The James River fleet currently has about 55 obsolete ships. Vaughan's group is also offering to dismantle 77 ships in reserve fleets in Texas and California.

It's far from a done deal.

Environmental Recycling Systems must compete with other shipyards vying for the recycling work. And the foreign deal needs approval from the Environmental Protection Agency, which would have to waive federal laws that forbid exporting hazardous waste.

Past efforts to scrap American ships in foreign yards have met serious challenges. Environmental groups sued when the Maritime Administration tried to scrap 13 ships at the Able UK yard in England. A federal judge dismissed the case on a technicality earlier this year.

But this latest proposal may be the most enticing offer yet for the money-strapped Maritime Administration, which has been struggling to rid three national fleets of languishing, environmentally hazardous ships by a September 2006 deadline set by Congress.

The agency scrapped only 15 ships last year, according to Congress. Based on past domestic contracts, the $21 million Congress is proposing to allot for ship disposal next year isn't enough to pay for scrapping the remaining 132 obsolete ships in the United States.

Environmental Recycling Systems is offering to dismantle the ships in the Texas and California fleets for free, and charge only preparation, pre-cleaning and towing costs for the James River fleet ships, Vaughan said.

The Turkey-Mexico proposal has been in the bidding process for about two years.

More details became public this week when a maritime lawyer in James City County agreed to hold off on a lawsuit he filed against the Maritime Administration and the Environmental Protection Agency in 2003. Morton Clark, who lives on the James River in Kingsmill, wanted a federal judge to order removal of the James River ships, which he described as an environmental threat.

The ships contain fuel, asbestos, mercury, lead and polychlorinated biphenyls, or PCBs.

Clark, who filed the case on behalf of his wife, said he agreed to defer the lawsuit until September 2006, with the hope that Environmental Recycling Systems or another bidder will win a contract and get rid of all the ships.

An EPA spokeswoman said that the agreement has been reached in principle, but not all the parties have had a chance to sign the settlement. A Maritime Administration spokeswoman did not respond to requests for information.

In the settlement, EPA agreed to process, "without unreasonable delay," the Maritime Administration's request for a waiver to the Toxic Substances Control Act, which bans the export of solid PCBs.

The administration is seeking the waiver to move ahead with sending the remaining nine James River ships that are part of the Able UK deal to England. The Maritime Administration, known as Marad, also agrees, "without unreasonable delay," to award contracts for removing the remaining reserve fleet ships and to apply for more EPA waivers as needed.

The agreement does not require Marad to award a contract to Environmental Recycling Systems, but Clark said the proposal is probably better than anything domestic shipyards can offer.

"U.S. yards don't have the capacity to handle this many ships," Clark said. "And the charge per ship is such that neither Marad or the EPA can afford it."

The Basel Action Network, the Seattle-based environmental group that sued Marad over the Able UK deal, opposes any proposal to send hazardous waste overseas despite next year's deadline for removing the obsolete ships, said Richard Gutierrez, toxics policy analyst with the network.

"The U.S. has sufficient capacity to deal with its own waste," Guiterrez said. "If Marad doesn't meet the deadline, it is not due to lack of capacity. It's Marad's inability to mobilize the resources domestically. They don't need to outsource jobs. They don't need to outsource pollution."

But Vaughan said Marad and the EPA are doing their best to remove the ships.

"It's a slow process, but I believe they're doing everything within their power to execute the contracts as soon as they can," he said.

Environmental Recycling Systems is a shipyard near the Aegean Sea in Aliaga, Turkey, and has a coalition of 29 additional yards interested in taking American ships. Dismantling ships in developing countries is cheaper because of lower labor costs and high demand for the ships' metal, boilers and generators, said Vaughan, a retired Navy rear admiral.

Vaughan would not disclose the exact locations of the Mexican shipyards in the proposal, other than saying they were on the country's east and west coasts.

Vaughan said that shipyards in Turkey and Mexico should not be compared to those in India and Bangladesh, where concerns about deplorable work and environmental conditions in the 1990s caused a global outcry.

Shipyard workers for Environmental Recycling Systems wear protective clothing, including steel-tipped shoes and hardhats, and hazardous materials will be handled according to EPA standards, Vaughan said.

"We want to abide by the highest standards," he said.