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Is Pro-U.S. Shipbuilding Bill A Local Threat?

Proposed lifting of ceiling for conventions on cruise ships is being studied by Puerto Rico hoteliers

by John Collins

February 3, 2000
Copyright © 2000 CARIBBEAN BUSINESS. All Rights Reserved.

A bill to encourage a greater role by U.S. shipbuilders in the booming cruise industry is being studied carefully by the Puerto Rico hotel industry. Of interest is the provision in it which would lift a ceiling on the tax-deductibility of conventions held on cruise ships, Rick Newman, president of the Puerto Rico Hotel & Tourism Association (PRHTA) told CARIBBEAN BUSINESS.

The All American Cruise Act, HR3392, was introduced into the U.S. House of Representatives in November and is being reintroduced in the new session which has just commenced. There is a similar version in the U.S. Senate. Both have strong bipartisan support from the Louisiana delegations because of the importance of shildbuilding there.

Most of the provisions in the bills are intended to encourage more participation in the cruise trade by U.S. shipbuilders but in the fine print is a proposed modification to repeal the $2,500 business tax-deduction limit for a convention on a cruise ship, putting such gatherings on a par with the tax status of landside conventions.

"We are studying this bill and that specific provision carefully," said Newman. "Conventions are a very important and growing aspect of tourism in Puerto Rico. We have or are building several big hotels with bigger meeting facilities. We're also embarking on a new convention center which will open up our marketing efforts. We're looking forward to a lot of new [convention] business."

While he is supportive of the bills' provisions to expand the role of U.S. shipbuilders, Newman said "it can't be accomplished at the expense of placing landbased tourism and hotels and resorts at a disadvantage with the cruise industry. The cruise lines are floating tax exemptions utilizing foreign ships, foreign flags and foreign crews. They skirt many U.S. laws and regulations governing labor and the environment. We comply with all of them and that places us at a competitive disadvantage because the playing field is not level."

The prime sponsor of the measure in the U.S. Senate is Sen. John Breaux, D-LA, and in the House, Rep. Duncan Hunter, R-CA.

"The intent of this provision is to level the playing field for the seven U.S. cruise ships it is hoped will develop as the result of other incentives included in this bill," Michael Harrison, a spokesman for Hunter told CARIBBEAN BUSINESS from Washington. "It would not apply to foreign cruise lines." The bill presently has four other House sponsors.

Special interest legislation?

"The problem with this type of legislation, to help one sector by providing relief to one situation, sometimes creates unintended negative results in another area," said a Washington attorney who tracks maritime legislation. "The cruise industry has tremendous clout and influence in Congress. It's hard to imagine how long they and their friends would settle for this kind of special interest legislation before challenging it. On the other hand, the foreign cruise operators have come under much closer scrutiny recently in both the Senate and House."

Another provision would allow U.S. shipyards to defer taxes on construction or overhaul of a cruise ship until after delivery provided the contract is at least 12 months in duration. Another would provide parity for U.S. cruise ship operators with their foreign competitors by eliminating corporate income taxes for domestic firms operating cruise ships from U.S. ports.

Industry sources point out that the overwhelming majority of cruise ships sailing out of U.S. ports are foreign operated but they indicate that a few domestic companies operate in Florida and the Hawaii trade.

Another provision would allow U.S. cruise operators to depreciate their vessels over a five-year, rather than the existing 10-year, depreciation period. Another would provide a 20% tax credit for fuel operating costs associated with U.S.-manufactured, clean-burning engines.

The bill would also allow a foreign-built ship to be brought into the U.S. trades provided the owner or buyer had first entered into a binding contract to build at least two cruise ships of equal or greater size at a domestic shipyard, for delivery within four and five years, respectively.

A number of Washington insiders who follow shipping legislation indicate the measure will garner strong bipartisan support from shipbuilding states like Louisiana, Mississippi and Virginia. But they also point out that, while the foreign cruise operators have powerful friends in Congress, they have opponents as well, led by no less that Presidential candidate Sen. John McCain, R-AZ, chair of the Science & Transportation Committee. He has been outspoken in his criticism of abuses of environmental and labor standards by cruise lines. Traditionally, shipping legislation has tough going in Congress, particularly in a general election year.

This Caribbean Business article appears courtesy of Casiano Communications.
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