[Federal Register Volume 63, Number 159 (Tuesday, August 18, 1998)]
[Notices]
[Pages 44259-44262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22112]


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FEDERAL MARITIME COMMISSION

[Docket No. 98-14]


Shipping Restrictions, Requirements and Practices of the People's 
Republic of China

AGENCY: Federal Maritime Commission.

ACTION: Notice of Inquiry.

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SUMMARY: The Federal Maritime Commission has concerns about laws, 
rules, and policies of the Government of the People's Republic of China 
that appear to have an adverse impact on U.S. shipping, and which may 
merit Commission attention under section 19 of the Merchant Marine Act, 
1920 or the Foreign Shipping Practices Act of 1988. The Commission is 
seeking information on a number of Chinese practices and restrictions 
and their effects on U.S. oceanborne trade from interested parties, 
including shippers, transportation intermediaries, vessel operators and 
others in the shipping industry.

DATES: Comments due on or before October 2, 1998.

ADDRESSES: Send comments (original and 20 copies) to: Joseph C. 
Polking, Secretary, Federal Maritime Commission, 800 North Capitol 
Street, NW, Washington, DC 20573-0001, (202) 523-5725.

FOR FURTHER INFORMATION CONTACT: Thomas Panebianco, General Counsel, 
Federal Maritime Commission, 800 North Capitol Street, NW, Washington, 
DC 20573-0001 (202) 523-5740.

SUPPLEMENTARY INFORMATION:

Background

    In recent months, a number of sources have expressed concerns to 
the Federal Maritime Commission (``FMC'' or ``Commission'') about laws, 
rules, and policies of the Government of the People's Republic of China 
that appear to have an adverse impact on U.S. oceanborne commerce. The 
Commission has initiated this proceeding to compile a record on these 
matters in order to determine if further Commission action under 
section 19 of the Merchant Marine Act, 1920 (``section 19'') or the 
Foreign Shipping Practices Act of 1988 (``FSPA'') is 
warranted.1 This Notice of Inquiry, directed at shippers, 
transportation intermediaries, vessel operators and other interested 
parties, inquires about the particular issues and restrictions they 
face in China, and the effects of those restrictions on their business 
operations.
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    \1\ Section 19 of the Merchant Marine Act, 1920, 46 U.S.C. app. 
sec. 876, authorizes the Commission, inter alia, to: make rules and 
regulations affecting shipping in the foreign trade not in conflict 
with law in order to adjust or meet general or special conditions 
unfavorable to shipping in the foreign trade * * * which arise out 
of or result from foreign laws, rules, or regulations or from 
competitive methods or practices employed by owners, operators, 
agents, or masters of vessels of a foreign country; * * *.
    The Foreign Shipping Practices Act of 1988, 46 U.S.C. app. sec. 
1710a, authorizes the Commission to investigate whether any laws, 
rules, regulations, policies, or practices of foreign governments, 
or any practices of foreign carriers or other persons providing 
maritime or maritime related services in a foreign country result in 
the existence of conditions that (1) adversely affect the operations 
of United States carriers in the United States oceanborne trade; and 
(2) do not exist for foreign carriers of that country in the United 
States under the laws of the United States or as a result of acts of 
United States carriers or other persons providing maritime or 
maritime-related services in the United States. If the Commission 
determines that such adverse conditions exist, it may take actions 
including limitations on sailings, suspension of tariffs, suspension 
of agreements, or fees not to exceed $1,000,000 per voyage.
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Executive Branch Agencies' Assessment

    On July 22, 1998, John E. Graykowski, Acting Maritime 
Administrator, U.S. Department of Transportation, wrote to Commission 
Chairman Creel on behalf of the Departments of Transportation, State, 
and Commerce, to provide the Commission with a description of the 
maritime relationship between the United States and China. The 
Executive Branch agencies first described in broad terms the apparent 
policy differences that underlie many of the particular points of 
contention in U.S.-Sino maritime relations:

    The focal point for non-Chinese companies interested in maritime 
trade with China and

[[Page 44260]]

accustomed to operating in a free market is the apparent Chinese 
policy of seeking to control the trade rather than allow market 
forces to operate. In practice, this policy has been characterized 
by increasing restrictions imposed unilaterally by the Chinese 
government on foreign carriers' operations. Efforts to expand the 
scope of their business operations required extended 
intergovernmental negotiations. * * * An important aspect of this 
policy is a general lack of transparency. We believe U.S. carriers 
in the China trade, as global intermodal transportation companies, 
feel acutely the effects of Chinese restrictions. In addition, the 
limitation, restriction or prevention of efficient shipping and 
intermodal services by foreign companies negatively affects users of 
shipping services as well.
    In recent years, the Executive Branch agencies have met repeatedly 
with their Chinese counterparts, led by the Ministry of Communications 
(``MOC''), ``to persuade them to remove the restrictions that U.S. 
carriers face in the China trade and, in so doing, to achieve operating 
conditions for them in China that are equivalent to the open, market-
oriented treatment enjoyed by Chinese carriers in the United States.'' 
The Acting Maritime Administrator attached to this letter a copy of the 
Agreed Minutes of the most recent negotiating rounds, in Beijing, June, 
25-28, 1997, and in Washington, December 3-11, 1997. The talks covered 
ten main areas: access by U.S. carriers to Chinese ports on 24-hour 
approval; Shanghai Shipping Exchange; Chinese multimodal regulation; 
shipping between Hong Kong, China, and mainland China; shipping across 
the Taiwan Strait; limitations on carriers' branch offices in China; 
exclusion of foreign carriers from vessel agency operations in China; 
the Port of Tianjin/Sea-Land joint venture to operate a marine 
terminal; the Controlled Carrier Act (section 9 of the Shipping Act of 
1984); and COSCO's efforts to lease a marine terminal at a former U.S. 
Navy facility in Long Beach, California.
    The Executive Branch agencies also reported on an unwritten 
agreement the U.S. and Chinese delegation came to in December, 1997. 
This agreement reportedly had three parts:
     The Maritime Administration and the U.S. carriers would 
support in writing a China Ocean Shipping (Group) Company, Inc. 
(``COSCO'') petition to the Commission for permission to match 
competitors' rates on 24 hours' notice (as opposed to the statutory 30-
day period for controlled carriers);
     The MOC would approve American President Lines, Ltd. and 
Sea-Land Service, Inc.'s pending port access requests and would act 
expeditiously (i.e., within 10 days) on their future requests; and
     The MOC would approve Sea-Land's joint venture with the 
Port of Tianjin.
    Although the Commission granted the relief sought by 
COSCO,2 the Executive Branch agencies reported, MOC has not 
yet given the necessary approval for the Sea-Land terminal venture in 
Tianjin. The agencies said that some U.S. carrier applications now have 
been approved, some have not yet been acted upon, and at least one has 
been rejected.
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    \2\ By Final Order dated March 27, 1998, in Petition No. P1-98, 
the Commission granted COSCO an exemption from the statutory waiting 
period for rate changes for a controlled carrier under the 
Controlled Carrier Act. COSCO's petition was supported in writing by 
U.S. carriers Sea-Land Service, Inc. and American President Lines, 
Ltd., MARAD, and a number of shippers. The Commission granted 
COSCO's request for an exemption from the 30-day delay in tariff 
effectiveness on the basis that such an exemption met the four 
criteria in section 16 of the 1984 Act. Despite COSCO's 
representations in that proceeding that the expedited filing was 
important to their ability to compete, it has not once used the 
authority granted it in the exemption.
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    The Executive Branch agencies noted new Chinese regulations 
prescribing penalties for operators of unapproved liner services, 
including fines and confiscation of revenues and business licenses. 
They also observed that ``access by foreign vessels to ostensibly open 
ports in China is now solely at the discretion of MOC,'' and ``a 
variety of normal commercial activities, including, for example, rate-
setting and use of intermodal through bills of lading, are subject to 
monitoring, approval or denial by MOC.''

Other Recent Communications Regarding China Maritime Policy

    The Commission received a letter, dated June 24, 1998, from Owen G. 
Glenn, Chairman of Direct Container Line, an U.S.-based non-vessel-
operating common carrier (``NVOCC''), raising the issue of Chinese 
restrictions on foreign NVOCCs. Mr. Glenn took note of the Commission's 
efforts in support of Direct's successful attempts to enter the Korean 
market,3 and the Commission's support for Executive Branch 
agencies' efforts to open the Brazilian market to U.S. NVOCCs, and 
asked what action the Commission might consider taking with regard to 
current Chinese restrictions.
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    \3\ See Docket No. 92-42, Actions to Adjust or Meet Conditions 
Unfavorable to Shipping in the United States/Korea Trade, 26 S.R.R. 
591. In response to a Petition (No. P2-92) filed by Direct Container 
Line, the Commission issued a Final Rule on November 13, 1992, under 
section 19(1)(b) of the Merchant Marine Act, 1920. The Commission 
found that the Korean Maritime Transportation Business Act created 
conditions which, inter alia, precluded or tended to preclude non-
Korean NVOCCs and freight forwarders from competing in the U.S./
Korean trade, and denied NVOCCs and freight forwarders owned and 
operated by non-Korean nationals equal access to cargo moving from 
Korea to the United States.
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    FMC Chairman Creel also received a letter, dated June 16, 1998, 
from Senator Ernest F. Hollings, expressing his concern for the 
deterioration of the U.S.-China maritime relationship and the 
limitations imposed by MOC on U.S. carriers in the Chinese trade. 
Specifically, the Senator observed that U.S. carriers are subject to a 
cumbersome approval process for routine vessel and itinerary changes, 
restrictions on number and location of their branch offices in China, 
limits on their intermodal services to inland customers in China, and a 
complete prohibition on their operation of vessel agency services. 
Senator Hollings reminded the Chairman that COSCO, now one of the 
largest and most successful carriers in the U.S. trades, does not face 
these same restrictions in the United States.
    The Senator further recounted the making of the unwritten 
``Gentlemen's Agreement'' between U.S. and Chinese negotiators in 
December 1997, and the U.S. side's actions to honor that agreement. The 
Chinese, he noted, had still failed to act on their agreement to 
approve vessel registration applications and U.S. carrier port access, 
and to approve a U.S. carrier's port operating joint venture. Senator 
Hollings urged the Commission to investigate these matters and act to 
encourage China to remove restrictions on U.S. carriers so they may 
compete freely and openly in China.
    The Commission also has been approached on a number of occasions by 
U.S.-flag vessel operators, who have complained informally about the 
matters raised by the Executive Branch agencies, and underscored their 
desire for improvements.

COSCO's Recent Statements

    COSCO issued a public statement addressing the criticism of Chinese 
shipping policies by U.S. officials. The thrust of COSCO's position is 
that it is subject to the same restrictions as U.S. carriers in China, 
and that it is subject to discriminatory treatment under the controlled 
carrier provisions of the Shipping Act. COSCO stated, in part: 
4

    \4\ ``COSCO's Response and Clarifications to Allegations Made by 
the Honorable Senators: E. Hollings, C. Thomas, J. Helms, G. Smith 
and J. Breaux,'' www.cosco-usa.com/ie4/news/sale.htm.
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    Earlier this year, talks were held in both the United States and 
China to try to reciprocally lessen regulations for Chinese carriers 
in the U.S. and for U.S. carriers in China. The spirit and intent of 
these talks were to enhance and encourage a more free and open trade 
environment for the two

[[Page 44261]]

important trading partners. Recent comments made would lead public 
opinion to believe that Chinese flag carriers receive complete 
freedom to operate without any restrictions in the U.S. while U.S. 
carriers are severely restricted in China. These statements are 
inaccurate, as Chinese flag carriers operate under controlled 
carrier restrictions in the United States. Although U.S. flag 
carriers may be facing some restrictions in China, these 
restrictions are universally applied and do not single out certain 
carriers. Pursuant to the memorandum of U.S.-Sino Maritime 
discussions signed in June of 1996, U.S. flag carriers were granted 
important trade concessions not available to other countries. 
Additional concessions were granted to the U.S. carriers recently 
including permission to establish 6 additional shipping routes in 
China.
    Earlier this year, Chinese carriers were granted a limited 
exemption from the controlled carrier restrictions by allowing them 
to meet a filed rate of a competing ocean shipping line on one day's 
notice. While we saw this as a good first step, most of the progress 
that was made with this exemption would be negated if the current 
deregulation bill S-414 is passed. COSCO will lose its flexibility 
in tariff pricing if the current deregulation bill is passed. We 
will be deprived our current right to file rates in China/Hong Kong-
US bilateral trade on one day's notice, thus making COSCO's 
competitiveness reduced dramatically. The intent of the talks 
between the two nations were to reduce restrictions on both sides, 
granting Chinese shipping lines matching ability on the cross trades 
while introducing new regulations on the bilateral trades 
contradicts the intent of the discussions.

Discussion and Request for Comments

    The Commission, in order to determine whether any of a number of 
Chinese laws, rules, regulations, policies or practices merit further 
Commission action under section 19 or the Foreign Shipping Practices 
Act, is collecting information on the following specific areas at this 
time.

1. NVOCC and Freight Forwarder Operations

    As noted by Direct Container Line, U.S. NVOCCs and ocean freight 
forwarders appear to face serious restrictions in obtaining the 
necessary licenses and permissions to do business in China. Indeed, it 
appears that wholly foreign-owned NVOCCs such as Direct Container Line 
are barred from engaging in a number of commercial activities, such as 
offering through transportation as an NVOCC. Other types of services 
appear to be permitted, but only if a foreign firm enters a joint 
venture with a Chinese entity. The Commission is seeking to establish a 
clear record of what types of services U.S. NVOCCs or forwarders are 
permitted to perform in China, what activities are prohibited, and what 
requirements or prerequisites are imposed. We note that Chinese 
forwarders and NVOCCs, in contrast, face no nationality-based 
restrictions doing business in this country.
    Therefore, it would be useful for the Commission to receive 
comments describing, in detail, what types of transportation 
intermediary activities are permitted, what are prohibited, and in what 
instances are joint ventures or similar arrangements required. What 
conditions, requirements or restrictions are placed on ocean 
transportation intermediary activities (e.g., arranging inland or ocean 
transportation, preparing documentation and issuing bills of lading, 
consolidation, warehousing, cargo agency, logistics services, etc.)? 
What types of licenses are required, and what restrictions are placed 
on their issuance? Who issues the necessary licenses and permissions, 
and what are the legal standards and procedures for granting them? 
Also, what commercial partners are available in China for joint 
ventures, and under what commercial conditions?
    Individual companies' accounts of their efforts, successful or 
otherwise, to establish operations in China, and their dealings with 
Chinese authorities, would be useful. Any supporting documentation 
would be welcomed.
    The Commission also seeks to determine the effects on shippers of 
any such restrictions; that is, do restrictions on foreign 
transportation intermediaries have any adverse effects on shippers' 
ability to secure efficient and economical intermodal transportation 
services in U.S. oceanborne commerce?

2. Port Access and Licensing of Liner Services

    The Commission has concerns about apparent Chinese restrictions on 
port access or the licensing of liner services. Despite the fact that 
the U.S.-China bilateral agreement authorizes vessel calls on 24 hours' 
notice for national flag vessels, it appears that MOC requires foreign 
carriers to obtain licenses or pre-approvals to offer liner services at 
Chinese ports. It appears that this licensing procedure can take up to 
90 days or more. Details of the approval process are not apparent; it 
is unclear whether permissions are granted by service string, by port, 
by company or consortium, or by vessel. Moreover, it is not clear what 
the criteria are by which requests can be withheld or denied, and what, 
if any, appeal rights carriers enjoy.
    By separate order, the Commission has requested more information on 
these matters from U.S. and Chinese shipping lines. However, the 
Commission would welcome comments from any other carrier, shipper, or 
other party that could shed light on these practices and their effects 
on U.S.-China oceanborne trade.

3. Carrier Branch Offices and Multimodal Transport Operations

    U.S. carriers appear to face a number of restrictions in operating 
branch offices in China. Chinese authorities have denied carrier 
requests to increase the number of branch offices in China. The 
addition of branch offices for foreign carriers apparently has required 
direct government-to-government appeals and negotiations; such 
impediments certainly do not exist for Chinese lines. For the branch 
offices that do exist, it appears that there may be serious 
restrictions on their operations, both in terms of the geographic area 
they may serve and the scope of services they may offer. A number of 
these may be the same as, or similar to, the restrictions faced by 
NVOCCs and forwarders in China, as described above. Apparently, there 
are certain narrowly prescribed business areas in which U.S. carriers 
are allowed to operate; however, it is unclear just what those areas 
are.
    We are particularly concerned about restrictions that may limit 
carriers' ability to offer multimodal transportation services. It is 
our understanding that new regulations over such services have been 
proposed, and carriers wishing to offer them are required, or may soon 
be required, to seek central government permission. The Commission 
requires more information on such restrictions on carriers' branch 
office or multimodal operations.
    Chinese authorities have advocated a ``most-favored-nation'' 
approach to shipping regulation. Under such an approach, the subject 
country treats all foreign business concerns operating therein the same 
in terms of rights and restrictions. It would appear, however, that the 
most-favored-nation approach advocated by Chinese authorities bestows 
on Chinese shipping lines an extraordinary commercial advantage; they 
(unlike their competitors) can reap the benefits of the important and 
expanding Chinese market with a more extensive and unrestricted network 
of branch offices and multimodal operations, while taking advantage of 
the relative lack of restrictions on offices, marketing, and inland 
transport in the United States.5
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    \5\ Indeed, it is no defense under section 19 and the FSPA to 
suggest that U.S. companies are treated no worse than other foreign 
firms. Under section 19, the Commission is directed to address 
conditions unfavorable to shipping in the foreign trade; that all 
non-Chinese carriers in the trade are subject to the same 
unfavorable conditions would appear to augment rather than lessen 
the effect of those conditions. Under the FSPA, the Commission is 
specifically directed to compare the treatment of U.S. carriers in a 
foreign country to the treatment of that country's carriers in the 
U.S., not to the treatment of other foreign lines abroad.

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[[Page 44262]]

    The Commission would welcome comments from any carrier, shipper, or 
other party on the details or effects of these issues.

4. Vessel Agency Services

    The Commission would also benefit from comments on the apparent 
Chinese restriction on foreign firms offering vessel agency services. 
It appears that China requires U.S. carriers to deal with PENAVICO (a 
subsidiary of COSCO) or China Marine Service (a subsidiary of China 
National Foreign Trade Transportation (Group) Corporation 
(``Sinotrans'')). The fact that ``[f]oreign shipping companies may 
select freely any shipping agencies for services, provided that these 
agencies are entitled to perform their services for foreign vessels,'' 
as the Chinese delegation remarked, appears to be of little consequence 
if only Chinese government-owned vessel agency services have such 
approval. Similarly, our concerns are not allayed by the Chinese 
assertions in bilateral maritime discussions that Chinese vessel agency 
companies are ``entirely independent from their parent companies,'' as 
Chinese carriers face no similar restrictions in the United States.
    It would be beneficial to determine exactly what the legal bases 
are for the exclusion of U.S. carriers from this market in China; what 
specific services are at issue; what the commercial impact of the 
restrictions may be; and whether Chinese carriers perform such services 
for themselves in this country.
    Now Therefore, it is Ordered, that this Notice of Inquiry be 
published in the Federal Register.

    By the Commission.
Joseph C. Polking,
Secretary.
[FR Doc. 98-22112 Filed 8-17-98; 8:45 am]
BILLING CODE 6730-01-P