Administration Will Scuttle All Ship Subsidies : Maritime: Move will likely spell an end to America’s ocean-going merchant fleet and 20,000 jobs. Two remaining U.S. carriers may reflag their ships in other countries.

The Clinton Administration has decided to allow all operating subsidies to commercial ship companies to expire as scheduled in 1997, likely spelling an end to America’s small ocean-going merchant fleet and more than 20,000 maritime jobs, possibly including some based in California.

The two major remaining U.S.-flag carriers, Sea-Land and American President Lines, had warned repeatedly that if a maritime subsidy bill was not passed this year, they would reflag their ships under some foreign country, and they indicated that step will come soon. They have said they cannot continue to operate profitably under higher U.S. crew costs, higher U.S. taxes and more stringent Coast Guard rules that they say are costly and outdated.

“We’re in a bit of a state of shock,” said John Lillie, chairman of Oakland-based American President Cos., parent of American President Lines.

Lillie said his company will now develop a plan of action, based on the premise that shipping “cannot be profitable operating under the U.S. flag.”

Faced with Office of Management and Budget objections to spending the money, and no enthusiasm from the Defense Department, the National Economic Council decided to abandon an effort by the Transportation Department to promote legislation that would have extended and increased the subsidies beyond 1997. The council is an interagency White House group that arbitrates issues affecting several Cabinet departments.

To make up for the higher costs of remaining American, the United States has paid subsidies to the maritime industry for years, amounting to $217.6 million in 1991.

But the Reagan Administration began phasing out the subsidies, ending shipbuilding subsidies in 1981. Subsidies for ship operation are due to end when current contracts expire in 1997.

Military and certain “preference” cargoes are required by law to move in U.S.-flag ships, although that would not be possible if there were no U.S-flag ships. The requirement has been waived repeatedly because of a lack of U.S. ship capacity, including during the 1991 Persian Gulf War when the Defense Department chartered many foreign vessels to help move heavy war materiel. APL and Sea-Land handled about 25% of the Gulf War shipments.

While the White House did not announce the decision, Transportation Secretary Federico Pena confirmed it Friday and expressed disappointment in an interview that one of his major initiatives had been rejected.

He said OMB’s objections were the major problem, adding that the one agency that could have given the plan a boost--the Defense Department--could not complete a study of its shipping needs in time.

Maritime industry sources said Sea-Land, a subsidiary of CSX Corp. of Richmond, will announce as early as next week that it is reflagging its fleet. The sources also said that CSX is seriously considering moving Sea-Land’s corporate headquarters to another country.

“We’re considering all our options,” said Thomas Hoppin, a spokesman for CSX.

APL could not reflag its fleet as quickly as Sea-Land because its ships are under U.S. subsidy contracts until Dec. 31, 1997.