The GAO report also cites analysts’ concerns that Norwegian may not be successful with the U.S. flag operations in Hawai'i and may switch them back to lower-cost foreign flag ships. Such a move could result in the loss of both U.S. jobs and tax revenue.

GAO, the research arm of Congress, said the exemption that allows Norwegian to sail three foreign-built ships flying U.S. flags for interisland cruises in Hawai'i "effectively gives NCL a monopoly on interisland Hawaiian cruises — providing consumers with itineraries that were previously unavailable."

Federal law requires non-U.S. ships to include a foreign stop when cruising among U.S. ports, preventing most cruise lines from basing cruise ships in Hawai'i. But Norwegian was exempted from the requirement under the legislation.

Any potential competitor would need a similar exemption to enter the market, among other obstacles they would need to overcome.

The report arose from a political fight between Sen. Daniel K. Inouye, who promoted the legislation to benefit Hawai'i with cruise industry jobs and Sen. John McCain, an opponent of "pork barrel" projects. McCain requested the GAO report shortly after the NCL exemption was signed into law.

"Cruise line officials and others have raised concerns over the exemption," the report noted.

The legislation allowed the revival of a failed Project America/American Classic Voyages project also pushed by Inouye to boost the U.S. shipbuilding industry and Hawai'i’s cruise industry. According to an earlier federal audit, when American Classic Voyages filed for bankruptcy protection following Sept. 11, 2001, and shut down, it cost taxpayers $330 million.

The NCL legislation allowed the ship hulls and parts from the failed project to be recommissioned and used for a new ship to cruise the Islands.

In response to the GAO report, Norwegian said in a statement today that it shows "Project America is good for American workers and for consumers." The company emphasized that its interisland cruise project will generate 3,000 shipboard jobs and more than $800 million annually in economic activity.

Norwegian said it "is proud to be the only cruise operator willing to embrace a U.S.-flag operation."

"We believe the report confirms that Congress took the opportunity to turn what was an unfortunate situation into a positive and fulfill the intent of the original Project America legislation," said Robert Kritzman, executive vice president and managing director of NCL America.

Addressing concerns about NCL’s ability to operate the Hawai'i interisland cruises profitably and the "uncertain Hawaiian market demand," Kritzman said, "We’ve obviously done a lot of financial analysis on this... We think that we can create some efficiencies."

Inouye’s office issued a statement highlighting the positive aspects of the report.

"I am pleased to see that after thoroughly examining all the facts, the GAO agrees there will be increased competition, new U.S. jobs, and a positive impact on Hawai'i’s economy," the senator said.

"The GAO concludes that these ships will play an important role in providing consumers with a broader choice of how to vacation in our islands, helping to attract new visitors and tourism dollars to Hawai'i," he said.

McCain was not immediately available for comment.