Cargo Preference Requirements:

Objectives Not Significantly Advanced When Used in U.S. Food Aid Programs

GGD-94-215: Published: Sep 29, 1994. Publicly Released: Sep 29, 1994.

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Pursuant to a congressional request, GAO reviewed the effect of cargo preference laws on U.S. food aid programs, focusing on the: (1) extent to which the application of cargo preference laws meet their intended objectives; and (2) effect of certain food management practices on transportation costs.

GAO found that: (1) cargo preference requirements do not meet the objective of helping to maintain U.S.-flag ships as a Ready Reserve Force in times of war or national emergency or for purposes of domestic or foreign commerce; (2) the Department of Defense (DOD) does not consider the U.S.-flag ships that transport the majority of food aid tonnage to be militarily useful; (3) DOD does not believe that food aid cargo preferences are a cost-effective method of obtaining Ready Reserve crews; (4) food aid cargos account for less than one-fourth of the 4 percent share of export-import tonnage that U.S. ships carry; (5) U.S.-flag ships are not competitive with foreign-flag ships because their operating costs are higher; (6) cargo preference requirements adversely affect U.S. food aid programs by reducing the funds available for commodity purchases and causing recipients to purchase higher-priced or different commodities because of the unavailability of U.S.-flag ships; and (7) certain Department of Agriculture and Agency for International Development (AID) management practices increase transportation costs, because they require shipowners to pay for.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress completed action on the 1996 Farm Bill without addressing the issue of cargo preference in the agricultural trade title of the legislation. No additional congressional action is anticipated.

    Matter: If Congress continues to support the objectives for which cargo preference is applied to food aid programs and is willing to continue to devote resources to that end, Congress may wish to consider a more efficient alternative for achieving those objectives. For example, a program like the current operating differential subsidy program, which will be expiring by 1998, could be used to support those ships, and their crews, that DOD finds militarily useful and that could also successfully compete for U.S. foreign commercial cargos.

  2. Status: Closed - Not Implemented

    Comments: Congress did not address this recommendation in the 1996 Farm Bill export title or in related transportation legislation.

    Matter: If Congress decides to continue to apply cargo preference to food aid programs, it may wish to consider giving U.S. shipowners incentives to invest in more efficient ships in order to reduce food aid transportation costs. One possible incentive would be to allow new, foreign-built, U.S.-flag ships to immediately participate in the food aid cargo preference trade.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Congress did not address this issue in the export title of the 1996 Farm Bill.

    Recommendation: If Congress chooses to continue the application of cargo preference laws to food aid programs and acts to permit U.S.-flag foreign-built ships to immediately carry food aid preference cargos, the Secretary of Transportation should instruct the Administrator, Maritime Administration, to promote the efficiency of the ships that carry food aid preference cargos.

    Agency Affected: Department of Transportation

  2. Status: Closed - Not Implemented

    Comments: The Departments of Transportation and Agriculture, and AID, have been unable to reach agreement on a set of shipping contract terms that are more closely aligned with general commercial shipping contract terms.

    Recommendation: If Congress chooses to continue the application of cargo preference laws to food aid cargos, the Secretary of Agriculture and the Administrator, AID, should, to reduce food aid transportation costs, experiment with the use of contract terms for the transportation of food aid cargos that are more consistent with contract terms used for similar commercial cargos to determine whether their use will reduce food aid transportation costs.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Not Implemented

    Comments: The Departments of Transportation and Agriculture, and AID, have not reached agreement on a set of shipping contract terms that are more closely aligned with general commercial shipping contract terms.

    Recommendation: If Congress chooses to continue the application of cargo preference laws to food aid cargos, the Secretary of Agriculture and the Administrator, AID, should, to reduce food aid transportation costs, experiment with the use of contract terms for the transportation of food aid cargos that are more consistent with contract terms used for similar commercial cargos to determine whether their use will reduce food aid transportation costs.

    Agency Affected: United States Agency for International Development

  4. Status: Closed - Not Implemented

    Comments: The Department of Agriculture's Foreign Agricultural Service has reviewed how to better space food aid shipments throughout the year by encouraging foreign countries to sign food aid agreements earlier in the year to permit better scheduling of commodity purchases and shipments. However, it has concluded that numerous other factors beyond its control prevent better spacing of food aid shipments.

    Recommendation: If Congress chooses to continue the application of cargo preference laws to food aid cargos, the Secretary of Agriculture and the Administrator, AID, should, to reduce food aid transportation costs, encourage recipient countries to more evenly space their food aid shipments throughout the year.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Not Implemented

    Comments: AID officials have attempted with little success to more evenly space food aid shipments throughout the year by having foreign countries sign food aid agreements earlier in the year. It remains difficult for food aid recipient countries to sign these agreements earlier in the year.

    Recommendation: If Congress chooses to continue the application of cargo preference laws to food aid cargos, the Secretary of Agriculture and the Administrator, AID, should, to reduce food aid transportation costs, encourage recipient countries to more evenly space their food aid shipments throughout the year.

    Agency Affected: United States Agency for International Development

 

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