imports from the Virgin Islands under the cabotage 
provisions of the Jones Act. Originally excluded from 
the Jones Act in order to aid the island economy 
by keeping prices down on essential items imported 
from the mainland, the Virgin Islands in recent years 
has become a major Caribbean refining center. Be- 
cause of the Jones Act exclusion, oil products refined 
in the Virgin Islands may be conveyed to the US. 
East Coast in foreign flag vessels providing Virgin 
Islands refiners with a competitive advantage over 
Gulf Coast and Puerto Rican refiners who must use 
higher cost U.S. vessels to carry their products to 
market. If legislation is enacted extending Jones Act 
requirements to the Virgin Islands, an immediate de- 
mand for an estimated 750,000 deadweight tons of 
nonsubsidized U.S. tanker capacity would be imposed. 
Pressures to extend the Jones Act to the Virgin 
Islands oil trade could increase substantially if ship- 
ments of surplus Alaska oil are allowed to be made 
aboard foreign-flag tankers when processed through 
Virgin Islands refining facilities. The Treasury De- 
partment (which is responsible for administering the 
Jones Act) has ruled that such shipments are not 
subject to cabotage under current law. 
It is interesting to note that an incentive, which 
will assume greater importance in the years ahead, 
for using U.S. ships in the Virgin Islands oil trade 
already exists under the oil import fee program. Es- 
sentially, this provision allows importers bringing oil 
products in from the Virgin Islands to reduce their 
import fee obligations if a U.S.-flag vessel is used. To 
date, this provision has had little effect because most 
of the oil now imported from the Virgin Islands is 
imported without fee. The amount of oil subject to 
fee is expected to increase rapidly in the next few 
years, however, making this U.S.-flag fee incentive 
far more important. 
The effectiveness of the fee incentive in encourag- 
ing the use of U.S. ships will, of course, depend on 
the relationship between the U.S.-flag fee saving and 
the transportation saving available by using a foreign 
vessel. Furthermore, the applicability of the fee pro- 
gram to the Alaska oil processing scheme is cur- 
rently unclear. Extension of the Jones Act to the 
Virgin Islands oil trade would presumably eliminate 
the fee incentive program altogether and simply re- 
quire exclusive carriage by U.S. vessels. 
The need to expand the U.S. dry bulk fleet can be 
expected to be another major area of concern for the 
foreseeable future. Today the United States has an 
annual dry bulk trade (including both imports and 
exports) of about 275 million tons, and it has been 
estimated that under wartime circumstances a mini- 
mum of 50 million tons of imported dry bulk mate- 
rials would be required annually from outside North 
America to keep the American economy in opera- 
tion. Because U.S.-flag dry bulk trade participation 
currently stands at less than 2 percent, many have 
identified this component of U.S. sealift capacity as 
the segment in greatest need of attention. 
In response to this concern, the Maritime Ad- 
ministration is assessing a variety of administrative 
and legislative initiatives to encourage the develop- 
ment and maintenance of an expanded U.S. dry bulk 
capacity. The types of initiatives that have been 
considered in this area include: 
e Revision of certain regulations governing the oper- 
ating-differential subsidy program to assure that 
U.S. dry bulk vessels which are operated under 
ODS contract achieve full U.S./foreign cost parity. 
e Provision of greater trading flexibility through an 
expanded allowance of foreign-to-foreign trading. 
e Development of prototype and standard design 
vessels that would be given preference over non- 
standard designs in terms of Federal aid. 
e Elimination of the ship replacement obligations 
for bulk operators who enter operating subsidy 
contracts with new vessels. 
e Amendment of Section 804 of the Merchant Mar- 
ine Act to allow owners of subsidized U.S. dry 
bulk vessels also to operate bulk carriers under 
foreign flag providing safeguards are incorporated 
to prevent the diversion of subsidy to support the 
foreign operation. 
e Liberalization of the Capital Construction Fund 
provisions of the Merchant Marine Act to allow 
American owners of foreign flag dry bulk shipping 
to deposit earnings from foreign operations into a 
tax-deferral CCF for the purpose of accumulating 
funds for building new dry bulk vessels in the 
United States. 
These and related considerations pertaining to the 
special problems associated with expansion of the 
dry bulk fleet are likely to remain important issues in 
the future both in administering existing programs 
and in considering possible new legislative initiatives. 
Liquefied natural gas (LNG) carriers are fast be- 
coming a major factor in the outlook for U.S. ship- 
ping and shipbuilding. This reflects the growing 
importance of LNG as an energy source and the 
prominent position attained by the U.S. shipbuilding 
industry in the development and construction of 
LNG vessels. Currently, the world LNG fleet con- 
sists of 37 vessels with an aggregrate capacity of 
more than 3 million cubic meters. An additional 34 
ships, totaling about 4 million cubic meters, are now 
under construction or on order around the world, 
and half of this additional capacity is on order from 
U.S. yards. 
At the present time, eight U.S. liquefied natural gas 
carriers are being built with construction subsidy and 
-Title XI mortgage guarantees to bring foreign LNG 
to the United States. (One additional vessel intended 
for the U.S. foreign trade has already been delivered.) 
Seven LNG ships destined for foreign-to-foreign serv- 
ice are also on order from U.S. yards with Title XI 
V—46 
