[Federal Register Volume 62, Number 89 (Thursday, May 8, 1997)]
[Notices]
[Pages 25195-25197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11998]


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FEDERAL MARITIME COMMISSION

[Docket No. 97-07]


Possible Unfiled Agreement Between Hyundai Merchant Marine 
Company, Ltd., and Mediterranean Shipping Co., S.A.; Order of 
Investigation and Hearing

    On September 6, 1995, Hyundai Merchant Marine Company, Ltd. 
(``Hyundai'') and Mediterranean Shipping Co., S.A. (``MSC'') filed with 
the Federal Maritime Commission (``Commission'' or ``FMC'') FMC 
Agreement No. 217-011512 (``FMC agreement'' or ``filed agreement''), 
under which Hyundai is authorized to charter space on MSC's vessels in 
the trade between U.S. Atlantic and Gulf ports and ports in North 
Europe. At the time this FMC agreement was filed, MSC was a member of 
the Trans-Atlantic Conference Agreement (``TACA''). Hyundai became a 
member of TACA on September 11, 1995.
    As a result of discussions with filing counsel concerning possible 
restrictions on the rights of TACA members to charter space to non-
conference carriers, the staff questioned whether the FMC agreement 
reflected the entire agreement between the parties. There was no 
reference to TACA membership in the FMC agreement, as initially filed. 
In response to the staff's inquiry, on September 29, 1995, the parties 
filed an amendment to the FMC agreement, as follows:

    5.7  In the event either or both of the Parties shall, at any 
time during the period this agreement may remain in effect, adhere 
to any other agreement in the Trade, including the Trans-Atlantic 
Conference Agreement (``TACA'') and/or Transatlantic Policing 
Agreement (``TPA'') and any successor to the TACA and/or TPA, they 
herein undertake to abide by the terms and conditions of any such 
other agreements and, in the particular case of the TACA, the 
provisions of Article 15 thereof.

    The FMC agreement between Hyundai and MSC, as amended, became 
effective, pursuant to section 6 of the Shipping Act of 1984, 46 U.S.C. 
app. 1701, et seq. (``1984 Act'') on October 21, 1995.
    Article 15 of the TACA agreement is entitled ``Adherence to 
Tariffs, Service Contracts and Authorized Practices; Conflicts of 
Interest.'' Article 15.3 thereof reads, in part:

    All Parties shall strictly abide by and observe Agreement rules, 
regulations and authorized practices and no Party shall engage, 
directly or indirectly, through any holding, parent, subsidiary, 
associated or affiliated company or companies (``Related 
Companies'') or otherwise, in the transportation of cargo in the 
Trade at rates or on terms and conditions other than those agreed 
upon or otherwise authorized pursuant to the provisions of this 
Agreement * * *.

    On the basis of concerns that this language may preclude TACA 
members from chartering space on their vessels to non-conference lines, 
the Commission issued an order pursuant to section 15 of the 1984 Act 
on February 22, 1996, requiring information and documents related to 
this issue.\1\
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    \1\ This section 15 order was addressed to TACA and its 
seventeen member lines. Responses were submitted in May 1996, and 
required informal follow-up with the conference and its members 
which was completed in December 1996.
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    In response to that order, Hyundai and MSC produced a number of 
documents, including a slot charter agreement between Hyundai and MSC, 
dated August 4, 1995, and referred to by the parties as a memorandum of 
agreement (``MOA''). In addition, Hyundai and MSC produced copies of 
correspondence between negotiators for the two carriers, indicating 
that the terms of the MOA were the focus of extensive negotiations, 
while the first draft of the FMC agreement was agreed to without change 
or substantive discussion. Moreover, the negotiator for MSC informed 
his counterpart at Hyundai that, where there were discrepancies between 
the two documents, the terms of the MOA would supersede those of the 
filed agreement.
    The MOA is a detailed document with four appendices,\2\ while the 
FMC agreement is written in general terms and does not contain any 
appendices or certain other specifics set forth in the MOA.\3\ In 
addition to this difference in the level of detail, there are at least 
three differences of a more substantive nature between the filed 
agreement and the MOA.
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    \2\ These appendices are: 1. Containerships/capacity/schedules; 
2. Financial arrangements; 3. Slot Charter Party; and 4. 
Restrictions in respect of dangerous goods.
    \3\ E.g., compensation for unavailable slots; carriage of empty 
containers; intercoastal moves; utilization reports; costs of 
vessels out of service; etc.
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    First, the MOA makes several references, on the title page and in 
the preamble, to the relationship between this slot charter and TACA. 
The title page of the MOA states that the slot charter agreement is 
``Under the Trans Atlantic Conference Agreement.'' The preamble states:

    This agreement is adopted pursuant to the Conference 
Agreement.\4\ In furtherance of the Conference agreement, the 
parties have met and communicated among themselves for the purpose 
of effecting the purposes and provisions of the Conference 
Agreement. Their decisions are set forth in this agreement. This 
agreement is supplemental to the Conference Agreement and is subject 
to all of the rights, obligations, definitions, terms and conditions 
set forth in the Conference Agreement.

    \4\ Conference Agreement is defined by the MOA to mean TACA.
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    The filed agreement contains no counterpart to this preamble, nor 
any reference to TACA on the title page.
    Second, as originally signed by the parties, the MOA contained an 
Article 15 which stated:

15. Conference Membership

    Hyundai and MSC shall take a common position to membership in 
TACA for the period of this Agreement. No Party will resign from 
TACA without the agreement of the other Party.

    Nothing similar to this commitment appears in the filed agreement. 
The MOA appears to have been amended by the parties on May 20, 1996, to 
delete this conference membership provision.\5\ A copy of that 
amendment to the unfiled MOA was submitted to the Commission on June 
28, 1996.
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    \5\ The MOA was first disclosed to the Commission on May 7, 
1996, in response to the section 15 order.
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    The third significant difference between the MOA and the filed 
agreement is found in the duration of the respective agreements. The 
MOA states that:

    This agreement will have a firm validity of three years and 
shall commence on October 1st, 1995 or latest January 1st, 1996. It 
will remain in effect for a minimum of 36 months. [T]hereafter it 
will be subject to termination on six months notice given by any 
party in writing to the party [sic]. The earliest effective notice 
of termination date, however, will be March 30th, 1998.

    Article 9 of the filed agreement states, in pertinent part, that:


[[Page 25196]]


    This Agreement may be implemented as from the date it becomes 
lawfully effective and its term shall be of indefinite duration. The 
Parties may terminate or suspend this Agreement at any time upon 
such terms as they may determine * * *.

    The 1984 Act and the Commission's regulations are explicit in 
requiring that a true and complete copy of every applicable agreement 
be filed with the Commission, and that parties operate only pursuant to 
the terms of such agreements. Section 5(a) of the 1984 Act, 46 U.S.C. 
app. 1704(a), requires that:

    A true copy of every agreement entered into with respect to an 
activity described in section 4(a) or (b) of this Act shall be filed 
with the Commission * * *. The Commission may by regulation 
prescribe the form and manner in which an agreement shall be filed 
and the additional information and documents necessary to evaluate 
the agreement.

    Sections 10(a)(2) and 10(a)(3) of the 1984 Act, 46 U.S.C. app. 
1709(a)(2) and 1709(a)(3), state that no person may:

    (2) operate under an agreement required to be filed under 
section 5 of this Act that has not become effective under section 6, 
or that has been rejected, disapproved, or canceled; or
    (3) operate under an agreement required to be filed under 
section 5 of this Act except in accordance with the terms of the 
agreement or any modifications made by the Commission to the 
agreement.

    The Commission's rules implementing these statutory provisions are 
set forth at 46 CFR part 572, and, as pertinent to the issues set forth 
herein, provide as follows:

46 CFR 572.103  Policies * * *

    (g) An agreement filed under the Act must be clear and definite 
in its terms, must embody the complete understanding of the parties, 
and must set forth the specific authorities and conditions under 
which the parties to the agreement will conduct their present 
operations and regulate the relationships among the agreement 
members.

46 CFR 572.407  Complete and Definite Agreements

    (a) Any agreement required to be filed by the Act and this part 
shall be the complete agreement among the parties and shall specify 
in detail the substance of the understanding of the parties.
    (b) Except as provided in paragraph (c) of this section, 
agreement clauses which contemplate a further agreement, the terms 
of which are not fully set forth in the enabling agreement, will be 
permitted only if the enabling agreement indicates that any such 
further agreement cannot go into effect unless filed and effective 
under the Act.
    (c) Further specific agreements or understandings which are 
established pursuant to express enabling authority in an agreement 
are considered interstitial implementation and are permitted without 
further filing under section 5 of the Act only if the further 
agreement concerns routine operational or administrative matters, 
including the establishment of tariff rates, rules, and regulations.

    Section 7(a) of the 1984 Act, 46 U.S.C. app. 1706(a), provides, as 
pertinent here, that the antitrust laws of the United States do not 
apply to--

    (1) any agreement that has been filed under section 5 of this 
Act and is effective under section 5(d) or section 6 * * *, [or]
    (2) any activity or agreement within the scope of this Act, 
whether permitted under or prohibited by this Act, undertaken or 
entered into with a reasonable basis to conclude that (A) kit is 
pursuant to an agreement on file with the Commission and in effect 
when the activity took place * * *.

    This broad grant of antitrust immunity necessitates careful 
Commission oversight of the activities carried out pursuant to 
agreements. Effective oversight could be thwarted by failure to 
disclose essential elements of agreements, or by language filed with 
the Commission which may not permit an assessment of an agreement's 
true competitive impact.
    It appears that the differences between the Hyundai/MSC filed 
agreement and the MOA extend beyond routine operational or 
administrative matters and provide for activities which affect 
competition between the parties and with other carriers in the 
transatlantic trades. In particular, it appears that the MOA, as 
originally signed, effectively ties Hyundai, traditionally a non-
conference carrier, to membership in TACA for at least three years. 
There is nothing in the filed agreement which would alert the 
Commission or the public to this anticompetitive aspect of the slot 
charter agreement.
    As noted, Hyundai joined TACA effective September 11, 1995, and the 
FMC agreement became effective on October 21, 1995. Thus, it appears 
that Hyundai and MSC implemented at least the first part of their 
unfiled agreement on conference membership, i.e. Hyundai and MSC took a 
common position to membership in TACA, more than eight months prior to 
its reported deletion from the MOA on May 20, 1996, and more than a 
month prior to effectiveness of the FMC agreement.
    In view of the above, the Commission is instituting this 
investigation to determine whether Hyundai and/or MSC are violating or 
have violated pertinent provisions of the 1984 Act and Commission 
regulations by operating pursuant to an agreement not filed with the 
Commission, the terms of which may be substantively different from 
those contained in the parties' agreement which is on file with the 
Commission and effective pursuant to the 1984 Act. If so, this 
proceeding also shall determine whether civil penalties should be 
assessed and, if so, in what amount, and whether a cease and desist 
order should be issued.
    Now therefore, it is ordered, that pursuant to sections 5(a), 
10(a)(2), 10(a)(3), 11, and 13 of the Shipping Act of 1984 (``1984 
Act''), 46 U.S.C. app. 1704(a), 1709(a)(2), 1709(a)(3), 1710, and 1712, 
and the Commission's regulations set forth at 46 CFR 572.103(g), and 46 
CFR 572.407, an investigation is hereby instituted to determine, with 
respect to space/slot chartering in the transatlantic trades:
    1. Whether Hyundai and MSC are violating or have violated section 
5(a) of the 1984 Act by failing to file a true copy of an agreement 
entered into with respect to an activity described in section 4(a) or 
(b) of the 1984 Act, 46 U.S.C. app. 1703 (a) or (b);
    2. Whether Hyundai and MSC are violating or have violated section 
10(a)(2) of the 1984 Act by operating under an agreement required to be 
filed under section 5 of the 1984 Act that has not become effective 
under section 6 thereof;
    3. Whether Hyundai and MSC are violating or have violated section 
10(a)(3) of the 1984 Act by operating in a manner not in accordance 
with the terms of an agreement required to be filed under section 5 of 
the 1984 Act;
    4. Whether Hyundai and MSC are violating or have violated 46 CFR 
572.103(g) by filing an agreement with the Commission that does not 
embody the complete understanding of the parties and/or does not set 
forth the specific authorities and conditions under which the parties 
will conduct their present operations and regulate the relationships 
among the agreement members; and
    5. Whether Hyundai and MSC are violating or have violated 46 CFR 
572.407 by filing an agreement with the Commission that is not the 
complete agreement among the parties and/or does not specify in detail 
the substance of the understanding of the parties.
    It is further ordered, That Huyndai and MSC are designated as 
Respondents in this proceeding.
    It is further ordered, That, in the event violations of the 1984 
Act or the Commission's regulations are found, this proceeding shall 
determine whether civil penalties should be assessed against either or 
both of the Respondents and, if so, in what amounts.
    It is further ordered, that, in the event violations of the 1984 
Act or the

[[Page 25197]]

Commission's regulations are found, this proceeding shall determine 
whether a cease and desist order should be issued against either or 
both to the Respondents.
    It is further Ordered, That a public hearing be held in this 
proceeding and that these matters be assigned for hearing before an 
Administrative Law Judge (``ALJ'') of the Commission's Office of 
Administrative Law Judges at a date and place to be hereafter 
determined by the ALJ in compliance with Rule 61 of the Commission's 
Rules of Practice and Procedure, 46 CFR 502.61. The hearing shall 
include oral testimony and cross-examination in the discretion of the 
presiding ALJ only after consideration has been given by the parties 
and the presiding ALJ to the use of alternative forms of dispute 
resolution, and upon a proper showing that there are genuine issues of 
material fact that cannot be resolved on the basis of sworn statements, 
affidavits, depositions, or other documents or that the nature of the 
matters in issue is such that an oral hearing and cross-examination are 
necessary for the development of an adequate record.
    It is further Ordered, That the Commission's Bureau of Enforcement 
is designated a party to this proceeding.
    It is further Ordered, That notice of this Order be published in 
the Federal Register, and a copy be served on each party of record.
    It is further Ordered, That other persons having an interest in 
participating in this proceeding may file petitions for leave to 
intervene in accordance with Rule 72 of the Commission's Rules of 
Practice and Procedure, 46 CFR 502.72.
    It is further Ordered, That all further notices, orders, and/or 
decisions issued by or on behalf of the Commission in this proceeding, 
including notice of the time and place of hearing or prehearing 
conference, shall be served on each party of record.
    It is further Ordered, That all documents submitted by any party of 
record in this proceeding shall be directed to the Secretary, Federal 
Maritime Commission, Washington, DC 20573-0001, in accordance with Rule 
118 of the Commission's Rules of Practice and Procedure, 46 CFR 
502.118, and shall be served on each party of record.
    Finally, it is further Ordered, That in accordance with Rule 61 of 
the Commission's Rules of Practice and Procedure, 46 CFR 502.61, the 
initial decision of the presiding ALJ shall be issued by May 5, 1998, 
and the final decision of the Commission shall be issued by September 
2, 1998.

    By the Commission.
Joseph C. Polking,
Secretary.
[FR Doc. 97-11998 Filed 5-7-97; 8:45 am]
BILLING CODE 6730-01-M