[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]
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