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Controversial carrier Shipper: Baltimore's port is bullish on Cosco, but others regard the Chinese line as a rogue business and a threat to national security.

THE BALTIMORE SUN

In a port city that many of the world's largest steamship lines have abandoned, the arrival of China Ocean Shipping Co. four years ago was like a transfusion of fresh blood. As other container ships left Baltimore, "Cosco" sailed in. As lines reduced service, Cosco expanded.

"They're definitely one of our top carriers," said Mark Johnson, the Maryland Port Administration's deputy marketing director. "We're very happy they're here.

But not all of America is so bullish on Cosco these days.

Washington policy-makers consider the company a threat to market capitalism and national security. Its rates are restricted, its trade in American ports monitored. The company has been embroiled in national controversies ranging from a crash in New Orleans to gun smuggling in San Francisco. A task force of the U.S. House of Representatives calls Cosco a thinly veiled arm of the Chinese military.

Cosco is far different than any other ocean carrier plying Baltimore harbor and the rest of the world -- it is the state-owned shipping line of the People's Republic of China. And company officials say its Chinese ownership is the sole reason the carrier is treated so differently in the United States. Cosco is today at the center of Sino-American trade disputes involving everything from the soaring American trade deficit to the kinds of bugs shipped with Chinese cargo.

But amid it all, the Beijing-based shipping giant continues to sail the globe, calling in virtually every major port and growing into one of the largest, cheapest and most successful shipping lines in the world. What Washington policy-makers call a threat, port cities like Baltimore call a growing, innovative company that they welcome without hesitation.

"We cannot help feeling discriminated against," Cosco officials said in a statement last month. "The fact that Cosco has operated under accepted business practices has been ignored."

Officials with the Maryland Port Administration aren't ignoring Cosco.

The line was among the first container carriers to connect Asia with the East Coast via the Suez Canal rather than the Panama Canal, a service that gives Baltimore a direct link with the Mediterranean Sea and the Far East.

The company made Baltimore a regular stop on its Atlantic service at the end of October, promising a ship in port every Wednesday and more than 270,000 tons of cargo moving through the Seagirt Marine Terminal each year. The company is reportedly considering a new service between the East Coast and South America.

Baltimore port officials make regular visits to Cosco's American offices near New York. A delegation from Maryland followed the Pride of Baltimore II to Shanghai last April to play host to Cosco officials and encourage them to sign a new contract with the port when their current arrangement expires next year.

With two container ships at Seagirt every week, Cosco brings the Port of Baltimore about 50,000 containers of cargo every year. The time the two ships spend in port amounts to about 1,000 man hours of work each week for longshoremen and other laborers, the Maryland Port Administration estimates.

Besides the container ships, the company's bulk vessels are routine carriers of cargo like paper products and dry bulk through Baltimore. Cosco's is the largest fleet of bulk vessels in the world.

But while Cosco has long been a conspicuous presence in the English-speaking media, the focus rarely has been on its contributions to the nation's economy.

Several years ago it reportedly lent $120 million to the failing Orient Overseas shipping line, run by shipping tycoon C. H. Tung. A committee of Beijing loyalists later elected Tung the first Chinese governor of Hong Kong, prompting cries of cronyism from the city's more democracy-minded officials.

In February 1996, a Cosco ship unloaded 2,000 dismantled AK-47 assault rifles in San Francisco that were allegedly destined for American street gangs. The smugglers were not Cosco employees -- they used a fraudulent American import license and were later jailed by the government in Beijing -- but it took American agents posing as Miami crime figures to unravel the operation.

In December of that year, a Cosco ship sailing the Mississippi River crashed into a Rouse Co. shopping mall in New Orleans, injuring 116 people. The U.S. Coast Guard later determined that the ship's engine had stalled because of inadequate maintenance.

All of those stories became fodder for Cosco's critics in Congress when the company asked last year for permission to build a $200 million cargo terminal at a former U.S. Navy base in Long Beach, Calif. Congress rejected the plan recently after some members argued that the facility would be tantamount to a Chinese naval base on American soil.

"Although presented as a commercial entity, Cosco is actually an arm of the Chinese military establishment," reads a declassified report from the House Task Force on Terrorism and Unconventional Warfare, disseminated by congressmen trying to block the Cosco terminal.

"Cosco provides services to the logistics and transportation arms of the [People's Liberation Army], navy and air force.

"Cosco is also a front for the purchase of assets [real estate, etc.] overseas for use by the Chinese military/intelligence services."

Transportation duties

Chinese President Jiang Zemin ordered a large-scale demobilization of the Chinese military last year, the second in a decade. And during that downsizing, Cosco assumed much of the transportation duties of the PLA fleet, according to the report.

Yet if Cosco is a threat to national security, it is one that is routinely granted passage into nearly every deep-water port in America. Besides Baltimore, the company's container ships call in New York, Houston, Los Angeles, Charleston, S.C., and other cities. Its bulk carriers visit even more ports.

Cosco ships sail weekly into Norfolk, Va., and cruise within a few hundred yards of the Norfolk Naval Base -- home port for five aircraft carriers, more than a dozen nuclear submarines and the bulk of the U.S. Atlantic fleet.

And as for the line's brushes with the law and the Coast Guard, it is hardly unique. The most recent ships detained by the Coast Guard in Baltimore for safety or environmental violations were Portuguese, Greek, Panamanian and Russian.

Ports and other shipping interests treat Cosco as a business like any other. The company formed an alliance last year with the Japanese carrier, Kawasaki-Kisen-Kaisha Line, and the Taiwan-based Yangming Marine Transport that won an award for on-time service from Lloyds of London.

The Federal Maritime Administration guaranteed Cosco a $138 million loan for four container ships it plans to purchase from the Alabama Shipyard in Mobile.

Even as Congress debated whether Cosco was too great a security threat to have its own cargo terminal in Long Beach, officials for the adjacent Port of Los Angeles went to Beijing to persuade the company to move there instead.

"Our charge is to put cargo through our terminals, and Cosco does that. They're no different than any other line," said Johnson of the Maryland Port Administration. "They're a very innovative company and one that we value as a customer."

More than 600 ships

That American port officials are so hungry for Cosco's favor is no mystery. Since its founding in 1961, Cosco has grown into a global fleet of more than 600 ships with a reputation for charging some of the lowest freight rates in the world.

The company files no public financial reports, but a Federal Maritime Commission survey said the company's Cosco Pacific subsidiary had a $75.5 million profit in 1996.

Some American shipping lines say the company is, in fact, too successful -- that its rise in the global shipping trade is a direct result of socialist exploitation of a capitalist market.

Because it is owned by the People's Republic of China, Cosco is what the Federal Maritime Commission refers to as a "controlled carrier." It is generally prohibitted from lowering its rates for U.S. trade without giving 30 days notice, and the FMC can reject those rates if they are not deemed "just and reasonable." The restriction is designed to prevent government-financed businesses like Cosco from reaping unfair advantages on the open market.

But even as Cosco protests its treatment in American waters, the Federal Maritime Commission is investigating whether the Chinese government is imposing unfair trade restrictions on American shipping interests -- a probe that could lead to fines or sanctions against China. The FMC's restrictions, critics argue, have done little to temper Cosco's advantage in American trade.

Foreign corporations seeking to augment their trade with China to meet market fluctuations need approval from Beijing that can take 90 days or more. And many companies are prohibited from establishing branch offices in China. Rather, they often must work through Chinese firms that they argue are simply subsidiaries of Cosco or the government-operated freight handler China National Foreign Trade Transportation Corp., or "Sinotrans."

'Protected environment'

"In this protected environment in China, Cosco and Sinotrans have thrived and grown to be among the largest, most successful shipping and forwarding companies in the world," wrote an attorney for Sea-Land Service Inc., the largest American ocean carrier, in a brief filed with the FMC.

"While Sea-Land faces severe market access and doing-business restrictions in China, Cosco and Sinotrans operate virtually unfettered in the United States."

Sea-Land is trying to build a cargo terminal in the port of Tianjin, and the Federal Maritime Administration agreed to drop China's rate restrictions as part of the deal. But the American company has so far been unable to negotiate an agreement with the Chinese, something industry officials suggest privately is retaliation for Congress' rejection of Cosco.

But Chinese officials grumble about something they see as a retaliation against them: A U.S. Department of Agriculture directive that will take effect Dec. 17 banning shipments from China packed in wooden crates. Chinese wood is arriving in the United States infested with Asian long-horned beetles that are reportedly killing American trees in Chicago and New York, the department maintains.

Estimates of how much Chinese cargo arrives in the United States packaged in untreated wood vary from 20 percent to 50 percent or more. But Chinese trade officials consider the ban "discriminatory and unreasonable," according to an unattributed

report from the government media, because the beetles are also found in Japan and Korea.

Figures disputed

ZTC The two countries have not even been able to agree on the size of the American trade deficit between them -- China says it

exports about $20 billion more than it imports; the U.S. Department of Commerce estimates a figure closer to $50 billion.

But those disputes play out between corporate officials and diplomats, not on the cargo piers of America's shipping ports.

At Baltimore's North Locust Point Marine Terminal on Thursday, a team of U.S. Coast Guard inspectors boarded a ship called the Song Shan, a general cargo freighter owned by Cosco subsidiary Guangzhou Ocean Shipping Co.

The team conducts regular inspections of foreign vessels, giving priority to those that have not had a recent American boarding and those with characteristics that make them a particular risk under federal guidelines. The Song Shan had two qualities that made it a Coast Guard priority: It sails under the Chinese flag of registry, and it is owned by Cosco.

After three hours inspecting the deck, the lifeboats, the crew's quarters, the engine room, the firefighting equipment, the bilge and sewage systems and crew supplies like first aid and food, they declared it safe and well-maintained. The only problems were a lack of insulation on some wiring and the ship's name not adequately painted on the lifeboats.

The firefighting and abandon-ship drills they had the crew perform were among the best they'd seen.

"It's a good ship. Not an outstanding ship, but a good ship," said Chief Warrant Officer Dan Lawrence, a member of the crew. "It's no different than any other ship that comes into port here, really. Maybe a little bit better."

Pub Date: 11/08/98

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