American commercial shipbuilders are blowing the whistle on a Navy aid program they say violates commitments U.S. trade officials have made in a pending global pact to end shipyard subsidies.
Companies whose primary business is constructing private-sector cargo ships say the Navy's Shipbuilding Capability Preservation Agreements program disrupts the market because it will subsidize the commercial work done by select yards that are the Navy's top warship suppliers.Congress created SCP agreements late last year in the defense authorization bill. A company holding such a pact will be allowed to claim overhead costs attributable to its private sector work on its Navy contracts.
The spokeswoman for a coalition of the six largest U.S. shipyards, a group that builds nearly all Navy ships, defends the agreements as ''truth in accounting.''
Cindy Brown, president of the American Shipbuilding Association, said the program levels the playing field for Navy shipbuilders whose overhead costs, like any government contractor, inherently are much higher than non-defense contractors.
Counters Penny Eastman: It is ''as blatant an illegal subsidy scheme as can be devised.'' She is president of the Shipbuilders Council of America, one of two coalitions of commercially oriented yards fighting to scuttle or revamp the SCP.
In December rules governing SCP agreements, the Navy said the pacts must go to companies building Navy ships and ''generally will be considered only for a shipbuilder with little or no private sector work.''
Navy regulations say the program is designed ''to broaden and strengthen the shipbuilding industrial base by providing an incentive for a shipbuilder to obtain new private sector work, thereby reducing the Navy's cost of doing business.''
According to a recent Navy report to Congress, the only applicant to date is Virginia's Newport News Shipbuilding. The company, with 18,000 employees and annual revenue of $1.8 billion, is the leading builder of U.S. military ships. It's business, however, is not limited to warships.
Just last month Newport News Shipbuilding christened the Agathonissos, the first of three double-hull tankers it's building for a Greek company. The 46,000-ton tanker is the first commercial ship built by a U.S. yard for an international customer in 40 years, the company said. The ship is one of nine double-hull tankers that Newport News is building.
The Navy and Newport News Shipbuilding are negotiating the SCP deal. Terms of the agreement have not been disclosed.
Trying to torpedo such deals are Ms. Eastman's Shipbuilders Council, an association of mid-tier commercial shipyards, and the National Shipyard Association, which speaks for 43 small and medium-size companies operating 90 yards in 17 states.
That the Navy plan violates the terms of the unimplemented 1994 agreement of the 29-nation Organization for Economic Cooperation and Development to terminate shipyard subsidies is just one of the arguments the two groups are using for ammunition.
In comments submitted to Navy acquisition officials, the groups also said the program amounts to a taxpayer bailout for a specific segment of the U.S. shipbuilding industry to the detriment of the national shipbuilding base.
BADLY NEGOTIATED DEAL
Return fire has come from the ASA's Ms. Brown. Her group's opposition to the OECD subsidy-ending pact has played a key role in blocking congressional passage. The group says it is a badly negotiated deal that locks in U.S. disadvantages.
Senate Majority Leader Trent Lott last week reaffirmed his support for legislation needed to implement the shipbuilding trade pact, but congressional approval this year is uncertain. U.S. inaction may result in an unraveling of the agreement.
In her remarks, Ms. Brown turned the OECD pact into a sword that cuts both ways. She accused opponents of SCP of being selective in their criticisms of subsidies.
For example, those organizations and companies did not object when $400 million in federal, state and local subsidies were awarded to Anglo-Norwegian shipbuilder Kvaerner ASA to reopen the Philadelphia Naval Shipyard, Ms. Brown said.
That aid package included $50 million from the Pentagon to modernize the yard and $30 million from the Labor Department for worker training, she said. The package violates the OECD pact and the agreement among all parties not to allow new subsidy regimes pending ratification, she said.
Avondale Industries Inc., New Orleans, the only one of Ms. Brown's member yards to send comments to the Navy, said SCP agreements will help military shipbuilders make ''the transition to commercial work.'' Avondale suggested the duration of agreements be extended to up to 10 years, instead of just five years.
Criticizing the program were the Shipbuilders Council and the National Shipyard Association.
''It is no secret that certain U.S. shipyards predominantly constructing Navy vessels have not faired well in their attempt to construct commercial vessels,'' Ms. Eastman said in her group's Navy comments.
''Thus, SCP agreements will, by all appearances, be used to assist shipyards with their failed attempts to construct commercial vessels profitably,'' Ms. Eastman said.
''The reimbursement by the . . . Navy of a shipyard's overhead directly attributable to the construction of commercial vessels is as blatant an illegal subsidy scheme as can be devised,'' the lobbyist said.
VIOLATES OECD PACT
She said the plan violates the OECD pact and breaks the pledge against entering new subsidy schemes before ratification. ''How can other signatories take the U.S. government seriously,'' she said.
Allan Walker, executive director of the National Shipyard Association, said his group opposes the Navy program ''because of its inherent anti-competitive nature.''
SCP agreements are ''at odds with the stated goal of the United States to end world shipbuilding subsidies,'' he said. Halter Marine Group in New Orleans, the largest shipbuilding company in Mr. Walker's association, raised similar objections.
Thomas Jones Jr., vice president of Atlantic Marine Holding Co., in Jacksonville, Fla., advised Navy officials to find an alternate plan. The nation can find a way ''to meet our national security needs in shipbuilding without the need to sacrifice my company and many other companies in the commercial shipbuilding industry as this program would do,'' he said.
Atlantic Marine is the largest shipbuilding company belonging to the Shipbuilders Council.
Daniel Gulling, president of Wisconsin's Marinette Marine Corp., told Navy officials they need to do more homework. The Navy and the Transportation Department's Maritime Administration have listed 17 private shipyards that constitute the nation's ''Major Shipbuilding Base,'' Mr. Gulling said.
Only seven of those are constructing, versus converting, rebuilding or reconditioning ships for the Navy, he said.