American Shipbuilding Association

Coalition for America’s National Security Calls for
“One Additional Penny of the National Economic Dollar”

ASA has joined a non-partisan ad hoc coalition of armed service groups, think tanks, and other defense industry associations that have come together seeking a sustained national commitment to invest one additional percent of our Gross Domestic Product (GDP) – or one additional penny of the national economic dollar – for national security.  The ad hoc group called the Coalition for America’s National Security recently sent letters to both Governor George W. Bush, the Republican presidential nominee, and Vice President Al Gore, the Democratic presidential nominee, asking them to publicly endorse this plan, known as the “Four Percent Solution.” 

The coalition references a statement made by current Under Secretary of Defense for Acquisition, Dr. Jacques Gansler, in demonstrating the need for this increase: “We are trapped in a “death spiral.”  The requirement to maintain our aging equipment is costing us more each year in: repair costs, down time, and maintenance tempo.  But we must keep this equipment in repair to maintain readiness.  It drains our resources - resources we should be applying to modernization of the traditional systems and development and deployment of the new systems.   So, we stretch out our replacement schedules to ridiculous lengths and reduce the quantities of the new equipment we purchase, raising their cost and still further delaying modernization.”

According to a study by the Center for Strategic and International Studies, this is the level required to pay for the programs and capabilities of the Defense Department as stated in 1997 to meet America’s national security needs.  This additional one percent of GDP would translate into about $100 billion a year over the roughly $300 billion that would otherwise be applied to defense; enabling critically needed spending on research and development, procurement, operations and maintenance, quality of life, recruiting, retention and other under-funded defense priorities.  The coalition notes that even with a one percent increase, defense spending as a percentage of GDP still represents a substantial decrease from the 60-year average of 8 percent of GDP for national security.

The coalition is comprised of the Air Force Association, American Shipbuilding Association, Association of the United States Army, Association of Naval Aviation, Center for Security Policy, Contract Services Association of America, Government Electronics and Information Technology Association, Fleet Reserve Association, National Defense Industrial Association, Naval Reserve Association, Naval Submarine League, Navy League of the United States, and the U.S. Business and Industry Council.

Pentagon Proposal for Foreign Built Naval Ships is Killed

On September 20th the American Shipbuilding Association (ASA) sent a letter to Secretary of Defense William Cohen expressing strong opposition to proposed legislation being circulated by the Department of Defense (DOD) Office of Acquisition, Technology and Logistics that would have waived the U.S.-build laws for combat support ships, and allow the Navy to purchase these ships from foreign shipyards.  Several Members of Congress moved quickly to kill the legislative proposal, and on September 27th RADM Craig Quigley, a Pentagon spokesman, said the idea is “emphatically not” endorsed by Defense Secretary Cohen or other senior leaders.

Senator Charles Robb (D-VA) sent a letter to Defense Secretary Cohen in which he expressed deep concern with the proposal to send naval ship construction to foreign shipyards: “This proposal incites unnecessary apprehension in an industry already burded by an under-funded short and long-term Navy ship construction plan.” Senator Robb added, “Stability in our naval ship construction programs and funding are the keys to reducing and controlling costs and getting the best value for the Navy from our great American shipbuilders.”  Representative Duncan Hunter (R-CA) sent a letter to the House and Senate Armed Services Committee Chairmen, urging the Chairmen to add language to the pending defense authorization bill that would state Congress’ strong opposition to the Defense Office of Acquisition, Technology and Logistics legislative proposal. “With the Pentagon building on average only six ships per year for the past eight years, our six remaining shipyards are operating well below their production capability.  Allowing naval support vessels to be built overseas would likely result in additional shipyard closures. I believe a further erosion of our shipbuilding industrial base is a clear threat to our national security,” Representative Hunter wrote.

The Pentagon proposal could have resulted in hundreds of military ships being built in foreign shipyards and forced even greater constriction in the U.S. national defense shipbuilding industrial base.  Cynthia Brown, President of ASA, declared, “If our government proposes that we procure naval vessels from foreign sources, two of my yards are going to close at a minimum and others are going to be weakened with a downturn in production.” Ms. Brown added, “In times of contraction, you can’t afford for any ship to be built offshore if we’re going to have the industrial base needed for our Navy and national security.”  The once stout network of 21 shipbuilders has been reduced to six, as the orders for U.S. Navy ships have declined from 19 annually in the 1980’s to six today. 

Joining the criticism of the proposed legislation Ande Abbott, Legislative Director of the International Brotherhood of Boilermakers, representing 22,000 shipyard and shipyard-related workers, stated, “We hate it. I asked the Pentagon, ‘Whose government do they really work for?’” Mr. Abbott continued, “I understand the Pentagon getting the lowest cost, but they just haven’t found any American jobs they aren’t willing to send overseas, and we just detest this.”

A DOD Office of Acquisition, Technology and Logistics official stated in meetings with defense industry representatives that this proposed legislation was necessary to give manufacturers of foreign governments greater access to the U.S. military market, in the hopes that these foreign governments would in turn buy more U.S. manufactured defense systems. This rationale is completely misplaced when it comes to the construction of ships. Most foreign nations that have a shipbuilding industry also have policies requiring ships to be manufactured domestically.  Therefore, opening the U.S. defense market to foreign-built ships would do nothing to increase our ability to sell U.S.-built naval ships to foreign governments.

The same defense official noted that this legislation would satisfy the “offset” polices of foreign governments.  These foreign offset polices require that as much as 150 percent of the value of a U.S. product purchased by a foreign government must in turn be bought by the United States in products produced in their country.  This means for every dollar generated in the U.S. through the purchase of a U.S. product by a foreign government, the U.S. government must spend $1.50 overseas. Not a wise investment of the U.S. taxpayer’s money.

Admiral Warns On Navy Budget

Vice Admiral John Nathman recently addressed approximately 1,000 Sailors, Marines, and civilians at a command ceremony in San Diego, CA, and took the opportunity to warn that the Navy’s budget is so low that it may become impossible to fulfill all its military missions.  The admiral noted that while the United States demands global stability, “There is a fundamental disconnect between the value we provide and the willingness of the richest nation on Earth to pay its demands. It is obvious – the naval service is undervalued.”   The admiral added, “To me, the fact is that we have reached such a low level of funding it will soon be impossible to meet the expectations of the nation in executing our operational task and completing the mission.”

$50 Million Appropriation Needed for Title XI Shipbuilding
Loan Guarantee Program

The Title XI Shipbuilding Loan Guarantee program, administered by the Maritime Administration (MARAD), was revived and amended in FY93 to stimulate commercial ship construction in the United States and to maintain the defense shipbuilding industrial base.  Under the Credit Reform Act of 1990, MARAD must secure an annual appropriation to cover the risk factor associated with the program in the event a default ever occurred.  This appropriated guarantee fund has sunk to $10.7 million as of September 29, 2000, and this amount can only guarantee $200 million in ship construction.  Currently, MARAD has $4 billion in shipbuilding projects awaiting action, with several new projects expected to be filed imminently.  Failure to provide a $50 million appropriation in FY2001 will shut down commercial ship construction in U.S. shipyards, and further weaken an already fragile shipbuilding industrial base. 

The Title XI program depends on year-to-year carryover to address the multiyear and long lead-time nature of commercial shipbuilding and financing.  In three of the last five years MARAD has guaranteed more than $55 million for Title XI loan guarantees.  In FY1996 the agency obligated $75 million, in FY1999 $56 million, and in FY2000 $58 million.  The growth of commercial shipbuilding in the past decade has been stimulated by the reliability of Title XI financing – from FY1993 through FY1996 the average appropriation was roughly $50 million.  However, the 80% drop in the appropriation level over the last two years has caused a precipitous decline in available funds. 

As of press time, the Senate Commerce, Justice, State appropriation bill currently proposes $27.8 million for an FY2001 appropriation, and the House bill includes only $10.6 million. An additional $50 million is needed to ensure that Title XI has enough money to operate and sustain U.S. commercial shipbuilding.

Coast Guard Announces Safe Ships Incentive Program

In an effort to reward ships with positive boarding histories and encourage higher safety standards, RADM Robert North, Assistant Coast Guard Commandant for Marine Safety and Environmental Protection, recently unveiled a new incentive program to reward non-U.S. registered commercial ships that call on U.S. Ports if they meet new quality and safety standards, called QUALSHIP21.  The new program would reduce the number of in Port State Control (PSC) examinations and provide streamlined inspection procedures at U.S. ports.  The initiative is part of the Coast Guard’s efforts to eliminate substandard foreign shipping and reward high-quality vessels.  A similar program is being planned for U.S. registered vessels.

Well Said!

“The goal ought to be moving forward toward 400 naval ships vice moving toward 2000.”

General James Jones, Commandant United States Marine Corps