Troubled Maritime Industry

August 29, 1993

A decade-long decline of the U.S. maritime industry may have been accelerated this summer by the decision of the Clinton administration to renege on a promised reform package and instead drop all subsidies to U.S. ships in 1997. That places this country's small ocean-going fleet and its 27,000 jobs in jeopardy.

Compounding the danger is an administration study that would go even further by totally deregulating the maritime industry. That could sound the death knell for Bethlehem Steel's struggling Sparrows Point shipyard and for any semblance of a home-based maritime industry.

From an academic standpoint, deregulation sounds wonderful. A preliminary report on maritime issues for Vice President Al Gore's National Performance Review group notes that a policy of "tightly regulated markets and continued subsidies. . . does not work." The combination of archaic maritime policies and protectionist laws costs the U.S. economy $10 billion a year. Yet too-sweeping deregulation could doom the industry. A more pragmatic approach would be to figure out what has to be reformed to make U.S. shipping lines and shipyards once again competitive.

Just before Congress adjourned this month, the House Merchant Marine and Fisheries Committee approved a bill with broad industry support to reverse the Clinton agenda by reviving shipping subsidies. The problem is that this will cost a bundle, $2 billion, and merely continue government protectionist support without reforming the industry.

What is needed is a thorough overhaul of our approach to shipping and shipbuilding. Given the direct and indirect subsidies foreign shippers receive from their governments, it is naive to think total deregulation would create a level playing field. U.S. ships already operate under huge disadvantages: foreign-flagged vessels can hire an entire crew of Third World sailors for the cost of one American seaman; ships sailing under the U.S. flag face higher taxes, fees and maintenance costs. Two of the nation's biggest lines want to reflag their vessels overseas because the annual savings would be $3 million a year per ship.

Wiping out protectionist federal regulations would help: Manning requirements mandate salaries of $120,000 a year for captains and $67,000 a year for the lowest-ranked licensed shipboard personnel. U.S. crews are 50 percent to 90 percent larger than those of other industrialized nations.

Deregulation, as part of a broader plan to rejuvenate the industry, might make the U.S. more competitive. The entire gamut of regulations and shipping taxes needs examination. So do subsidies that actually deter ship owners, shipyards and unions from embracing reforms. What the Clinton administration should not do is simply withdraw from the maritime battle. Transportation Secretary Federico Pena was moving toward embracing industry plans for broad reform when he was overruled. That's one decision the president ought to re-consider.

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