Letters

MCTF Urges U.S. Coast Guard To Close Mortgage Financing Loophole

September 17, 2004

ADM Thomas H. Collins
Commandant
United States Coast Guard
2100 Second Street, S.W.
Washington, D.C. 20593-0001

Dear Admiral Collins:

There is no issue more important to the domestic maritime industry than the continued integrity of the Jones Act, the statutory foundation of the industry and the basis upon which American companies have invested billions of dollars to serve the domestic maritime commerce of the United States. On behalf of the 400 members of the Maritime Cabotage Task Force (MCTF)- vessel owners and operators, labor unions, shipbuilders, pro-defense organizations, and representatives from other transportation modes - we are writing to urge you to take prompt action to prevent the emergence of a dangerous new loophole in the fabric of our nation’s cabotage laws.

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The Coast Guard and Maritime Transportation Act of 2004 brought to an effective close four years of effort by the Coast Guard, the Maritime Administration, the Congress, and the domestic maritime industry to prevent foreign vessel owners from using lease financing arrangements to gain control of vessels operated in the domestic coastwise trade. The new legislation ensures that the only non-citizens that will be able to document vessels under the lease financing provision are bona fide financial institutions with neither the ability nor the intent to control operation of a vessel in the Jones Act trade. Unfortunately but not surprisingly, with the lease financing loophole closed, foreign vessel owners are now actively searching for other ways to gain a foothold in the domestic coastwise trade.

At least one foreign company - the French conglomerate Groupe Bourbon - has sought to do that by entering into a mortgage financing arrangement with a U.S. citizen partner (Rigdon Marine LLC) that raises serious questions about illegal foreign control. To the great disappointment of MCTF, the Coast Guard recently denied an administrative appeal filed by the Offshore Marine Service Association (OMSA) seeking revocation of Certificates of Documentation issued to the first two of a series of Bourbon/Rigdon vessels financed under this questionable arrangement. The Coast Guard’s denial of OMSA’s appeal increases the likelihood that foreign vessel owners will seriously pursue mortgage financing arrangements as the mechanism to obtain control of vessels in the domestic coastwise trade. We believe it is extremely important that the Coast Guard take prompt regulatory action to define the criteria it will use to determine when a mortgage financing arrangement constitutes illegal foreign control in violation of section 2 of the Shipping Act of 1916.

MCTF urges the Coast Guard to use its ongoing rulemaking to implement the changes to the lease financing law to establish clear criteria for evaluating mortgage financing applications. There is no question about the Coast Guard’s statutory authority to do this; section 2 of the Shipping Act of 1916 establishes an unequivocal prohibition on direct or indirect foreign control of Jones Act vessels. The Coast Guard’s obligation as the agency charged with administering the coastwise laws is to ensure that U.S. control exists in fact as intended in longstanding U.S. maritime law. The timely issuance of a notice of proposed rulemaking (NPRM) that includes clear criteria for evaluation of mortgage financing applications will prevent industry confusion about what is and is not permissible and will help to avoid the kind of lengthy and resource-intensive public debate that occurred on the lease financing issue.

Just last week, President Bush issued a statement reaffirming his strong support for the Jones Act. We urge the Coast Guard to move promptly to ensure that mortgage financing arrangements do not become next loophole to threaten the President’s policy and the letter and the spirit of longstanding U.S. cabotage laws.

Sincerely,

MCTF Board of Directors

The Maritime Cabotage Task Force was founded in 1995 to promote the U.S.-flag fleet engaged in domestic waterborne commerce. With more than 350 members, MCTF is the largest coalition ever assembled to represent the domestic segment of the U.S. merchant marine. Nationwide, there are more than 35,000 vessels engaged in Jones Act commerce and they annually move more than 1 billion tons of cargo and 100 million passengers. The Jones Act fleet generates nearly 125,000 jobs, 80,000 of which are aboard vessels and represents a $26 billion private sector investment in vessels and infrastructure. The Act has been broadly supported by every Congress and Administration since its passage in 1920 and is considered a key element in the nation's national defense capabilities.

For more information, contact: Glen Nekvasil, Director of Media Relations (1-888-400-9429)/info@mctf.com

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