[Federal Register Volume 62, Number 205 (Thursday, October 23, 1997)]
[Notices]
[Pages 55260-55263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28068]


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FEDERAL MARITIME COMMISSION

[Docket No. 97-18]


APL/MOL/OOCL/HMM Reciprocal Slot Exchange Agreement, Agreement 
No. 203-011588; Order To Show Cause

Introduction

    This proceeding is instituted pursuant to sections 10(c) (6) and 11 
of the Shipping Act of 1984 (``1984 Act''), 46 U.S.C. app. 
Secs. 1709(c)(6) and 1710. The APL/MOL/OOCL/HMM Reciprocal Slot 
Exchange Agreement, Agreement No. 203-011588 (``the Agreement''), an 
agreement for the reciprocal chartering of space aboard vessels 
operated in the U.S. foreign trades by the agreement members, appears 
to reserve for one member of the Agreement the carriage of cargo 
offered by shippers subject to U.S. cargo preference laws.
    Under section 10(c)(6) of the 1984 Act, 46 U.S.C. app. 
Sec. 1709(c)(6), it is unlawful for any conference or group of two or 
more common carriers to

allocate shippers among specific carriers that are parties to the 
agreement or prohibit a carrier that is a party to the agreement 
from soliciting cargo from a particular shipper, except as otherwise 
required by the law of the United States or the importing or 
exporting country. * * *

It appears that the Agreement on its face presents a violation of 
section 10(c)(6). Therefore, pursuant to section 11 of the 1984 Act, 
the parties to the Agreement are ordered to show cause why the 
Agreement should not be found to be in violation of the 1984 Act and 
should not be disapproved, canceled or modified accordingly.

Background

    The Agreement, entered into by the parties on August 29, 1997, was 
filed with the Federal Maritime Commission (``Commission'' or ``FMC'') 
on September 2, 1997, pursuant to section 5 of the 1984 Act, 46 U.S.C. 
app.

[[Page 55261]]

Sec. 1704,\1\ and became effective on October 17, 1997.\2\ This 
Agreement authorizes the parties to charter space on each other's 
vessels on a reciprocal basis and to agree on sailing schedules, 
service frequency and port calls in the trades between ports and points 
in the U.S. served via U.S. Pacific Coast ports and ports and points in 
the Far East. The Agreement provides for reciprocal sale, exchange or 
use of up to an annualized average of 500 TEUs of space per week by 
Hyundai Merchant Marine, Ltd. (``Hyundai'') on vessels operated by 
American President Lines, Ltd. (``APL''), Mitsui O.S.K. Line, Ltd. 
(``MOL''), and Orient Overseas Container Line, Inc. (``OOCL'') and for 
use by APL, MOL and OOCL of an equal amount of space on Hyundai vessels 
operating in the trade.\3\ The parties may also agree on feeder 
operations, addition or withdrawal of capacity, and the number, type 
and size of vessels they will use in the trade. No party may charter or 
sub-charter space aboard another party's vessel to a third-party 
carrier without the consent of the party operating the vessel.\4\
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    \1\ Section 5 provides, in relevant part, that ``[a] true copy 
of every agreement [with respect to activities subject to the Act as 
described in section 4] * * * shall be filed with the Commission * * 
*.'' Notice of the filing of the Agreement was published in the 
Federal Register on September 15, 1997, 62 Fed. Reg. 48287 
(September 15, 1997).
    \2\ Section 6(c), 46 U.S.C. app. Sec. 1705, provides, inter 
alia, that ``[u]nless rejected by the Commission * * *, agreements * 
* * shall become effective * * * on the 45th day after filing, or on 
the 30th day after notice of the filing is published in the Federal 
Register, whichever day is later * * *.''
    \3\ APL, MOL and OOCL, parties to the APL/MOL/OOCL Asia-Atlantic 
Alliance Agreement (Agreement No. 203-011467) and the APL/MOL/OOCL 
Asia-Pacific Agreement (Agreement No. 203-011468) under which they 
reciprocally charter space and offer global service, are 
collectively known as the ``Global Alliance.''
    \4\ The parties have denominated the period from the Agreement's 
effective date to December 31, 1997 as ``the Initial Period,'' and 
provided for continuation of the Agreement by year-to-year renewals 
after that date.
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    The Agreement provides, inter alia, at Article 5.1, that:

[n]othing in this Agreement shall be construed as granting a right 
on the part of any other party to carry aboard the vessels of 
American President Lines, Ltd. cargoes shipped from or to the U.S. 
Department of Defense or Agriculture, or any subsidiary agencies 
thereof, or any other agency of the U.S. Government whose shipments 
are subject to cargo preference laws of the United States to the 
extent requiring and reserved for transportation aboard U.S.-flag 
vessels.\5\

    \5\ The Agreement further provides that
    If the second sentence of this Section 5.1 with respect to U.S. 
preference cargoes shall be determined to violate U.S. law by a 
court of competent jurisdiction and any stay upon the order of such 
court giving effect to such determination arising by reason of an 
appeal of such order shall have ceased to be effective, then the 
second sentence * * * shall be deemed severed * * *.
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    In response to an inquiry from the Commission's staff concerning 
this provision, a letter of March 11, 1997 from the Secretary, Maritime 
Administration, Department of Transportation (``MarAd'') to APL Vice 
President Michael Murphy was provided by filing counsel for the 
Agreement parties. This letter states that APL's request is granted for 
a waiver under section 804(b) of the Merchant Marine Act, 1936 (``1936 
Act'') for APL to own, operate or charter up to 18 foreign-flag vessels 
in line haul service between U.S. and foreign ports for the remaining 
term of APL's Operating Differential Subsidy Agreement (``ODSA''), 
Contract MA/MSB-417, through December 31, 1997 and for the full term of 
each of APL's nine operating agreements under the Maritime Security 
Program (``MSP''), Contract Nos. MA/MSP-1 through MA/MSP-9. MarAd 
imposed five conditions on the waiver, which ``will terminate in the 
event any of the conditions are not fulfilled,'' including condition D:

    No space on APL's U.S.-flag vessels that are subject to space 
sharing agreements with any foreign operator shall be utilized for 
the carriage of cargo reserved for U.S.-flag vessels under any 
statute, resolution or regulation unless such cargo is carried 
pursuant to bills of lading or contracts of carriage issued to, or 
entered into with, the shipper of such cargo by or for a citizen of 
the United States.

Discussion

    In Military Sealift Command v. Sea-Land Service, Inc., F.M.C. 
______, 27 S.R.R. 874 (1996) (``MSC''), the Commission determined that 
a provision whose effect appears identical to that of Article 5.1 of 
the Agreement constituted an allocation of shippers prohibited under 
section 10(c)(6).\6\ The vessel sharing agreements (``VSAs'') among 
Sea-Land Service, Inc. (``Sea-Land'') and three foreign-flag carriers 
(P&O Containers Limited (``P&O''), Nedlloyd Lijnen, B.V. 
(``Nedlloyd''), and Compania Trasatlantica Espanola, S.A. (``CTE'')) 
involved in MSC provided for the use of 12 U.S.-flag vessels owned by 
Sea-Land to be operated on behalf of all of the parties to the 
agreements, and to replace all U.S.-flag and foreign-flag vessels 
previously operated by the parties in the covered trade. By chartering 
space on a U.S.-flag vessel, P&O, Nedlloyd and CTE gained eligibility 
to submit bids for military and other government preference cargoes 
reserved to U.S.-flag vessels. However, P&O and Nedlloyd agreed in 
Article 5(i) of Agreement No. 203-11171, that they would not use any 
vessels or space chartered from Sea-Land for carriage of government 
preference cargo. CTE was subsequently added to the VSA, subject to the 
same condition. Upon complaint filed by the Military Sealift Command, 
Department of the Navy, a shipper of U.S. preference cargo, the 
Commission determined that the provision constituted an allocation of 
shippers prohibited by the first clause of section 10(c)(6).
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    \6\ The Commission's decision in MSC is presently subject to 
review in the U.S. Court of Appeals for the D.C. Circuit.
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    However, the Commission further determined that the provision was 
not unlawful because it was required by an order of MarAd which 
constituted ``law of the United States'' within the meaning of the 
``except'' clause of section 10(c)(6). The VSAs required the approval 
of the Secretary of Transportation for the charter or transfer of a 
U.S.-flag vessel to a non-citizen under section 9 of the Shipping Act, 
1916 (``1916 Act'').\7\ Section 41 gives the Secretary broad power to 
prescribe conditions--violations of which are crimes punishable by 
fines, imprisonment and vessel forfeiture--on transactions covered by 
section 9. The Secretary has delegated to the Maritime Administrator 
authority to carry out sections 9 and 41 of the 1916 Act. 49 CFR 
166(a).
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    \7\ Section 9(c) provides that, with certain exceptions not 
relevant here, that ``a person may not, without the approval of the 
Secretary of Transportation--(1) Sell, mortgage, lease, charter, 
deliver, or in any manner transfer, or agree to sell, mortgage, 
lease, charter, deliver, or in any manner transfer, to a person not 
a citizen of the United States, any interest in or control of a 
documented vessel * * * owned by a citizen of the United States * * 
* .''
    46 U.S.C. app. Sec. 808(c).
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    MarAd conditioned its approval of Sea-Land's charters of its U.S.-
flag vessels and vessel space to foreign-flag carrier members of the 
agreements on the exclusion of the foreign-flag participants from use 
of the vessels to carry U.S. preference cargo.\8\ MarAd acted under 
section 9 on each individual charter of a U.S.-flag vessel and 
incorporated conditions requiring restriction of U.S. preference cargo 
to the U.S.-flag carrier member of the agreements in each of the 
``charter orders'' approving the arrangement, as required by section 
41. The Commission specifically found that the conditional

[[Page 55262]]

charter orders issued by MarAd pursuant to sections 9 and 41 of the 
1916 Act had the force and effect of law because they were compulsory 
and the statute provided criminal penalties for noncompliance. 27 
S.R.R. at 889.
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    \8\ Like Article 5(i) of Agreement No. 203-011171, the MarAd 
condition required that none of the vessel space chartered to non 
U.S.-citizen parties to the agreement ``shall be utilized for the 
carriage of cargo reserved for United States-flag vessels * * * 
unless such cargo is carried pursuant to bills of lading or 
contracts of carriage issued [by], or entered into with, * * * a 
citizen of the United States * * * ,'' in other words, Sea-Land.
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    The Agreement presently before us provides for the chartering of 
space by non-U.S. citizen carriers on vessels operated by APL, some of 
which are U.S.-flag vessels, as well as the chartering of space by APL 
on foreign-flag vessels operated by other members of the Agreement. The 
Agreement parties do not represent that APL sought MarAd approval 
pursuant to section 9 for use of its U.S.-flag vessels in operations 
under the Agreement. The March 11, 1997 MarAd letter grants authority 
to APL only under section 804(b) of the 1936 Act, and does not refer to 
sections 9 and 41 of the 1916 Act or MarAd authority under those 
provisions.\9\ Thus, this case apparently does not involve the 1916 Act 
authority exercised by MarAd with respect to the space charter 
agreements at issue in MSC.\10\
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    \9\ MarAd has apparently dispensed with individualized approvals 
of charters of U.S.-flag vessels like those at issue in MSC. See 46 
C.F.R. Sec. 221.13(a)(1) (except as limited by provisions not 
relevant here, MarAd ``hereby grants the approval required by 
[section 9(c) of the 1916 Act] for the * * * Charter * * * to a 
Noncitizen of an interest in or control of a Documented Vessel owned 
by a Citizen of the United States * * *.'').
    \10\ APL participated in the Commission's proceeding in MSC as 
an intervenor, representing that its interests could be 
substantially affected by the Commission's decision of the 
allocation issue because it was a participant in space charter 
agreements having similar cargo preference provisions. APL 
acknowledged, however, that the basis for the MarAd orders which 
allegedly required such provisions was not the same as that which 
required the provision in the VSAs challenged in that complaint 
proceeding.
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    APL presently operates U.S.-flag vessels under operating-
differential subsidy (``ODS'') contracts with MarAd pursuant to Title 
VI and sections 801 and 804 of the 1936 Act, 46 U.S.C. app. Sec. 1171 
et seq. and Secs. 1211 and 1222.\11\ The terms of the subsidy contract 
between the United States and the operator of the U.S.-flag vessels are 
specified by the statute, under section 603, 46 U.S.C. app. Sec. 1173. 
The 1936 Act provides that certain breaches of the contract will result 
in termination of the contract and loss of the subsidy. See, e.g., 
section 608, 46 U.S.C. app. Sec. 1178 (sale or assignment of the 
contract without the Secretary's approval).
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    \11\ Section 603, 46 U.S.C. app. Sec. 1173(a), provides that, 
upon approval of an application for ODS under section 601, the 
Secretary of Transportation may enter into a contract with the 
applicant ``subject to such reasonable terms and conditions * * * as 
the Secretary * * * shall require to effectuate the purposes and 
policy * * * of the Act.
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    Section 804(a) provides that it is ``unlawful for any contractor 
receiving an operating-differential subsidy under title VI * * * to 
own, charter, * * * or operate any foreign-flag vessel which competes 
with any American flag service'' on a route deemed essential by the 
Secretary, except as provided in section 804(b). Section 804(b), 46 
U.S.C. app. Sec. 1222(b), authorizes the Secretary to waive the 
prohibition for a specific period of time ``[u]nder special 
circumstances and for good cause shown * * *.'' \12\ The March 11, 1997 
MarAd letter states that the waiver granted ``is subject to the * * * 
conditions and will terminate in the event any of the conditions are 
not fulfilled * * *.''
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    \12\ The March 11, 1997 MarAd letter states that the 
Administrator has found ``special circumstances'' and ``good cause'' 
for granting the waiver.
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    On October 8, 1996, the 1936 Act was substantially amended by 
passage of the Military Security Act of 1996, Pub. L. 104-239, 110 
Stat. 3118. Those amendments denominated the existing provisions of 
Title VI providing for ODS and ODS contracts as ``part A'' and created 
the Military Security Fleet Program, denominated ``part B,'' 46 U.S.C. 
app. Sec. 1187, et seq. Section 1187a provides, as a condition of 
including any vessel in the Fleet, that the owner or operator of the 
vessel enter into an operating agreement governed by the section's 
provisions with the Secretary of Transportation.\13\ The operating 
agreements thus called for will be one-year, renewable contracts. 
Subsection (c) provides that ``[a] contractor of a vessel included in 
an operating agreement under this part may operate the vessel in the 
foreign commerce of the United States without restriction, and shall 
not be subject to any requirement under'' certain sections of the 1936 
Act dealing with record keeping, equitable distribution of contracts 
among U.S. ports, and discrimination. 46 U.S.C. app. 1187a(c). As MarAd 
noted in promulgating its final regulations for the MSP, ``[u]nlike the 
operating differential subsidy * * * program, the MSP has few 
restrictions on vessels operating in the U.S.-foreign commerce * * * 
.'' 62 FR 37733 (July 15, 1997).
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    \13\ The section permits the Secretary to enter into operating 
agreements for vessels which continue to operate under ODS contracts 
subject to part A.
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    Section 804 was substantially amended as well. Section 804(a) 
continues to apply to ``any contractor receiving an operating-
differential subsidy under subchapter VI * * * '' 46 U.S.C. app. 
Sec. 122(a). However, a new subsection 804(f) provides that nothing in 
section 804(a) will preclude a contractor receiving assistance under 
subchapter A or B from ``entering into time or space charter or other 
cooperative agreements with respect to foreign-flag vessels * * * .'' 
46 U.S.C. app. Sec. 1221(f)(5).\14\ It thus does not appear to be 
necessary for a U.S.-flag carrier with an MSP operating agreement to 
seek a waiver under section 804(b) in order to participate in a space 
charter or vessel sharing agreement.
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    \14\ The new section 804(f) was made effective as to carriers 
with existing ODS contracts on the date on which such a contractor 
entered into an MSP contract with MarAd. 46 U.S.C.A. app. Sec. 1222, 
Historical and Statutory Notes.
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    APL's existing ODS contracts will expire on December 31, 1997. APL 
entered into operating agreements with MarAd for nine vessels on 
January 21, 1997. On January 17, 1997, APL filed a request with MarAd 
for a waiver under section 804(b) of the 1936 Act for operation of up 
to 18 foreign-flag vessels. Notice of its filing was published January 
29, 1997. 62 FR 4377 (January 29, 1997). The March 11, 1997 MarAd 
letter granted APL's request. The waiver provides that APL may ``own, 
operate or charter'' up to 18 foreign-flag vessels. APL's request and 
MarAd's action preceded the Agreement by some seven months and five 
months respectively. Neither appears to have been undertaken in 
contemplation of the Agreement.
    Under the provisions of the 1936 Act, as amended by the Maritime 
Security Act of 1996, no recourse to the Maritime Administration 
appears to be required for APL's participation in the Agreement, 
particularly with respect to the Agreement's operation after the 
Initial Period.\15\ The Commission must, as it noted in MSC, ``[u]nder 
ordinary circumstances, * * * consider the text and any relevant 
analyses of the proffered law [said to create an exception to the 
prohibition of section 10(c)(6)], and render a conclusion as to whether 
the law commanded the actions that otherwise might fall within section 
10(c)(6)'s prohibition clause.''
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    \15\ In view of the brevity of the Initial Period during which 
APL's operations under the Agreement will be subject to its ODS 
contract, we will not address, or require the parties to address, 
the issues of whether conditions imposed on a section 804 waiver are 
part of the terms of the ODS contract; whether violation of a 
conditional waiver constitutes a breach of the contract; and whether 
the sanctions specified for breach of the contract constitute ``law 
of the United States'' within the meaning of the except clause.
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    In correspondence with the Commission's staff and counsel during 
FMC review of the Agreement, APL suggests that the March 11, 1997 MarAd 
letter should be considered ``law of the United States'' within the 
meaning of

[[Page 55263]]

the ``except clause'' of section 10(c)(6). The Commission in MSC 
indicated that it is not the FMC's role to decide on the validity of a 
MarAd order. MSC, 27 S.R.R. at 888. However, the Commission's inquiry 
in MSC included the threshold conclusion that MarAd action under the 
1916 Act was a necessary prerequisite for the existence of the 
agreements at issue: the U.S.-flag vessels could not be chartered to 
the foreign carrier agreement parties without MarAd approval. 27 S.R.R. 
at 876. No party contended otherwise. Here, no similar nexus between 
the Agreement and the statutory authority of the Maritime Administrator 
invoked by APL is evident.\16\ Thus, inasmuch as the FMC's 
determination must be based on the statutory provisions relied on, and 
the terms of MSP operating agreements or other forms of action by 
MarAd, we would find it particularly helpful to have MarAd participate 
as amicus curiae in the Commission's proceeding and will order the 
Secretary to invite that participation.
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    \16\ In initiating this proceeding, we do not undertake to 
review the actions of the Maritime Administrator under his statutory 
authority. Our administration of the 1984 Act, however, requires 
that we determine whether an agreement filed pursuant to the 1984 
Act requires action by the Administrator under a statute which 
authorizes him to command carrier obedience to orders cognizable as 
``law of the United States,'' and whether the Administrator has 
required the action specifically taken by the parties in this 
instance.
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    Now therefore, it is ordered That pursuant to section 11 of the 
Shipping Act of 1984, American President Lines, Ltd., Mitsui O.S.K. 
Line, Ltd., Orient Overseas Container Line, Inc. and Hyundai Merchant 
Marine, Ltd. show cause why they should not be found to have violated 
section 10(c)(6) of the Shipping Act of 1984 by prohibiting specific 
carriers that are parties to the agreement from soliciting cargo from a 
particular shipper or shippers;
    It is further ordered that American President Lines, Ltd., Mitsui 
O.S.K. Line, Ltd., Orient Overseas Container Line, Inc. and Hyundai 
Merchant Marine, Ltd. show cause why an order should not be issued 
disapproving, canceling or modifying the APL/MOL/OOCL/HMM Reciprocal 
Slot Exchange Agreement, Agreement No. 203-011588;
    It is further ordered That this proceeding is limited to the 
submission of affidavits of facts and memoranda of law;
    It is further ordered That the Secretary by letter inquire whether 
the Maritime Administration, Department of Transportation wishes to 
participate amicus curiae in this proceeding. The Commission would 
welcome such participation;
    It is further ordered That any person having an interest and 
desiring to intervene in this proceeding shall file a petition for 
leave to intervene in accordance with Rule 72 of the Commission's Rules 
of Practice and Procedure, 46 C.F.R. 502.72. Such petition shall be 
accompanied by the petitioner's memorandum of law and affidavits of 
fact, if any, and shall be filed no later than the day fixed below;
    It is further ordered That American President Lines, Ltd., Mitsui 
O.S.K. Line, Ltd., Orient Overseas Container Line, Inc. and Hyundai 
Merchant Marine, Ltd. are named Respondents in this proceeding. 
Affidavits of fact and memoranda of law shall be filed by Respondents 
and any intervenors in support of Respondents no later than December 2, 
1997;
    It is further ordered That the Commission's Bureau of Enforcement 
be made a party to this proceeding;
    It is further ordered That reply affidavits and memoranda of law 
shall be filed by the Bureau of Enforcement and any intervenors in 
opposition to Respondent no later than January 2, 1998;
    It is further ordered That rebuttal affidavits and memoranda of law 
shall be filed by Respondents and intervenors in support no later than 
January 20, 1998;
    It is further ordered That, should any party believe that an oral 
argument is required, that party must submit a request specifying the 
reasons therefore and why argument by memorandum is inadequate to 
present the party's case. Any request for oral argument shall be filed 
no later than January 20, 1998;
    It is further ordered That notice of this Order to Show Cause be 
published in the Federal Register, and that a copy thereof be served 
upon Respondents;
    It is further ordered That all documents submitted by any party of 
record in this proceeding shall be filed in accordance with Rule 118 of 
the Commission's Rules of Practice and Procedure, 46 C.F.R. 502.118, as 
well as being mailed directly to all parties of record;
    Finally, it is ordered That pursuant to the terms of Rule 61 of the 
Commission's Rules of Practice and Procedure, 46 C.F.R. 502.61, the 
final decision of the Commission in this proceeding shall be issued by 
April 20, 1998.

    By the Commission.
Joseph C. Polking,
Secretary.
[FR Doc. 97-28068 Filed 10-22-97; 8:45 am]
BILLING CODE 6730-01-M