[Federal Register Volume 63, Number 13 (Wednesday, January 21, 1998)]
[Notices]
[Pages 3115-3120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1291]


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FEDERAL MARITIME COMMISSION

[Docket No. 97-18]


APL/MOL/OOCL/HMM Reciprocal Slot Exchange Agreement (Agreement 
No. 203/011588) and APL/MOL/HMM Reciprocal Slot Exchange Agreement, 
Agreement No. 203-011596; Order to Show Cause and Motion To Dismiss 
Denied

Introduction

    The APL/MOL/OOCL/HMM Reciprocal Slot Exchange Agreement, Agreement 
No. 203-011588 (``the Four Party Agreement'') is an agreement for the 
reciprocal chartering of space aboard vessels operated in the U.S. 
foreign trades by agreement members.\1\ The Four Party Agreement became 
effective on October 17, 1997. Agreement No. 203-011596, the APL/MOL/
HMM Reciprocal Slot Exchange Agreement (``the New Agreement''), is a 
space charter agreement which is intended to replace the Four Party 
Agreement.\2\
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    \1\ The Agreement members are Hyundai Merchant Marine, Ltd. 
(``Hyundai'' or ``HMM''), American President Lines, Ltd. (``APL''), 
Mitsui O.S.K. Line, Ltd. (``MOL''), and Orient Overseas Container 
Line, Inc. (``OOCL'').
    \2\ The members of the agreement are Hyundai, APL and MOL. 
Although the New Agreement is intended to replace the Four Party 
Agreement, the latter will remain in effect until canceled by the 
parties according to its terms, to permit an orderly transition in 
the parties' operations.
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    Under section 10(c)(6) of the Shipping Act of 1984 (``1984 Act''), 
46 U.S.C. app. 1709(c)(6), it is unlawful for any conference or group 
of two or more common carriers to:


[[Page 3116]]


    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 * * *.

The New Agreement contains terms, also present in the Four Party 
Agreement, by which carriage of cargo subject to U.S. cargo preference 
laws is restricted to the U.S.-flag carrier participant, APL. In its 
Order to Show Cause served on October 17, 1997, Docket No. 97-18, 62 FR 
55260 (October 23, 1997), 27 S.R.R. 1304 (1997) (``Show Cause Order''), 
the Commission stated that the Four Party Agreement appeared on its 
face to present a violation of section 10(c)(6). For reasons similar to 
those stated in the Show Cause Order, it appears that the New Agreement 
on its face also presents a violation of section 10(c)(6). Therefore, 
pursuant to section 11 of the 1984 Act, the parties to the New 
Agreement are ordered to show cause why the New Agreement should not be 
found to be in violation of the 1984 Act and should not be disapproved, 
canceled or modified accordingly.
    APL filed a Motion to Dismiss Docket No. 97-18, on the grounds, 
inter alia, that ``changed circumstances'' have mooted this proceeding, 
and requested, in the event that the Commission determined not to 
dismiss the proceeding, that the time for filing Respondents' opening 
submissions, then due on December 2, 1997, be extended to 30 days after 
the Court of Appeals takes final action in Sea-Land Service, Inc. v. 
FMC, D.C. Circuit No. 97-1083.\3\ Motion of APL to Dismiss the 
Proceeding (``Motion'') at 1.\4\ The Commission's Bureau of Enforcement 
(``BOE'') filed a reply to the Motion. OOCL filed a Response to the 
Order to Show Cause. We address both the New Agreement and the Motion 
and Response in this Order.
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    \3\ That case is consolidated with Military Sealift Command and 
United States v. FMC, No. 97-1084 and American President Lines v. 
FMC, No. 97-1085 which are, like No. 97-1083, petitions for review 
of the Commission's order in Military Sealift Command v. Sea-Land 
Service, Inc.,    F.M.C.   , 27 S.R.R. 874 (1996) (``MSC'').
    \4\ The procedural schedule in Docket No. 97-18 was postponed by 
the Secretary on December 1, 1997 until further Commission notice or 
action on the Motion.
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Background

    This proceeding was instituted pursuant to sections 10(c)(6) and 
11, 46 U.S.C. app. 1710, to determine whether the Four Party Agreement 
should be found to be in violation of the 1984 Act, and be disapproved, 
canceled or modified accordingly. Citing the Commission's holding in 
MSC, the Commission ordered the parties to the Four Party Agreement to 
show cause why the Agreement should not be found to violate section 
10(c)(6) inasmuch as Article 5.1 of the Four Party Agreement appears to 
effectively allocate U.S. government shippers of cargo via agreement 
members, subject to U.S. cargo preference laws, to APL, the sole U.S. 
carrier member of the Agreement.\5\
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    \5\ In MSC, the Commission determined that a provision whose 
effect appears to be identical to that of Article 5.1 of the Four 
Party Agreement and Article 5.1 of the New Agreement constituted an 
allocation of shippers prohibited under section 10(c)(6). Upon 
complaint filed by the Military Sealift Command, Department of the 
Navy (``MSC''), 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). However, the 
Commission further determined that the provision was not unlawful 
because it was required by an order of the Maritime Administration, 
Department of Transportation (``MarAd'') which constituted ``law of 
the United States'' within the meaning of the ``except'' clause of 
section 10(c)(6).
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A. The New Agreement

    The New Agreement was filed with the Commission on November 18, 
1997, pursuant to section 5 of the 1984 Act, 46 U.S.C. app. section 
1704,\6\ and became effective on January 2, 1998.\7\ The New Agreement 
authorizes the parties to charter space on each other's vessels on a 
reciprocal basis 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 the reciprocal sale, exchange or use 
of up to an annualized average of 6,000 TEUs of space per week by 
Hyundai on vessels operated by APL and MOL, and for use by APL and MOL 
of 7,000 TEUs of space per week on Hyundai vessels operating in the 
trade. The parties may also agree on feeder operations, sailing 
schedules, service frequency, port calls, 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.
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    \6\ 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 December 2, 1997, 62 FR 63716 (December 2, 
1997).
    \7\ Section 6(c), 46 U.S.C. app. section 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 * * *.''
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    Article 5.1 of the New Agreement, ``Limited Grant,'' provides:

    Nor shall anything in this Agreement be construed as granting a 
right on the part of any party to carry aboard the vessel of any 
other party any cargoes subject to cargo preference laws of the 
country of registry of such other party's vessel or the country of 
citizenship of its owner.\8\

    \8\ The language quoted above is also used in Article 5.1 of the 
Four Party Agreement, ``Limited Grant,'' but it is preceded there by 
the provision 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.
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    Article 5.1 further provides:

    If the (preceding) sentence * * * shall be determined to violate 
U.S. law with respect to U.S. preference cargoes by a court or 
agency of competent jurisdiction and any stay upon the order of such 
court or agency giving effect to such determination arising by 
reason of an appeal of such order shall have ceased to be effective, 
then the [preceding] sentence * * * shall be deemed severed with 
respect to U.S. preference cargoes,* * *.\9\
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    \9\ The similar provision for severance of the cargo preference 
provision upon a final finding of unlawfulness in the Four Party 
Agreement is more limited.
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B. APL's Motion to Dismiss Docket No. 97-18

1. The Motion
    APL repeatedly points out that the Show Cause Order ``focused'' on 
the second sentence of Article 5.1 of the Four Party Agreement, i.e., 
the language quoted above at note 6. Motion at 2, 4. APL describes 
various ``intervening events'' which purportedly render the Order to 
Show Cause moot. APL states that, with respect to APL's participation, 
the Four Party Agreement has never been implemented and will never be 
implemented because APL intends to withdraw from that Agreement upon 
effectiveness of the New Agreement. APL also indicates that, in 
connection with the acquisition of APL by Neptune Orient Lines and the 
transfer of APL's ODS Agreements and Maritime Security Program 
(``MSP'') contracts with MarAd to an independent vessel-operating 
company bareboat chartering the vessels, MarAd withdrew the letter of 
March 11, 1997 from the MarAd Secretary to APL Vice President Michael 
Murphy, granting APL a waiver under section 804(b) of the Merchant 
Marine Act, 1936 (``1936 Act''), 46 U.S.C. app. 1222(b), for APL's use 
of foreign-flag capacity.\10\ Motion at 4-5. In addition,

[[Page 3117]]

APL suggests that, as a consequence of the joint Department of Defense 
(``DOD'')-MarAd Voluntary Intermodal Sealift Agreement (``VISA'') 
program, ``DOD itself now reserves its peacetime cargoes to U.S.-flag 
vessel operators that are participants in VISA, thus by regulation 
mandating the same result as the reservation provisions in the 
commercial agreements * * *.'' Motion at 5. Finally, APL submits that 
it would be appropriate to await the possibly ``definitive guidance'' 
of the D.C. Circuit on the issues raised in MSC, which ``are relevant 
to the Show Cause order.'' Id. at 6.
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    \10\ MarAd's waiver, for the remaining term of APL's ODS 
contract through December 1997 and for the full term of each of 
APL's nine operating agreements under the Maritime Security Program 
(``MSP''), included as ``condition D'' that:
    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.
    Thus, MarAd was alleged to have required the provision of the 
Agreement allocating U.S. preference cargo to APL.
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    APL's request that the proceeding be dismissed focuss on the 
parties' intention, stated by APL, that the agreement which was the 
subject of the Show Cause Order will be supplanted by the New Agreement 
and the narrow scope of the Commission's focus in that order, i.e., the 
second sentence of Article 5.1, ``which will then have no possible 
future significance.'' Id. at 7. APL recognizes, however, that the New 
Agreement retains the more general cargo reservation language, but 
contends that this provision was not identified as a basis of potential 
violation of section 10(c)(6) in the Show Cause Order. Thus, says APL,

if the Commission should consider this provision to raise section 
10(c)(6) issues that require Commission consideration, the 
appropriate context in which to evaluate those issues--which are 
necessarily broader than and different from those identified in the 
Commission's October 22, 1997 Order--would be with respect to an 
agreement in which that provision has continued effect.

Id. In the event the Commission elects not to dismiss the proceeding, 
or to institute a new proceeding relating to the New Agreements, APL 
requests that the time for filing of Respondents' opening submissions 
be extended to a date 30 days after final court action in MSC.
2. BOE's Reply to the Motion
    BOE opposes the Motion on the ground that the issues in Docket No. 
97-18 are not moot, and the proceeding should not be dismissed, until 
APL actually withdraws from the Four Party Agreement. BOE does not, 
however, oppose APL's request that the time for Respondents' initial 
filing be extended until 30 days after final action by the D.C. Circuit 
in MSC. Although BOE noted that the New Agreement was being considered 
by the staff, it did not further comment on the validity of the 
substantive representations of fact or law in the Motion.

C. OOCL's Response to Order to Show Cause

    OOCL filed a Response to the Order to Show Cause, stating that it 
has given notice on December 1, 1997 of its intention to withdraw from 
the APAC Agreement and ``hence will no longer be a party to (the Four 
Party) Agreement * * *.'' Response To Order To Show Cause 
(``Response'') at 1. In its Response, OOCL moves that it be dismissed 
as a party to this proceeding. In the alternative, OOCL adopts the 
position of APL that the proceeding should be dismissed, or, in the 
alternative, if the proceeding is directed to a new agreement, that the 
time for Respondents' opening submissions be extended to 30 days after 
issuance of the D.C. Circuit's mandate in MSC.
    OOCL suggests that the Commission take administrative notice of the 
filing of a successor agreement to the Four Party Agreement, of which 
OOCL is not a member. OOCL also joins in APL's representations that 
subsequent events have rendered the current proceeding moot.

D. The Maritime Administrator's Letter

    It is not the FMC's role to decide on the validity of a MarAd 
order. MSC, 27 S.R.R. at 888. In initiating this proceeding, we noted 
that the Commission did not undertake to review the actions of the 
Maritime Administrator under his statutory authority, but to determine 
whether an agreement filed pursuant to the 1984 Act required action by 
MarAd under a statute which authorizes that agency to command carrier 
obedience to orders cognizable as ``law of the United States,'' and 
whether it had so required the action specifically taken by the parties 
in this instance. We also directed the Commission's Secretary to invite 
the Acting Administrator to participate amicus curiae in this 
proceeding, which the Secretary did by letter of October 24, 1997.
    The Acting Administrator advised the Commission on December 16, 
1997, that APL ceased to be a party to an ODS contract as of November 
12, 1997, and therefore is no longer subject to section 804 or the 
waiver and conditions imposed in MarAd's March 11, 1997 letter. The 
Acting Administrator further advised the Commission that, 
notwithstanding APL's request that MarAd impose a similar condition on 
APL's new charter arrangements, MarAd

    Did not * * * consider whether such a condition should be 
imposed under the various statutes MarAd administers as a result of 
an October 19, 1993 opinion by the Office of Legal Counsel (OLC) of 
the Department of Justice. That opinion * * * concluded that even 
though conditions contained in charter orders approved by MarAd 
impose legal obligations on the chartering parties, those 
obligations are not ``otherwise required by law'' for purposes of 
the second prong of section 10(c)(6), and that MarAd lacks authority 
to impose such conditions since, in OLC's view, they would violate 
the first prong of section 10(c)(6). The OLC opinion remains the 
unified position of the United States. Given this, MarAd does not 
believe that it should participate at this time as an amicus in the 
pending FMC proceeding.

Finally, the Acting Administrator, noting the filing of the New 
Agreement and APL's announced intention to withdraw from the Four Party 
Agreement, suggested that questions relating to the lawfulness of the 
Four Party Agreement are now moot and that, in the event the FMC 
decides nevertheless to continue the proceeding, the matter should be 
held in abeyance pending the decision of the D.C. Circuit on review of 
MSC.

Discussion

A. The New Agreement

    The language of Article 5.1 of the New Agreement does not contain 
the language in the Four Party Agreement which was specifically cited 
by the Commission in its Show Cause Order. However, it does contain the 
following more general language which is also in the Four Party 
Agreement:

    Nor shall anything in this Agreement be construed as granting a 
right on the part of any party to carry aboard the vessel of any 
other party any cargoes subject to cargo preference laws of the 
country of registry of such other party's vessel or the country of 
citizenship of its owner.

While this language does not refer specifically to U.S.-government 
agency shippers, its general reference to ``cargo preference laws'' 
would certainly include those U.S. cargo preference laws which by their 
terms effectively allocate the Department of Defense, the Department of 
Agriculture, and other U.S. government departments and agencies to 
U.S.-flag vessels for all or a major portion of their shipments. Thus 
it would have the same effect as the more specific language of the Four 
Party

[[Page 3118]]

Agreement: U.S. government entities which ship cargo via agreement 
members are allocated to APL.
    As we noted in our Show Cause Order concerning the Four Party 
Agreement, the New Agreement presents issues similar to those decided 
by the Commission in MSC.\11\ The VSAs involved in MSC 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''), 46 U.S.C. app. 808, subject to the broad 
power to prescribe conditions--violations of which are crimes 
punishable by fines, imprisonment and vessel forfeiture--given the 
Secretary in section 41.\12\ MarAd's approval of the charters of the 
U.S.-flag vessels and vessel space to foreign-flag carrier members of 
the VSAs were conditioned on the exclusion of the foreign-flag 
participants from use of the vessels to carry U.S. preference 
cargo.\13\ The Commission specifically found that the conditional 
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. MSC, 27 
S.R.R. at 889.
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    \11\ The vessel sharing agreements (``VSAs'') involved in MSC 
provided for the use of twelve U.S.-flag vessels owned by a U.S. 
carrier 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, the foreign carriers gained 
eligibility to submit bids for military and other government 
preference cargoes reserved to U.S.-flag vessels. However, the 
foreign carriers agreed that they would not use any vessels or space 
chartered from the U.S. carrier for carriage of government 
preference cargo.
    \12\ Section 9(c) provides that, with certain exceptions not 
relevant here, ``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. 808(c). The Secretary has delegated to the 
Maritime Administrator authority to carry out sections 9 and 41 of 
the 1916 Act. 49 CFR 166(a).
    \13\ 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. MarAd has apparently 
dispensed with individualized approvals of charters of U.S.-flag 
vessels like those at issue in MSC. See 46 CFR 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 * * *.'').
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    The Commission's inquiry in MSC included the threshold conclusion 
that MarAd action under the 1916 Act was a prerequisite for the 
existence of the agreement at issue: the U.S.-flag vessels could not be 
chartered to the foreign carrier agreement parties without approval. 
Id. at 876. Here, as we noted in the Show Cause Order with respect to 
the Four Party Agreement, no similar nexus between the New Agreement 
and the statutory authority of the Maritime Administrator is evident. 
This case apparently does not involve the 1916 Act authority exercised 
by MarAd with respect to the space charter agreements at issue in MSC.
    Until the November 12, 1997 consummation of its acquisition by 
Neptune Orient Line (``NOL''), APL operated U.S.-flag vessels under 
operating-differential subsidy contracts with MarAd pursuant to Title 
VI and sections 801 and 804 of the 1936 Act, 46 U.S.C. app. 1171 et 
seq. and 1211 and 1222.\14\ MarAd's March 11, 1997 letter granted APL's 
request for a waiver under section 804(b) of 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 MSP, Contract Nos. MA/MSP-1 through 
MA/MSP-9, subject to the conditions imposed.\15\ During FMC review of 
the Four Party Agreement, APL suggested that the March 11, 1997 MarAd 
letter should be considered ``law of the United States'' within the 
meaning of the ``except clause'' of section 10(c)(6). This argument was 
dealt with a length in the Show Cause Order. 62 FR 55262-55263, 27 
S.R.R. 1306-1308.\16\
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    \14\ Section 603, 46 U.S.C. app. 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. 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. 1222(b), authorizes the 
Secretary to waive the prohibition for a specific period of time 
``(u)nder special circumstances and for good cause shown * * *.'' 
The March 11, 1997 MarAd letter states that the Administrator has 
found ``special circumstances'' and ``good cause'' for granting the 
waiver and that the waiver granted ``is subject to the * * * 
conditions and will terminate in the event any of the conditions are 
not fulfilled * * *.''
    \15\ 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 of 
MarAd authority under those provisions.
    \16\ In any event, as we noted in the Show Cause Order, the 
Military Security Act of 1996, Pub. L. 104-239, 110 Stat. 3118, 
substantially amended the 1936 Act, creating the Military Security 
Fleet Program, 46 U.S.C. app. 1187, et seq. It is a condition for 
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, which 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). Section 804 was 
substantially amended as well: a new subsection 804(f) provides that 
nothing in section 804(a) will preclude a contractor receiving ODS 
or MSP assistance from ``entering into time or space charter or 
other cooperative agreements with respect to foreign-flag vessels * 
* *.'' 46 U.S.C. app. 1221(f)(5). 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. 1222, Historical and Statutory Notes. APL entered into 
operating agreements with MarAd for nine vessels for January 21, 
1997.
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    Moreover, 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). 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 Four Party Agreement or the New 
Agreement.\17\
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    \17\ 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. Nevertheless, 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.
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    MarAd's withdrawal of the March 11, 1997 section 804 waiver, which 
occurred after issuance of our Show Cause Order, would suggest that 
this argument no longer may be said to apply to APL's operations under 
the Four Party Agreement or the New Agreement. No colorable argument 
that the effective allocation of U.S. government shippers of cargo 
subject to the U.S. cargo preference laws by

[[Page 3119]]

Article 5.1 of the New Agreement is ``required by the law of the United 
States'' as a result of the March 11, 1997 MarAd letter or other MarAd 
action under the 1936 Act appears to exist.
    In discussion with the staff concerning Article 5.1 of the New 
Agreement, and in its Motion, however, APL advanced the view that the 
allocation issue was essentially moot as a result of various actions of 
MarAd and DOD, including significant policy changes by DOD relating 
particularly to the VISA program. Thus, in the Motion and in 
discussions concerning the New Agreement, APL has argued that the 
effect of the VISA program is to authorize or require the allocation 
provision of the New Agreement. As it noted in MSC, the Commission 
must, ``[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.'' MSC, 27 S.R.R. at 888.
    MarAd administers the VISA program under authority of section 708 
of the Defense Production Act of 1950, as amended, 50 U.S.C. app. 2158. 
The VISA program provides for agreements entered into between MarAd and 
the operators of U.S.-flag vessels and establishes a ``prioritized 
order for utilization of commercial sealift capacity to meet DOD 
peacetime and contingency requirements * * *.'' 62 FR 6840 (February 
13, 1997). The program emphasizes use of U.S.-flag vessel capacity 
operated by VISA participants or available to VISA participants under 
VSAs for the carriage of DOD peacetime cargo and assures the 
availability of U.S.-flag capacity for DOD contingency use. Although 
the program establishes priorities under which DOD will call upon the 
operators of U.S-flag vessels to provide capacity, by awarding 
contracts and booking cargo, neither the MarAd rules for the VISA 
program itself nor any DOD policy or contract provision thus far called 
to our attention appears to reserve aggregate DOD peacetime cargo to 
VISA participants. No prohibition against the use of the vessel 
capacity of a VISA participant made available to a non-U.S. carrier 
member of a VSA for carriage of DOD cargo is contained in the 
regulations promulgated by MarAd. Moreover, those regulations and the 
VISA program itself relate only to cargo shipped by DOD. Other U.S. 
government departments and agencies, which are also subject to the U.S. 
cargo preference laws, are unaffected by the VISA program. These 
shippers would be allocated to APL by the terms of Article 5.1 of the 
New Agreement. No requirement for the exclusion of agreement parties 
other than APL from bidding on DOD or other government-shipped cargo 
arises from the VISA regulations or other U.S. law, or the DOD 
contracts under VISA.
    The parties apparently recognize that the allocation issues raised 
by the New Agreement would most appropriately be addressed in a formal 
proceeding: both APL's Motion and OOCL's Response suggest such a course 
of action. In view of the possibility that Agreement No. 203-011596 may 
be merely an interim measure to see the parties through the 
restructuring of their various alliances, and may be replaced by yet 
another version of the parties' space sharing arrangement, we find it 
most appropriate to address these issues in the context of the existing 
proceeding, Docket No. 97-18, rather than to initiate a new proceeding.
    Therefore, the parties to the New Agreement are ordered to show 
cause why it does not violate section 10(c)(6) for the same reasons 
which prompted us to institute a proceeding against the Four Party 
Agreement: A prima facie case appears to exist that the provision is 
unlawful and is not otherwise required by the law of the United States. 
The parties to the New Agreement are ordered to show cause why Article 
5.1 of the New Agreement should not be disapproved, canceled or 
modified, as part of this proceeding.

B. The Motion and Response

    We agree with BOE that dismissal of the Show Cause proceeding with 
respect to the Four Party Agreement is premature. Termination of this 
proceeding with respect to the Four Party Agreement may be proper when 
and if the Four Party Agreement itself is terminated. However, it does 
not appear at this time that either APL's or OOCL's cessation of 
operations under the Four Party Agreement will occur simultaneously 
with the effectiveness of the New Agreement. We may act to modify the 
proceeding at any time it appears appropriate, with or without further 
request of the parties.
    APL's further suggestion that the Commission delay action on this 
issue until 30 days after the D.C. Circuit has acted in MSC is without 
merit. This would effectively stay the Commission's determination that 
the allocation of preference cargo in an agreement permitting the 
charter of space on U.S.-flag vessels by foreign lines constitutes a 
violation of section 10(c)(6). The Commission's determination of this 
legal issue remains in effect, no stay having been entered by the 
Commission or any court of competent jurisdiction.\18\ As we noted in 
MSC, an order by an administrative agency is presumed to be valid until 
such time as it is overturned by a court of competent jurisdiction. 
See, e.g., Citizens to Preserve Overton Park, Inc. versus Volpe, 401 
U.S. 402, 415-16 (1971); Motor Vehicle Manufacturers Association of the 
United States, Inc. versus Ruckelshaus, 719 F.2d 1159, 1164 (D.C. Cir. 
1983).
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    \18\ No stay was requested or suggested as necessary by any 
party in the context of the MSC proceeding.
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    Accordingly, the appeal of the MSC decision provides no basis to 
permit the effectiveness, without investigation, of allocation language 
based on U.S. cargo preference laws having the same or similar effects 
to that found in MSC to constitute a violation of section 10(c)(6). 
Therefore, the Motion is denied with respect to delay of the filing of 
initial submissions until 30 days after issuance of the decision in MSC 
by the D.C. Circuit. A new procedural schedule for the conduct of this 
proceeding is established below.
    As a result of MarAd's withdrawal of the March 11, 1997 section 804 
waiver, no question remains as to whether that letter constitutes ``law 
of the United States,'' within the meaning of section 10(c)(6), 
requiring the cargo preference reservation in either of the Agreements. 
It would therefore appear that no basis exists as a matter of law or of 
fact at this time for dismissal of the existing proceeding with respect 
to the Four Party Agreement.
    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., 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 
APL/MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-
011596, from soliciting cargo from a particular shipper or shippers;
    It is further ordered, that American President Lines, Ltd., Mitsui 
O.S.K. Line, Ltd., and Hyundai Merchant Marine, Ltd. show cause why an 
order should not be issued disapproving, canceling or modifying the 
APL/MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-
011596;
    It is further ordered, that the Motion to Dismiss Docket No. 97-18 
of American President Lines, Ltd. is denied;

[[Page 3120]]

    It is further ordered, that the Motion of Orient Overseas Container 
Lines, Inc. to be dismissed as a party to Docket No. 97-18 is denied;
    It is further ordered, that any person having an interest and 
desiring to intervene in this proceeding in connection with the APL/
MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-011596, 
shall file a petition for leave to intervene in accordance with Rule 72 
of the Commission's rules of practice and procedure, 46 CFR 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 affidavits of fact and memoranda of law 
addressing issues with respect to both the Four Party Agreement and the 
New Agreement shall be filed by Respondents and any intervenors in 
support of Respondents no later than February 20, 1998;
    It is further ordered, that reply affidavits and memoranda of law 
addressing issues with respect to both the Four Party Agreement and the 
New Agreement shall be filed by the Bureau of Enforcement and any 
intervenors in opposition to Respondent no later than March 20, 1998;
    It is further ordered, that rebuttal affidavits and memoranda of 
law addressing issues with respect to both the Four Party Agreement and 
the New Agreement shall be filed by Respondents and intervenors in 
support no later than April 3, 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 April 3, 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 CFR 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 CFR 502.61, the 
Order to Show Cause served October 17, 1997 in this proceeding is 
amended to require that the final decision of the Commission in this 
proceeding shall be issued by July 3, 1998.
    By the Commission.
Joseph C. Polking,
Secretary.
[FR Doc. 98-1291 Filed 1-20-98; 8:45 am]
BILLING CODE 6730-01-M