the Secretary, in permitting overseas building, to consider the adequacy of the construction differential subsidy (CDS) ceiling, vessel delivery dates, the availability of CDS funds, and the effect of overseas building on the U.S. shipbuilding base. In revising the 1936 Act, Congress should consider the propriety of using such vessels in domestic trade and the role of the Maritime Administration's other financial assistance programs in aiding the operator to build these vessels.

  2. Status: Closed - Not Implemented

    Comments: Legislation to deal with this recommendation was introduced in the 98th Congress but failed to pass. Presently, it is not known whether legislative action to deal with this recommendation is to be reintroduced.

    Matter: Congress should consider revising U.S. policies for promoting the U.S. ship repair industry with the objective of making them more equitable to U.S.-flag operators. When considering these policies, Congress should address the effect of the maintenance and repair subsidy, the maintenance and repair penalties, and the maintenance and repair 50-percent tariff on U.S.-flag operators.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Legislation to deal with this recommendation was introduced in the 98th Congress but failed to pass. Presently, it is not known whether legislative action to deal with this recommendation is to be reintroduced.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Maritime Administration to assign a high priority to its review of the section 605(c) hearing process and to assign a deadline for the issuance of the revised procedures.

    Agency Affected: Department of Transportation

  2. Status: Closed - Not Implemented

    Comments: Legislation to deal with this recommendation was introduced in the 98th Congress but failed to pass. Presently, it is not known whether legislative action to deal with this recommendation is to be reintroduced.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Maritime Administration to implement, on a trial basis, operating differential subsidy liner wage payment procedures based on a revised tentative wage subsidy rate. During this trial period, the costs and benefits of these payment procedures should be evaluated to determine whether the procedures should be permanently adopted.

    Agency Affected: Department of Transportation

 

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