The U.S. maritime industry is upset over the Military Sealift Command's willingness to charter foreign-built vessels to carry military cargo.

The controversy started innocently enough last November. The command, which operates a fleet of 68 chartered commercial vessels, issued a proposal to charter a minimum of seven ships. The vessels would be chartered for 17 months, with two 17-month renewal options.Final offers under the solicitation are due Thursday.

Tucked away in the 100-plus page bid package is a requirement that the vessels shall be U.S. flag upon delivery (reflags acceptable).

In other words, foreign-built vessels re-documented under U.S. law can bid on an equal basis with higher-cost, U.S.-built vessels, provided that the repairs and modifications required to meet U.S. government standards are done in U.S. shipyards.

The parenthetical phrase on the acceptability of reflagged ships is what touched off the controversy.

The sealift command, which also ships military equipment and household goods on liner vessels carrying regular commercial cargo, pointed out that the solicitation language is not unusual and has been used in various other bidding proposals.

But, one maritime industry analyst noted, this is the biggest one they've ever done, using the reflag provision. In previous similar charters, the analyst said, almost every vessel chartered was U.S.-built.

The command's request allows the reflagged vessels, which presumably can operate at lower cost and thus bid lower because they were built abroad, to compete directly with U.S. vessels in the bidding.

No particular attention was paid to reflag provisions in other procurements because in most of those cases, highly specialized ships were needed or there were other reasons for the unavailability of U.S.-built vessels.

Meanwhile, The Journal of Commerce has learned that at least 14 foreign- built vessels may be involved in the bidding for the current procurement.

One shipping executive called the development a travesty of the policy we have been operating under.

He added that it flies directly in the face of one of the recent recommendations of the Commission on Merchant Marine and Defense, which urged the Pentagon to revise its procurement policies and practices with a view toward reducing offshore competition in key industries and technologies.

William P. Verdon, president of the United Shipowners of America, called the reflag situation an outrage. The maritime industry group's members, comprising about 95 percent of U.S.-flag liner tonnage, are American President Lines, Crowley Maritime Corp., Farrell Lines, Lykes Bros. Steamship Co. and Sea-Land Service.

We've come full circle, he said. If there are no U.S.-flag vessels available, the MSC policy makes sense, regrettably; but now it doesn't matter whether U.S.-flags are available or not.

Mr. Verdon said it is a penny-wise and pound-foolish policy that uses a short-term tunnel vision view related only to cost. It opens up the backdoor to us getting killed, because we can't compete or bid against these foreign flags, he said.

W.J. Amoss, chairman and chief executive officer of Lykes, said the sealift command, in the past, would only charter reflagged vessels when U.S.-flag vessels were unavailable, but thispolicy apparently has been abandoned.

John Stocker, president of the Shipbuilders Council of America, said the development clearly troubles me. U.S.-built tonnage ought to be used for preference cargo. This is exactly the sort of thing that has led us to recommend that.

But he added he was not totally unhappy, because the procurement requires that U.S. shipyards must be used to make any repairs or modifications required by the Defense Department or the Coast Guard. If the work was already started in a foreign yard, the vessel operator is required to do a like of amount of work in U.S. shipyard.

Bruce Carlton, executive director of the Joint Maritime Congress, a labor- oriented group sponsored by the Marine Engineers Beneficial Association, said if reflagged vessels get the charters it will be a real travesty and a raw deal for U.S. carriers.

I know the pressures the Navy is under to maximize its charter business while minimizing dollar outlays, but with all the difficulties that existing U.S. operators are facing, it would seem that the government would look to existing American operators first.