House Hearing Outlines Need to Resolve Interagency Disputes for Enforcing Cargo Preference

House Hearing Outlines Need to Resolve Interagency Disputes for Enforcing Cargo Preference

September 15, 2022  | Philip Plotch

On September 12, the U.S. Government Accountability Office (GAO) publicly issued a report critiquing the U.S. Maritime Administration’s monitoring and enforcement of “cargo preference.” Two days later, the U.S. House of Representatives Coast Guard and Maritime Transportation Subcommittee held a hearing to discuss those same problems.

Federal cargo preference laws (the goals of which have not changed since the Eisenhower Administration) require that when cargo owned (or financed by) the federal government is shipped internationally, certain percentages of that cargo must be carried on vessels registered in the U.S. This is intended to support the domestic maritime industry, and ensure it has sufficient vessels and trained mariners to supplement the cargo-carrying capacity of military ships during times of war or national emergency.

Five witnesses testified at the hearing:

  • Rear Admiral Ann C. Phillips, Administrator, U.S. Maritime Administration
  • Andrew Von Ah, Director of Physical Infrastructure, GAO
  • Bryan Clark, Senior Fellow, Hudson Institute
  • Eric Ebeling, President and CEO, American Roll-On Roll-Off Carrier
  • Don Marcus, President, International Organization of Masters, Mates & Pilots

Trying to Develop Regulations Since 2009

In his opening remarks, subcommittee chair, Rep. Salud Carbajal (D-CA), said, “the law has never been adequately enforced” and that “compliance with cargo preference law is closely tied to sustainment of American jobs and national security.”

Both the Maritime Administration and the GAO agreed that federal agencies have had trouble determining compliance and then enforcing actions because the Maritime Administration has not developed regulations concerning enforcement. Since Admiral Phillips has only headed the Maritime Administration since May and was making her first appearance before the Subcommittee, the House members did not blame her for the lack of regulations. Instead, they questioned whether it was even possible to create them under current law.

The Maritime Administration tried to develop regulations on how to implement cargo preference requirements in 2009 but terminated that effort eight years later because it was unable to reach consensus with other federal agencies. Admiral Phillips noted that other agencies (e.g., Agriculture, Defense, and U.S. Agency for International Development) have different interpretations of the law and even debate the meaning within their own agencies.

In answer to a question by Rep. Rick Larsen (D-WA) about the lack of regulations and enforcement, Phillips said, “Cargo preference requirements are quite challenging, they are quite complicated and within them pivotal language is not defined.” She noted that “things have changed over time that make this a complicated situation.” For example, she said that the 1954 Cargo Preference Act pre-dates the types of ships that are currently in existence, such as container ships.

Phillips said that one challenge to enforcing the law is that it applies to persons who willfully and knowingly violate it. She said identifying the appropriate individuals and proving they knowingly violated the law is a high hurdle to overcome.

Andrew Von Ah recommended that the Maritime Administration use “negotiated rulemaking” to create rules and overcome the challenges of achieving consensus. Under the traditional rulemaking process, an agency is not allowed to reveal or discuss any details of its proposal until a notice of proposed rulemaking is published. The negotiated rulemaking process is different – agencies work in collaboration with the regulated parties and other stakeholders.

The ranking member of the subcommittee, Rep. Bob Gibbs (R-OH), asked what actions the Maritime Administration would be taking to find a way through the “rule making thicket” of the inter-agency rulemaking process. Phillips said she is in the process of issuing a Request for Information to stakeholders so that the Maritime Administration can better understand the regulatory issues and then it can begin to move forward into a rulemaking process.

In answer to a question about negotiated rulemaking, Van Oh said it has been used by other agencies including the Federal Aviation Administration and the Environmental Protection Agency. He said it’s a useful tool when parties take extreme viewpoints. “Negotiated rulemaking,” he explained, allows contentious parties “to come around a table with a mediator, work with some difficult issues and come up with some innovative solutions.”

Not Looking to Ease Requirements

In July, eight members of the House Foreign Affairs Committee called for waivers to cargo preference laws to help address a global food crisis exacerbated by the Russian invasion of Ukraine. Half of the food aid that is distributed by U.S. Agency for International Development must be carried on U.S.-flagged vessels according to current law. If shipping costs can be lowered, the House members argued, then more food could be distributed.

But at the September 14 hearing, none of the House members or witnesses suggested easing the law’s requirements. Instead, they discussed the importance of cargo preference and how to strengthen it.

Several members and witnesses referred to the general importance of cargo preference laws for U.S. military and economic independence.  Bryan Clark, a retired naval officer, used the starkest language. He said that China dominates the global shipping industry with more than 4,500 vessels sailing under the Chinese flag (compared to only about 85 international shipping vessels flying the U.S. flag). Today, Clark said, “we are seeing evidence where countries like Russia, like China, are weaponizing their supply chains against their opponents.”

Clark said we could find ourselves the “victim of supply chain warfare being imposed upon us by a country like China.”  Referring to Russia cutting off gas supplies to European countries, he warned, “we need to improve and expand our own U.S. shipping fleet to provide a hedge against the potential of supply chain warfare and the weaponization of shipping against us.” He argued that the cargo preference law is critical because U.S. carriers face higher costs because of stricter safety and labor requirements.

Under current law, the Secretary of Defense can waive the cargo preference requirements if the waiver is deemed critical to national security. Several speakers noted that when the Defense Department does not use American ships, over time it leads to a shrinking fleet and then the need to waive even more cargo preference requirements.

Several times, Phillips was asked if she had any suggestions for new legislation, but she chose not to answer that question, instead the Maritime Administrator said that she would defer to Congress. Rep. John Garamdeni (D-CA) said that he intends to introduce legislation that would strengthen the law and give the Maritime Administration more power to enforce it.

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