U.S. Shipbuilders Fighting Back : Cruises: New bill is aimed at helping American shipyards compete with subsidized foreign yards. But critics warn the result could be higher ticket prices.

By JACK ADLER

May 31, 1992 12 AM PT

Despite the opposition of cruise lines, a controversial new bill recently passed the House of Representatives that, if enacted by the full Congress, critics say could increase cruise prices and reduce the number of sailings from U.S. ports.

The bill--the Shipbuilders Trade Reform Act, sponsored by Rep. Sam Gibbons (D-Fla.)--is supposed to remove the competitive advantage that shipbuilders say foreign shipyards have over U.S. shipyards because many are subsidized by their respective governments.

The subsidies, so the argument goes, allow foreign shipyards to offer more attractive terms to cruise lines looking to build new ships or repair ones already in service. France, Italy, Germany and Norway are among the countries that currently subsidize their shipyards.

Aimed at creating more of a level playing field for U.S. shipbuilders, the bill would require owners of cruise ships built or repaired at subsidized foreign shipyards to repay this subsidy, either to their own government or to the U.S. Treasury--if they want their ships to call at U.S. ports.

“Virtually every foreign country subsidizes its shipyards in some fashion,” said John Stocker, president of the Arlington, Va.-based Shipbuilders Council of America. “But we’ll be back in the cruise ship construction market if the bill is passed. We don’t see any (negative consumer) impact until after 1995, if not even later. This is not an immediate problem for the consumer. The bill doesn’t affect any ship sailing or currently under construction.”

The bill, which was passed earlier this month by the House on a 339-78 vote, is opposed by members of the cruise industry, who point out that no major cruise ship has been built in the United States for decades, anyway. All of the big liners now cruising--both foreign- and U.S.-owned--were built in foreign shipyards, they say. Some were constructed with the help of subsidies, though not all.

If the bill becomes law and cruise companies choosing to build their ships in foreign shipyards were required to repay a subsidy, the likely scenario is that the consumer would wind up paying higher ticket prices for cruises, according to cruise industry officials.

It’s also quite possible, opponents contend, that cruise lines might simply base their ships at Canadian and Caribbean ports and skip calls at U.S. ports. If so, some industry observers have speculated that air fares for flights to reach the affected cities could be raised.

American passengers compose roughly 80% of the entire cruise market, according to John Estes, president of the Washington, D.C.-based International Council of Cruise Lines.

“Subsidies to American shipyards were unilaterally terminated in 1981, which led to the virtual collapse of commercial shipbuilding in the U.S.,” wrote Gibbons in a letter sent to other members of the House. “After termination of the U.S. subsidy program, commercial shipbuilding in this country ceased for all intents and purposes, resulting in the loss of 120,000 shipyard and supplier jobs.

“If action is not taken soon to eliminate foreign subsidies, which preclude American yards from effectively competing for commercial orders, this country could lose another 180,000 shipyard and supplier jobs by 1998 as we pare back the defense budget and reduce the construction of naval ships.”

In its original form, the Shipbuilders Trade Reform Act, which was introduced in the House last year, required cruise lines to pay a subsidy on ships built or repaired after Oct. 16, 1991. An amendment, however, now specifies that only ships constructed or repaired after passage of the bill would be subject to its provisions. The bill would exempt those ships built in a country that signs a trade agreement with the United States to eliminate shipyard subsidies.

The cruise industry contends that the issue of subsidies should be negotiated by the governments involved, not forced by legislation.

“If this bill passes, it could force the price of passenger tickets to skyrocket and restrict the availability of attractive new state-of-the-art cruise ships in the U.S. market,” said Estes. “There hasn’t been one cruise ship built in the U.S. since the 1950s, so how are jobs being taken away? We have no quarrel with getting rid of shipyard subsidies; it’s a question of how it’s done. The U.S. shipbuilders are simply trying to be bailed out at the cost of cruise lines and their passengers.”

Estes said that the subsidy to European shipyards is currently 9% of the sale contract price. “If a new ship costs $300 million to build, the subsidy would amount to $27 million. The cruise line would have to repay this amount . . . if it wanted this ship to call at U.S. ports. You can be sure that cruise prices will go up to cover this $27 million.”

To avoid paying a costly subsidy, it’s more likely that cruise lines would devise itineraries completely outside the United States, Estes believes. “The cruise market doesn’t require that passengers board at American ports, though this may be the most convenient way for many people. One cruise line has already said it might base a ship in Cuba.”

Moreover, Estes charged that American shipyards lack the infrastructure to effectively compete with European shipyards. “These are large ships requiring special equipment and craftsmen, and our shipyards aren’t ready for this type of huge operation,” he said.

Should cruise lines relocate operations to non-American ports, there would be a serious loss of port-related jobs in such West Coast ports as Los Angeles, San Francisco, San Diego and Seattle, Estes added. Such other areas as Miami, Ft. Lauderdale and New Orleans would also be adversely affected.

“If Congress passes this bill, it will mean that newly built ships will sail from the Bahamas and other points instead of American ports,” predicted Ada Brown, head of the Southern California chapter of the American Society of Travel Agents.

Gibbons, the bill’s sponsor, stressed to House colleagues that the bill won’t apply to shipyards in countries that enter into trade agreements with the United States to eliminate shipyard subsidies. The United States has been trying to negotiate such agreements without much success.

“While it is true that eliminating or offsetting foreign subsidies could increase the future price of a ship for shipowners or operators,” Gibbons said, “this must be balanced against the need to provide U.S. shipyards a fair chance to compete in the international marketplace.”

Added Stocker, of the Shipbuilders Council of America: “We want to stop countries from distorting the market by subsidizing their shipyards. Our American shipyards need a level playing field, especially when they’re trying to make a transition to commercial shipbuilding due to the cutbacks in defense spending. The price of a cruise ship should be determined by market conditions and not how much money a foreign government will throw into the hopper to allow its shipyard to offer a low-ball price.”