Pride of America ship

Jason · December 16, 2003

Political Savvy Gets U.S. Flags on Foreign Ship

By LESLIE WAYNE

New York Times

For the first time in 50 years, a cruise ship flying the American flag will soon be sailing the seas. There will be no mistaking it for anything but an all-American vessel. It will be named Pride of America. Red and white stripes, blue stars and a huge bald eagle will decorate its hull. Its public rooms will strike a patriotic theme: the Liberty restaurant, the Capitol Atrium, Jefferson's Bistro, the John Adams Coffee Bar.

As an American-flagged vessel in an industry dominated by foreign lines, Pride of America will qualify under United States law for a special privilege: permission to cruise lucrative routes solely between American ports, mainly in the Hawaiian islands, that are off limits to foreign vessels.

But the Pride of America is not what it seems. The ship is actually being built in a German shipyard and is owned by Norwegian Cruise Line, a subsidiary of Star Cruises, which has its headquarters in Hong Kong and is run out of its offices in Malaysia; Star Cruises is in turn a unit of Genting Berhad, a holding company in Kuala Lumpur, Malaysia.

How this vessel and two sister cruise ships owned by the same company came to qualify as American is the story of one foreign company's growing sophistication in the ways of Washington, where American companies usually have the edge.

With platoons of lobbyists, including a former senator from Washington State, and contributions to important members of Congress, Norwegian Cruise persuaded Congress to approve its entry into a protected American market in the fine print of a big appropriations bill passed this year. The company's competitors, long eager for the privileges, are fuming.

The battle over the Pride of America is only the latest in a long tale of pork barrel politics that began with an unsuccessful effort by Congress to kick-start the American shipbuilding industry.

It started four years ago with a $1 billion federal program, called Project America, that was to have revived the American industry building cruise ships, at a shipyard in Pascagoula, Miss. The project was spearheaded by Trent Lott, the Mississippi Republican and, at the time, the Senate majority leader. His father once worked in the shipyard where the Project America ships were to be built.

But after costing the government $180 million, Project America failed. All that was left was the half-finished hull of one cruise liner and pieces of another. The project was over budget; the cruise ship company involved in it, American Classic Voyages, had gone bankrupt; and the government was left trying to sell unfinished goods that no one seemed to want.

No one, that is, except for Norwegian Cruise, which paid $24 million and hauled the half-finished hull that is to become Pride of America and 400 containers of parts for a second ship to a shipyard in Bremerhaven, Germany. The hull is now under final construction, and the ship is expected to sail in time for the Fourth of July 2004.

But the real work was in Washington. Congress had to be persuaded to allow the Pride of America and two other cruise ships to sail under the American flag. The other ships are the Pride of Aloha, a German-built ship that today is the Norwegian Sky but will soon be renamed, and the third ship, which Norwegian Cruise plans to build soon in Bremerhaven from the 400 containers of parts.

As American ships, these three vessels could benefit from a century-old law, the Jones Act, intended to protect the American shipbuilding industry by barring foreign carriers from cruising domestic routes. As a result, while Norwegian Cruise's rivals in the Hawaiian market have to touch base in a foreign port, generally Mexico or Canada, thousands of miles and five sailing days away, the Pride of America, Pride of Aloha and the third ship will be able to island-hop in the fast-growing Hawaiian market without having to put in at a foreign port.

In Congress, Norwegian Cruise's biggest friend was the Hawaiian delegation, drawn by the company's promise that it would create 10,000 jobs in Hawaii on the ships and in the tourist trade. The lure of jobs was so great that Senator Daniel K. Inouye and Representative Neil Abercrombie, both Hawaii Democrats, became Norwegian Cruise's strongest Congressional allies and had a provision allowing the three ships to be designated American inserted into the Omnibus Appropriations Act for 2003.

That provision allows Norwegian Cruise to put American flags on the two unfinished ships once they are completed as well as turning Norwegian Sky into the Pride of Aloha.

The provision was approved last February with little public discussion and no Congressional hearings.

"This caught the entire maritime industry by surprise," said Allen Walker, president of the Shipbuilders Council of America, a trade group based in Washington. "We didn't like it, but we were not able to stop it. We don't think this was done correctly, without debate and virtually late at night. But it was done."

On Capitol Hill, Norwegian Cruise, whose American office is in Miami, was helped by a team of lobbyists, including a former three-term Republican senator from Washington, Slade Gorton. It cost the company $880,000 to lobby for the provision this year, according to federal lobbying records.

In addition, even though foreign companies are barred from making political contributions in the United States, the president of Norwegian Cruise, Colin Veitch, who is an American based in Miami, gave a total of $20,000 to the Democratic Party of Hawaii and to Representative Abercrombie, who led the fight for the company.

Senator Inouye also received $2,000 from Mr. Veitch and $4,000 from Lamar B. Cooler, the company's chief financial officer, also of Miami.

Another example of Norwegian Cruise's activity in the political world came a few weeks ago when the company offered one of its New York-based ships, the Norwegian Dawn, for use by Tom DeLay, the House majority leader, and other Republicans as a floating entertainment center during next year's Republican convention.

Although that offer was withdrawn, it showed that Norwegian Cruise was able to play politics at the highest level.

"We're seeing a lot of foreign companies that are learning to play the political game," said Larry Noble, executive director of the Center for Responsive Politics, a nonprofit group in Washington that collects campaign finance data. "The fact the Republicans pulled out of the deal because of local opposition doesn't reflect badly on N.C.L. N.C.L. was there when the Republicans needed them."

For critics of the cruise ship arrangement the most vocal being Senator John McCain this is just an example of one boondoggle program begetting another. Norwegian Cruise's competitors, too, are left grumbling, as well as having their Hawaiian passengers spend up to 10 days back and forth on open seas.

"This provides an unfair competitive advantage to N.C.L. at the expense of all other cruise ship operators," Mr. McCain, an Arizona Republican, said. "No other company will be allowed to operate foreign-built U.S. flag cruise vessels in the domestic market. It effectively creates a de facto monopoly for this one foreign company."

Stephen Moore, president of Club for Growth, a nonprofit group in Washington that advocates limited government, said: "The government is losing $180 million on a cruise ship that will ultimately be built in Germany and owned by a Malaysian-based Norwegian company. This is hardly a way that American taxpayers would want their dollars to be spent."

This is not the first time the Jones Act has been sidestepped. Nabors Industries, an American oil rig operator, reincorporated in Bermuda to escape United States taxes, but claims to be an American corporation for purposes of the Jones Act to run supply ships from oil platforms in the Gulf of Mexico to the United States.

The Norwegian Cruise arrangement made sense to both the government and the company. The company was able to buy the half-finished hull the ship will ultimately cost about $350 million to complete for pennies on the dollar. And the deal gave Congress a face-saving way to end Project America.

"Our company is committed to establishing a U.S. flag company and hiring thousands of Americans to operate our U.S. flag ships to recoup Project America," said Susan Robison, a spokeswoman for Norwegian Cruise. "This was an attractive proposition for Congress, particularly during an economic slump and a time when many American companies are seeking to expatriate."

Norwegian Cruise also recently bought two aging American-made ships, the Independence and the United States, and plans to use them to develop a niche market of domestic cruises for instance, between New York and Miami or along the California coast.

"We saw Project America as a business opportunity and a way of meeting our goal of building one ship a year and growing our fleet," Ms. Robison said. "So we approached Senator Inouye about it."

To carry the American flag, the Norwegian Cruise ships must hire American crews, pay American wages and taxes, and follow American environmental regulations. The deal also means that Norwegian Cruise's American flag ships will not have to stop at Fanning Island, in the Republic of Kiribati, about 1,000 miles south of Hawaii, as its other ships in the Hawaiian market have been required to do. This port of call was developed by Norwegian Cruise so that its Hawaiian-cruise passengers would not have to sail back to Canada or Mexico.

Norwegian Cruise's competitors are crying foul.

"Other cruise ship companies wanted to have the same opportunity to flag a U.S. ship," said Rose Abello, a spokeswoman for Holland-American Lines. "But the measure was passed, and it was exclusively to N.C.L."

Holland-American has 15-day cruises to the Hawaiian Islands five days around the islands and 10 days on open seas to and from Mexico, Canada, or other foreign ports.

Hawaii's Congressional delegation could not be more delighted about the deal, mainly because of the 10,000 jobs they anticipate for Hawaiian residents on the ships and elsewhere in the tourist trade.

Moreover, in an industry where most cruise ship companies maintain foreign registry so they can hire employees from poor countries and pay them lower wages, Hawaii's Congressional delegation says Norwegian Cruise will have to play by American rules and, unlike other cruise ship companies, pay American taxes.

Representative Abercrombie, who was re-elected on the basis of his staunch support for the Jones Act, said this exemption made sense to him, though he says he still backs the Jones Act as strongly as ever.

"You have to start with the premise of whether we want to have an American cruise ship industry," Mr. Abercrombie said in an interview. "N.C.L. came to us. They said that if they wanted to make that jump into the Hawaiian market as a U.S. ship, they needed an exemption to finish the ships in Europe. I could see where there is money to be made in a genuine interisland cruise."

Jason · December 16, 2003