American Flagship Project Challenges Obama Administration

American Flagship Project Challenges Obama Administration’s Decision to Block America’s Entry into the $40 Billion, Foreign-Dominated Cruise Industry

Anti-American policy blocks thousands of new jobs and billions in tax revenues. 

The Obama Administration has announced a policy prohibiting the use of its Title XI ship financing program for American-flag cruise ships. World City America Inc., the parent organization of the American Flagship Project (www.americanflagship.com), has devoted more than fifteen years and invested $60 million in an effort to claim for the American economy and American jobs a share of the U.S.-driven but foreign-dominated cruise industry.

In May of 2012, the company was told by the U.S. Maritime Administration (MARAD) that the agency had adopted a policy of prohibiting the financing of overnight passenger vessels (i.e., cruise ships).

In an Open Letter to President Obama, dated August 28, 2012 to coincide with the opening of the Republican National Convention, World City President Stephanie Gallagher challenged Obama to explain the Administration’s position that effectively excludes American shipowners from competing in a huge industry that is almost entirely supported by U.S. passengers and U.S. dollar revenues.

“The whole purpose of Title XI is to make it possible for American shipowners to obtain long-term financing on terms and conditions and at interest rates comparable to those available to large corporations,” Ms. Gallagher stated in her letter, citing 60 Fed. Reg. 20592. “And the whole purpose of that, of course, is to support job creation, not only in shipbuilding and supply but in operating ships under the American flag.”

“The only sector of the international shipping industry that is doing well and has consistently done well year after year after year, Mr. President, is the cruise sector,” Ms. Gallagher wrote. “Why would you want to exclude Americans from that activity?”

“Except for small coastwise vessels and riverboats,” World City’s letter continued, “none of the 200+ ocean-going cruise ships operating in the North American cruise market were built here; none hire American officers or crew, and none pay U.S. income tax on their multibillion-dollar annual profits – unlike every other U.S. hospitality organization.”

With its Open Letter to President Obama, World City forwarded a copy of Devils on the Deep Blue Sea by Kristoffer A. Garin and quoted the following from it:

Carnival and Royal Caribbean, which together account for more than 85% of the North American cruise industry, have achieved something truly remarkable. As public companies headquartered in the United States, traded on the New York Stock Exchange, earning a vast majority of their revenue from U.S. citizens making round-trip voyages originating in U.S. ports, they have managed to maintain, for tax purposes, the status of foreign corporations engaged in the international transportation of people and goods…

In response to claims that they are effectively being subsidized by the U.S. government, industry spokespeople point to the economic contributions they make in their “homeports,” the cities where they embark and disembark passengers. Billions of dollars annually, they say… (p.204)

In 1999, it (the foreign-flag cruise industry) paid $66 million in port fees. But no federal taxes. Critics find this argument “absurd” … any other American corporation could make the same arguments they’re making, which is to say, ‘Well, gee, because we buy food from caterers, we buy advertising, we buy this, we buy that, we shouldn’t have to pay taxes… (p.205)

Garin’s book points out that “this profoundly American industry” is in fact not American at all. It also is “not transportation.” In fact, according to Garin, “the story of the modern cruise industry has as much as anything been that of its steady and prosperous retreat from the transportation industry.” It competes directly with U.S. hotels and resorts, which are required to hire Americans and pay income taxes on their U.S. operations.

Both Sides Are to Blame

World City doesn’t blame the Obama Administration for this predicament. “For decades, both sides of the aisle have been major recipients of the foreign-flag lobby largesse and, for the most part, have closed their eyes to this unfair situation,” Ms. Gallagher claims.

“But we do blame the Obama Administration for throwing down the gauntlet…for precluding America’s long-delayed entry into this booming, U.S.-driven market; for shutting the door on what we have proven is possible and viable if the government applied the Title XI regulations as intended – not as a subsidy for special interests, but as a job-creating, economy-boosting and tax revenue-generating program and policy.”

“Why, Mr. Obama, would you choose this, of all times, to lock out American shipbuilders, hotel construction companies, hundreds of U.S. suppliers in all fifty states, and thousands of long-term self-sustaining new jobs for our dwindling Merchant Marine and U.S. hospitality workers?”

“Why,” the letter continues, “when there are twenty-three million Americans out of work, would you decide to announce a policy that America and Americans can’t participate in this booming U.S.-driven market that has grown steadily at 7% or more every year, recession or no recession, for decades?” 

“I’ll tell you why,” World City asserts. “Politics and special interests. The rich, non-taxpaying foreign-flag cruise industry does not want an American entrant into this market because it will focus the spotlight on the reality that these hospitality companies are operating unfairly in competition with American hotels, resorts and entertainment facilities. Period. And they especially don’t want the American Flagship Project to happen because it promises to build the largest, safest and greenest passenger ship in the world, to fly the Stars & Stripes, to hire Americans, and to pay taxes like every other U.S. hospitality organization. That’s why.”

World City’s Open Letter to President Obama ended with a request that the Administration “not only reverse this shocking anti-American policy but instruct MARAD/DOT to reinstate World City’s fully-reviewed, economically sound Title XI application that was terminated without cause and theoretically ‘without prejudice’ after the disgraceful American Classic Voyages Title XI fiasco, which was MARAD’s own doing and which cost American taxpayers over $500 million.”

“The current Administration,” World City asserts, “apparently wants to throw the baby out with the bathwater and would prefer to use limited Title XI resources to enable large corporations to refinance ships that are already built and which will not create any new jobs, either in shipbuilding or on the ships. This approach defies the statutorily mandated purpose of Title XI and would be a double whammy for entrepreneurial start-ups like World City America Inc.”

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World City America Inc. was formed to design, build and operate a new class of passenger vessel that could be constructed competitively in the United States and compete successfully in the foreign-dominated cruise sector under a US-flag operation. More information about the American Flagship project can be found on its website: www.americanflagship.com