[Federal Register Volume 62, Number 173 (Monday, September 8, 1997)]
[Rules and Regulations]
[Pages 47149-47152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23676]


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DEPARTMENT OF TRANSPORTATION

46 CFR Part 298

[Docket No. R-171]
RIN 2133-AB31


Citizenship Requirements for Owners and Charterers of Vessels 
With Obligation Guarantees

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Final rule.

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SUMMARY: The Maritime Administration (MARAD) is amending its 
regulations at 46 CFR part 298 to conform with provisions contained in 
Pub. L. 104-239. These provisions eliminate certain U.S. citizenship 
requirements for participants in MARAD's obligation guarantee program 
(``Title XI program''). MARAD's citizenship requirements for 
participants in the Title XI program will be modified as follows: For 
vessels operating, or to be operated, in the U.S. foreign commerce, no 
proof of Section 2 citizenship is required; for eligible export vessels 
and general shipyard facilities, no proof of Section 2 citizenship is 
required; and for vessels to be operated in the domestic trade, the 
applicant and any bareboat charterer will be required to establish 
Section 2 citizenship by affidavit at the time of application only.

DATES: This rule is effective September 10, 1997.

FOR FURTHER INFORMATION CONTACT: Doris Lansberry, Office of the Chief 
Counsel, Telephone (202) 366-5712.


[[Page 47150]]


SUPPLEMENTARY INFORMATION: MARAD's regulations at 46 CFR part 298, 
Obligation Guarantees, implement Title XI of the Merchant Marine Act, 
1936, as amended (46 App. U.S.C. 1271 et seq.)(``Act''), which 
authorizes the Secretary of Transportation (``Secretary'') to provide 
guarantees of debt (``obligation guarantees'') issued for the purpose 
of financing or refinancing the construction, reconstruction or 
reconditioning of vessels in United States shipyards, as well as the 
modernization and improvement of U.S. shipyards (``general shipyard 
facilities'').
    Applications for obligation guarantees are made to MARAD, acting 
under authority delegated by the Secretary to the Maritime 
Administrator. Prior to amendment of the Act in 1993, obligation 
guarantees could be issued only for debt incurred by applicants 
qualifying as citizens of the United States as defined in Section 2 of 
the Shipping Act, 1916, as amended (46 App. U.S.C. 802) (``Section 2 
citizens'').
    Subtitle D of Title XIII of Pub. L. 103-160, enacted in 1993, 
expanded the Title XI program by authorizing obligation guarantees to 
finance the construction, reconstruction, or reconditioning of eligible 
export vessels (to be documented under the laws of a country other than 
the United States) and modernization and improvement of shipyards in 
the United States.
    Applicants for obligation guarantees for shipyard modernization and 
improvement and for eligible export vessels under Pub. L. 103-160 are 
not required to be Section 2 citizens. Also, the Section 2 citizenship 
requirements found in Sections 1103 and 1104 of the Act were 
eliminated. The requirement that applicants for obligation guarantees 
had to be Section 2 citizens was removed from Section 1103(a) and the 
phrase ``owned by citizens of the United States,'' which modified the 
phrase ``a vessel or vessels,'' was removed from Section 1104A. 
However, the requirement set forth in Section 1101(b) of the Act that 
vessels financed under the Title XI program had to be owned by Section 
2 citizens was not eliminated. Therefore, MARAD determined, in 1993, 
that the Section 2 citizenship requirement for the original Title XI 
program remained. Subsequently, Congress amended Sections 1101(b), 
1104B(a) and 1110(a) of the Act by striking the language ``owned by 
citizens of the United States'' in each of these Sections (Section 11 
of Pub. L. 104-239, the Maritime Security Act of 1996).

Notice and Request for Comments

    MARAD published a notice in the Federal Register on November 5, 
1996, indicating that where its regulations were in conflict with the 
new law, such requirements were no longer valid. In addition, MARAD 
requested comments on the following issues:
    1. Does MARAD have the legal authority to give retroactive effect 
to the elimination of its general U.S. citizenship test for existing 
participants in its obligation guarantee program?
    2. If MARAD has such authority, to what extent should it exercise 
that authority?
    3. With respect to owners of vessels with obligation guarantees 
that operate in the United States domestic (``coastwise'') trade, for 
which U.S. citizenship requirements remain, can MARAD's security 
interest in these vessels be sufficiently protected if it adopts the 
self-certification process used by the United States Coast Guard for 
purposes of issuing a coastwise trade endorsement?
    4. Should U.S. citizens be given priority for loan guarantees over 
noncitizens for operation of U.S. flag vessels in foreign commerce in 
the event of scarcity of funds for Title XI obligation guarantees?
    MARAD received comments from seven interested parties in response 
to this Notice. Three commenters are owners of vessels operating either 
in the foreign or coastwise trade. One commenter is a law firm 
representing the views of the law firm and not the views of any of its 
clients. One commenter is an individual representing personal views. 
Another commenter is a law firm representing the ``personal views'' of 
the Subcommittee on Coast Guard Documentation, U.S. Citizenship and 
Related Matters of the Committee on Marine Financing of the Maritime 
Law Association. Still another commenter is a law firm representing the 
views of one of its clients operating vessels in the coastwise trade. 
Most commenters believed that MARAD has the authority to eliminate the 
citizenship requirement for obligation guarantees retroactively even 
though the statute did not specifically address this issue, and that 
MARAD should exercise such authority. Most commenters expressed the 
view that the Section 2 citizenship requirements in the existing Title 
XI contracts are either waivable or that MARAD has discretion to 
enforce or not to enforce contractual obligations. One commenter 
referenced the U.S. Supreme Court's decision in Landgraf v. USI Film 
Products, 511 U.S. 244, 128 L.Ed.2d 229, 114 S.Ct. 1483 (l994), which 
established tests for determining whether a new statute has retroactive 
effect. The tests set forth in Landgraf are whether the law, if applied 
retroactively, would impair rights the party had prior to enactment of 
the law, increase the party's liability for past conduct, or impose new 
duties with respect to previous transactions. This commenter maintained 
that elimination of the Section 2 citizenship requirements would not be 
an impairment of rights held by existing Title XI contract holders, nor 
an increase in any liability under such contracts, nor the imposition 
of new duties on existing Title XI contract holders. To the contrary, 
the commenter believed that Title XI contract holders should be 
relieved of the duty to file Affidavits of U.S. Citizenship, as well as 
any consequences and/or liabilities that may result from failure to 
file such Affidavits.
    One commenter stated that citizenship requirements for existing 
obligation guarantees terminated when the Title XI citizenship 
amendments became law.
    Five of the seven commenters indicated that MARAD should rely upon 
the self-certification process used by the United States Coast Guard 
for determining Section 2 citizenship where it remains a requirement of 
the Title XI program, with one commenter expressing the view that MARAD 
should have the right to ask for additional information if it is deemed 
necessary.
    As to whether a priority system needs to be established in the 
event of limited Title XI funds, four commenters opposed such a system, 
and two stated that U.S. citizens should be given priority for 
obligation guarantees over noncitizens. The reasons given for 
establishing a priority were that American taxpayers provide the needed 
funding for the Title XI program and that giving U.S. citizens priority 
furthers the purpose of the Act by providing a U.S. citizen-owned fleet 
needed for defense purposes. The four commenters opposing a priority 
system cited the absence of any such provision in the Act.
    Having considered all the views expressed by the commenters, MARAD 
is now amending its regulations at 46 CFR part 298 to conform to the 
statutory changes set forth in Pub. L. 104-239. Additional changes will 
be required to implement financing provisions of Pub. L. 104-324 
(October 19, 1996), the Coast Guard Authorization Act of 1996. Those 
will be the subject of a separate rulemaking.

[[Page 47151]]

    Congressional intent in Pub. L. 104-239 is unequivocal as to 
prospective application of Section 2 citizenship requirements for 
owners of vessels operating or to be operated in U.S. foreign commerce. 
The intent is to eliminate the requirement. As stated by Senator Lott 
in a public letter exchange on the Maritime Security Act ``[a]n 
interpretation of the Title XI program now allows a U.S. corporation 
that is eligible to obtain a loan guarantee if it places the vessel 
under foreign registry, but prohibits a guarantee from being issued if 
that same corporation desires to place the vessel under U.S. flag. 
Section 11 of [Pub. L. 104-239] would correct this unintended 
interpretation so that such a U.S. corporation eligible to own a U.S.-
flag vessel would be able to obtain a guarantee without being forced to 
place the vessel under foreign flag.'' Letter dated March 20, 1996, 
from Senator Lott to Senator McCain (copy on file at the Maritime 
Administration).
    It is equally clear that Congress retained the requirement of 46 
App. U.S.C. 12106 that vessel owners engaged in the coastwise trade 
must be Section 2 citizens, whether participating in the Title XI 
program or otherwise. MARAD considered relying on the self-
certification process of the Coast Guard as proof of such citizenship 
for application purposes. However, the Coast Guard process of 
documenting a vessel is only performed after a vessel is delivered. 
Typically, in Title XI transactions, MARAD is requested to approve 
commitments prior to delivery and documentation of vessels. MARAD needs 
to perform its due diligence to ascertain the citizenship of an 
applicant that is intending to own or operate vessels in the U.S. 
coastwise trade prior to issuing an irrevocable commitment under Title 
XI.
    Section 1104A(d)(1)(A) of the Act (46 App. U.S.C. 1274(d)(1)(A)) 
provides that the Secretary shall not extend any guarantee unless the 
Secretary finds that the proposed project is economically sound. In 
those instances where an applicant for Title XI benefits intends to 
operate vessels in U.S. coastwise trade, MARAD's analysis of economic 
soundness includes the applicant's qualifications to operate in said 
trade, including all applicable citizenship requirements. This analysis 
is required because, among other reasons, the revenues from operations 
are the source of debt service payments, and if the applicant fails to 
qualify for the intended operations, the proposed project would not be 
economically sound. Therefore, MARAD will continue to require that all 
applications for obligation guarantees for U.S. coastwise trade vessels 
include an affidavit of U.S. citizenship in the form prescribed in its 
regulations at 46 CFR part 355.
    MARAD has decided to adopt the suggestion of several commenters and 
rely on the self-certification required by the Coast Guard for vessel 
operators in the coastwise trade to ensure that Title XI obligors in 
that trade maintain their eligibility. Annual affidavits will no longer 
be required. Generally, no citizenship filing will be required. As does 
the Coast Guard, MARAD reserves the right to ask for additional 
information from Title XI obligors if it is deemed necessary. MARAD 
believes this significant deregulatory action will be effective.
    MARAD has considered whether Congress intended to give retroactive 
effect to the elimination of its ongoing requirement to certify as to 
U.S. citizenship for existing participants in its obligation guarantee 
program, and, if so, whether MARAD should exercise that authority. 
Landgraf, supra. MARAD has concluded that no private party rights under 
the Title XI program would be impaired by the elimination of the 
citizenship requirement for Title XI obligors operating in the U.S. 
foreign commerce, nor would its own due diligance interests be 
impaired. Therefore, MARAD has determined that no proof of citizenship 
need be required for Title XI obligors with respect to vessels 
operating, or to be operated, in the U.S. foreign commerce. Unlike the 
Title XI coastwise trade program under which MARAD's due diligence 
interests would be impaired by the complete elimination of citizenship 
requirements, due to increased risk to the project, there is no 
comparable risk for U.S. foreign commerce operations. MARAD's Title XI 
program requirement for identification of the real party at interest in 
the Title XI transaction for vessels in U.S. foreign trade can be met 
through review of the documents required in the application process, 
just as that requirement is met presently in the Title XI export vessel 
program.
    Finally, MARAD has decided not to impose a priority system for 
Section 2 citizens in the event of limited Title XI funds. In recent 
years, it has been rare that availability of Title XI funds has limited 
the approval of eligible projects. More importantly, it is MARAD's 
experience that Title XI transactions are unique with different 
vessels, markets, operators, collateral, shipyards, military utility, 
and dollar value of guarantee. It is not likely that two transactions 
would be equivalent in all respects but one would meet Section 2 
citizenship requirements and the other not. MARAD will continue, as 
required by Section 1104(g)(1) of the Act, to consider the status of 
pending applications to guarantee obligations for vessels documented 
under the laws of the United States and operating or to be operated in 
the domestic or foreign commerce of the United States before issuing a 
commitment to guarantee obligations for an eligible export vessel.
    To summarize, MARAD's citizenship requirements for participants in 
the Title XI program will be modified as follows: (1) for vessels 
operating, or to be operated, in the U.S. foreign commerce, no proof of 
Section 2 citizenship is required; (2) for eligible export vessels and 
general shipyard facilities, no proof of Section 2 citizenship is 
required; and (3) for vessels to be operated in the domestic trade, the 
applicant and any bareboat charterer will be required to establish 
Section 2 citizenship by affidavit at the time of application only.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review); Department of 
Transportation (DOT) Regulatory Policies and Procedures; Pub.L. 104-121

    This rulemaking is not considered to be an economically significant 
regulatory action under E.O. 12866, and is also not considered a major 
rule for purposes of Congressional review under Pub. L. 104-121. It is 
not considered to be a significant rule under E.O. 12866 or DOT's 
Regulatory Policies and Procedures (44 FR 11034; February 26, 1979). 
Therefore, it has not been reviewed by the Office of Management and 
Budget. This rule merely conforms MARAD's regulations at 46 CFR Part 
298 to provisions contained in Pub. L. 104-239 with respect to removal 
of some citizenship requirements for participation in MARAD's Title XI 
Program. Accordingly, pursuant to provisions of the Administrative 
Procedure Act, 5 U.S.C. 553 (c) and (d), MARAD finds that notice and 
public comment are unnecessary and that this rule may become effective 
in less than 30 days after its publication.

Federalism

    MARAD has analyzed this rulemaking in accordance with the 
principles and criteria contained in E.O. 12612 and has determined that 
these regulations do not have sufficient federalism implications to 
warrant the preparation of a Federalism Assessment.

Regulatory Flexibility

    The Acting Maritime Administrator certifies that this rulemaking 
will

[[Page 47152]]

reduce the economic burden on Title XI Program participants and will 
therefore not have a significant economic impact on a substantial 
number of small entities.

Environmental Assessment

    This final rule has no environmental impact and an environmental 
impact statement is not required.

Paperwork Reduction Act

    This rulemaking contains no new information collection 
requirements. It reduces certain information collection requirements 
that have been approved by the Office of Management and Budget under 
control number 2133-0012.

Unfunded Mandates

    Under the Unfunded Mandate Reform Act (Pub. L. 104-4) The Maritime 
Administration must consider whether this rule will result in an annual 
expenditure by State, local and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more (adjusted annually 
for inflation). The Act also requires that the Maritime Administration 
identify and consider a reasonable number of regulatory alternatives 
and, from those alternatives, select the least costly, most cost-
effective, or least burdensome alternative that will achieve the 
objectives of the rule.
    As stated above, by this rule the Maritime Administration is 
significantly reducing a regulatory burden, citizenship reporting 
requirements, on the public. This final rule does not result in an 
annual expenditure by State, local and tribal governments, in the 
aggregate, or by the private sector, of $100 million or more and is the 
least burdensome alternative that will achieve the objectives of the 
rule.

List of Subjects in 46 CFR Part 298

    Loan programs--transportation, Maritime carriers, Mortgages.

    Accordingly, 46 CFR part 298 is amended as follows:
    1. The authority for 46 CFR Part 298 continues to read as follows:

    Authority: 46 App. U.S.C. 1114(b), 1271 et seq; 49 CFR 1.66.

    2. Section 298.2 is amended by removing the paragraph designations, 
and adding the following definitions, in alphabetical order:


Sec. 298.2  Definitions.

* * * * *
    Citizen of the United States means a person who, if an individual, 
is a Citizen of the United States by birth, naturalization or as 
otherwise authorized by law or, if other than an individual, meets the 
requirements of Section 2 of the Shipping Act, 1916, as amended (46 
App. U.S.C. 802), as further described at 46 CFR 221.3(c).
* * * * *
    Commitment Closing means a meeting of various participants or their 
representatives in a Title XI financing at which a commitment to issue 
Guarantees is executed and the forms of the Obligations and the related 
Title XI documents are also either agreed upon or executed.
* * * * *
    3. Section 298.10 is revised to read as follows:


Sec. 298.10  Citizenship.

    (a) Applicability. Prior to acquiring a legal or beneficial 
interest in a Vessel financed under Title XI of the Act which is 
operating in or will be operated in the U.S. coastwise trade, the 
applicant and any other Person, (including the shipowner and any 
bareboat charterer), shall establish its United States citizenship, 
within the definition ``citizen of the United States'' in Sec. 298.2.
    (b) Prior to Letter Commitment. The applicant and any Person 
identified in paragraph (a) of this section, who is required to 
establish United States citizenship shall, prior to the issuance of the 
Letter Commitment, establish United States citizenship in form and 
manner prescribed in 46 CFR part 355.
    (c) Commitment Closing. Unless otherwise waived by the Secretary 
for good cause, at least 10 days prior to every Commitment Closing, all 
Persons identified with the project who have previously established 
United States citizenship in accordance with paragraphs (a) and (b) of 
this section shall submit pro forma Supplemental Affidavits of 
Citizenship which have previously been approved as to form and 
substance by the Secretary, and on the date of such closing such 
Persons shall submit to the Secretary three executed copies of such 
Supplemental Affidavits of Citizenship evidencing the continuing United 
States citizenship of such Persons bearing the date of such closing.
    (d) Additional information. If additional material is determined at 
any time to be essential to clarify or support evidence of U.S. 
citizenship, such material shall be furnished by the applicant, the 
Obligor or any Person identified in paragraph (a) of this section upon 
request by the Maritime Administration.

    Dated: September 2, 1997.

    By order of the Acting Maritime Administrator.
Joel C. Richard,
Secretary.
[FR Doc. 97-23676 Filed 9-5-97; 8:45 am]
BILLING CODE 4910-81-P