1.
THE TRUTH OF THE MATTER
For the Record
The Hawaii Shippers Council has long challenged the Jones Act (The Merchant Marine
Act of 1920 (P.L. 66-261) as the nexus of the high cost of shipping for Hawaii, principally the US-
Build requirement for vessel construction. The Hawaii Shippers Council letter, September 17,
2015, provided in full text below, parallels the US-Build requirement for the Jones Act to raise
the question of whether construction of the new arctic icebreakers for the United States Coast
Guard should be competitively restricted to shipyards in the United States.
First, the Jones Act is not applicable to this case. Please refer to the following discussion
from the Congressional Research Service, Coast Guard Polar Icebreaker Modernization:
Background and Issues for Congress, September 2, 2015.
Second, Tile 10 United States Code Section 7309, Construction of Vessels in Foreign
Shipyards: Prohibition provides for Presidential Waiver for National Security Interest. Please
refer to the discussion from the Congressional Research Service, Coast Guard Polar Icebreaker
Modernization: Background and Issues for Congress, September 2, 2015, below.
Third, Mr. Esko Mustamaki, Arctech, Managing Director of a Finnish shipyard is cited
by the Hawaii Shippers Council as blaming the “Jones Act requirement for domestic ship
construction for denying his and other foreign yards the opportunity to bid on the expansion of
the U.S. icebreaking fleet”. The Agreement Between The Government Of The United States Of
America And The Commission Of The European Communities Regarding The Application Of
Their Competition Laws1 is applicable. Finland is a Member of the European Union. Finland
joined the Organisation for Economic Co-operation and Development (OECD) in 1969, the
European Union in 1995, and the Euro Area in 1999.
Fourth, Has Mr. Mustamaki raised his concerns through Finnish diplomatic channels?
1 Federal Trade Commission. International Competition and Consumer Protection Cooperation
Agreements – Finland. https://www.ftc.gov/policy/international/international-cooperation-
agreements

2.
US Navy, Coast Guard Sinking Under Weight of US Shipbuilders
By Michael Hansen, Hawaii Shippers Council, September 17, 2015
Reuters in a news article, “Sanctioned shipyard hopes for icebreaker zeal in Arctic,” published
September 15, 2015, reported that a Russian-owned shipyard in Finland that specializes in
constructing icebreakers would be barred from bidding on the new six (6) U.S. icebreaker fleet
President Obama called for in Alaska two weeks ago. [Emphasis Supplied]
The managing director of the Finish shipyard, Arctech, blames the Jones Act requirement for
domestic ship construction for denying his and other foreign yards the opportunity to bid on
the expansion of the U.S. icebreaking fleet. Actually that is not true. The Jones Act applies to
vessels transporting cargo by water from one domestic point to another, which icebreakers
don’t do. While none of the other specific cabotage law apply to icebreaking. What actually
prevents foreign shipbuilding yards from bidding on icebreakers for the U.S. Government are
the defense procurement laws that require domestic construction.
Although it is the defense procurement laws that require the federal Government to purchase
vessels from domestic shipyards, the results are the same as for the Jones Act cabotage laws.
The cost of new construction for the U.S. Government is extraordinarily high and delivery times
are extremely long.
The managing director of Arctech said his Finnish yard can build a heavy icebreaker for
approximately U.S. 139 million each with reasonable delivery time of a couple of years.
In contrast, a Congressional Research Service (CRS) report issued in 2012 found that it would
cost approximately U.S. $1.0 billion to build a new heavy icebreaker at a major U.S.
shipbuilding yard with an estimated delivery time of between five and ten years. The CRS
report recommended three heavy and three medium icebreakers and mentioned the U.S.
defense contractor Huntington Ingalls Industries Inc. (HIII) and their Ingalls Shipbuilding yard
in Pascagoula, Mississippi, as a prominent candidate for construction of the proposed
icebreakers.
A subsequent CRS report issued in September 2, 2015 cited a U.S. Navy Institute report noting
the U.S. Coast Guard (USCG) is consulting with experienced Canadian and Finish shipyards on
future icebreaking technology and "Some observers believe the procurement cost of polar
icebreakers could be reduced, perhaps substantially, by building the ships in a foreign shipyard,
such as a yard in one of the Nordic countries that is experienced in building icebreakers."
That is Arctech could construct in its Finish yard the proposed six (6) U.S. heavy icebreaker fleet
for about the some cost of a single U.S. built icebreaker.
This demonstrates the problem the U.S. Department of defense has attempting to maintain an
adequate naval fleet with the extraordinarily high cost U.S. shipbuilding industry.

3.
The inflated cost of each ship consumes the U.S. Navy’s new construction budget and makes it
impossible to build a sufficient number of ships adequate for national defense.
Key excerpts quote:
On a sunny day on the Helsinki seafront, sparks fly from steel welding at the bustling
Arctech shipyard, which seems insulated from Finland's economic recession as it strives to
meet an order book that stretches into 2017.
The world's biggest manufacturer of icebreakers, or ships that can navigate ice-covered
waters, Arctech is poised to benefit from an expected flurry of activity in the Arctic, which is
being reinforced by U.S. President Barack Obama's Arctic push.
"We are getting inquiries from several countries who have Arctic regions, or companies from
such countries," said Esko Mustamaki, Arctech's managing director, sitting in his office at the
vast shipyard as workers nearby still wearing helmets cycle off for lunch breaks on the
compound.
The yard is currently building six vessels, four for Russian state-owned shipping company
Sovcomflot and one each for the Russian and Finnish transport ministries. One will be for
Arctic use and Mustamaki expects demand to grow. That should be good for business, but
there is a cloud on the horizon: the yard is now owned by Russia's state-owned United
Shipbuilding Corporation (USC), which was added to a list of U.S. sanctions against Russia
last year in the wake of the conflict in Ukraine.
While Russia has 40 icebreakers and another 11 planned or under construction, the U.S.
Coast Guard has three, only one of which is a heavy duty vessel, the White House has said.
For Arctech, sanctions alone would rule out any business with the U.S. government, putting
potentially some of the industry's most lucrative contracts in the next few years out of reach.
Mustamaki, however, is sanguine, arguing that even without sanctions, his company
probably wouldn't win any U.S. orders because the U.S. Jones Act requires that basically all
American vessels must be built in local shipyards - a law which he says will force the United
States to pay sky high prices for icebreakers. A Congressional research service report has put
the cost of a new U.S. icebreaker at about $1 billion.
"That sounds like quite a lot. We are currently building an icebreaker for the state of Finland
for 123 million euros ($139 million)," said Mustamaki.
Source: Hawaii Free Press http://www.hawaiifreepress.com/ArticlesMain/tabid/56/ID/15944/US-Navy-Coast-Guard-Sinking-Under-Weight-of-US-
shipbuilders.aspx?utm_source=September+20%2C+2015+News+from+Hawaii+Free+Press&utm_campaign=September+20%2C+2015+Email&utm_medium=email

4.
Congressional Research Service : Coast Guard Polar Icebreaker Modernization:
Background and Issues for Congress September 2, 2015
Building Polar Icebreakers in Foreign Shipyards
Some observers believe the procurement cost of polar icebreakers could be reduced, perhaps
substantially, by building the ships in a foreign shipyard, such as a yard in one of the Nordic
countries that is experienced in building icebreakers. Regarding the construction of ships for
U.S. armed forces in foreign shipyards, 10 U.S.C. 7309 states:
§7309. Construction of vessels in foreign shipyards: prohibition
(a) Prohibition. Except as provided in subsection (b), no vessel to be constructed for any
of the armed forces,46 and no major component of the hull or superstructure of any such
vessel, may be constructed in a foreign shipyard.
(b) Presidential Waiver for National Security Interest.
(1) The President may authorize exceptions to the prohibition in subsection (a)
when the President determines that it is in the national security interest of the
United States to do so.
(2) The President shall transmit notice to Congress of any such determination,
and no contract may be made pursuant to the exception authorized until the end
of the 30-day period beginning on the date on which the notice of the
determination is received by Congress. [Emphasis Supplied]
(c) Exception for Inflatable Boats. An inflatable boat or a rigid inflatable boat, as defined
by the Secretary of the Navy, is not a vessel for the purpose of the restriction in
subsection (a). 47
___________________
47 Some observers have suggested that construction of a Coast Guard polar icebreaker is
blocked by the Jones Act. 10 U.S.C. 7309 is not the Jones Act. The Jones Act (46 U.S.C. chapters
81, 121, and 551) requires that cargo transported by water between two U.S. locations be carried
in U.S.-built vessels, owned by, and crewed by U.S. citizens. Repealing the Jones Act would
not repeal 10 U.S.C. 7309. For more on the Jones Act, see CRS Report R42764, Federal Freight
Policy: In Brief, by John Frittelli, and CRS Report RS21566, The Jones Act: An Overview, by
John Frittelli. [Emphasis Supplied]
Source: Congressional Research Service http://fas.org/sgp/crs/weapons/RL34391.pdf
Additional Reference: In the Matter of Application of Foreign Shipyard Construction Prohibitions to Inflatable and
Rigid Hull Inflatable Boats. U.S. GAO B-218497.2 October 22, 1991. http://www.gao.gov/assets/510/502372.pdf