[Federal Register Volume 64, Number 32 (Thursday, February 18, 1999)]
[Rules and Regulations]
[Pages 8007-8013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3757]


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FEDERAL MARITIME COMMISSION

46 CFR Parts 550, 551, 555, 560, 565, 585, 586, 587, and 588

[Docket No. 98-25]


Amendments to Regulations Governing Restrictive Foreign Shipping 
Practices, and New Regulations Governing Controlled Carriers

AGENCY: Federal Maritime Commission.

ACTION: Final rule.

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SUMMARY: The Federal Maritime Commission is revising and redesignating 
its regulations relating to section 19 of the Merchant Marine Act, 
1920, section 13(b)(5) of the Shipping Act of 1984, and the Foreign 
Shipping Practices Act of 1988, and adding new regulations relating to 
section 9 of the Shipping Act of 1984, in order to incorporate certain 
amendments made by the Ocean Shipping Reform Act of 1998 as well as to 
clarify and reorganize existing regulations.

DATES: This rule is effective May 1, 1999.

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

SUPPLEMENTARY INFORMATION: On December 4, 1998, the Federal Maritime 
Commission (``Commission'') published a proposed rule to revise its 
regulations on restrictive foreign shipping practices and controlled 
carriers. 63 FR 67030. The proposed rule implemented changes made by 
the Ocean Shipping Reform Act of 1998, Pub. L. 105-258, 112 Stat. 1902 
(``OSRA''), and also clarified existing regulations. Interested parties 
were given the opportunity to submit comments on the proposed rule. The 
Commission received four comments from industry groups and regulated 
entities.
    The first comment received by the Commission is from the Council of 
European and Japanese National Shipowners' Associations (``CENSA''), 
which has three specific comments to the proposed rule. CENSA first 
addresses Secs. 550.102 and 550.301, which explicate the regulatory 
action that may be taken by the Commission in the event it finds 
foreign shipping practices to create conditions unfavorable to 
shipping. The proposed regulations indicate that the Commission may 
take action when it finds that ``competitive methods, pricing practices 
or other practices'' have created conditions unfavorable to shipping. 
This language tracks verbatim OSRA's changes to section 19(a)(2) 
(formerly section 19(1)(b)) of the Merchant Marine Act, 1920. CENSA 
fears that this provision expands the Commission's power over 
privately-operated shipping companies with respect to their commercial 
pricing practices. CENSA states that Organisation for Economic 
Cooperation and Development (``OECD'') member nations have agreed to 
reach a uniform consensus as to the appropriate measures to be taken to 
address unfair or non-commercial practices. CENSA believes that such 
issues must be taken up in inter-governmental fora rather than by the 
Commission. CENSA requests that the Commission state that it will not 
pursue any matter under section 19 of the Merchant Marine Act, 1920 
regarding the pricing practices of owners or operators of vessels of a 
foreign country unless those practices have been shown to be otherwise 
in violation of the Shipping Act of 1984 (``1984 Act'').
    CENSA's comment would have the Commission affirmatively abdicate 
its statutory responsibility to combat conditions unfavorable to 
shipping vested in it by Congress for the purpose of permitting other 
bodies, like the OECD, to establish uniform rules. By including in OSRA 
references to ``pricing practices,'' Congress has bestowed upon the 
Commission the specific responsibility to review and retaliate against 
such practices where they create conditions unfavorable to shipping in 
the U.S. foreign trade. The Commission cannot disregard this duty; 
should Congress determine through legislation to defer to the OECD or 
some other such forum, then the Commission would change its approach 
accordingly. We note, moreover, that the addition of ``pricing 
practices'' to the statute is a clarification of existing law and 
authority, rather than an expansion of such. The Commission has long 
interpreted ``pricing practices'' to be included within the meaning of 
``practices'' generally, and has on numerous occasions acted 
accordingly. The Commission has therefore determined not to incorporate 
CENSA's comment into the final rule.
    CENSA then addresses Sec. 560.2(c), in which the Commission 
proposed to eliminate the term ``fighting ships'' from its regulation, 
and substitute in its place language forbidding ``below market pricing 
designed to exclude competition.'' CENSA states that the Commission's 
determination to eliminate the term ``fighting ships'' must be taken in 
concert with what CENSA views as the survival of the fighting ship 
concept, though not the term, in OSRA. CENSA argues that Congress did 
not intend to eliminate the concept of fighting ships, but instead 
meant to recognize current conditions in which predatory practices 
would often be undertaken by multiple ship combinations rather than by 
a single ``fighting ship.'' CENSA points to section 10(b)(6) of the 
1984 Act as amended by OSRA as evidence of the survival of the fighting 
ship concept. That section indicates that ``(n)o common carrier, either 
alone or in conjunction with any other person, directly or indirectly, 
may use a vessel or vessels in a particular trade for the purpose of 
excluding, preventing, or reducing competition, by driving another 
ocean common carrier out of that trade.'' Prior to the enactment of 
OSRA, the section (previously designated as section 10(b)(7)) indicated 
that ``(n)o common carrier, either alone or in conjunction with any 
other person, directly or indirectly, may employ a fighting ship.'' 
CENSA argues that the replacement of the term ``fighting ship'' 
reflects a refinement of the concept. CENSA fears that the proposed 
regulation proffered by the Commission is too vague and could lead to 
an overly broad interpretation to the detriment of competitive pricing 
mechanisms. For this reason, CENSA proposes that the Commission include 
the language from section 10(b)(6) in place of the term ``fighting 
ship'' in 46 CFR 560.2(c).
    The deletion of the term ``fighting ship'' from Sec. 560.2(c) was 
undertaken to reflect the deletion of that term from the 1984 Act. 
However, the definition of ``predatory practices'' in Sec. 560.2(c), as 
CENSA has made clear, should continue to include the concept of a 
reduction in competition through the use of pricing mechanisms designed 
to push a common carrier out of a particular trade.

[[Page 8008]]

The section as proposed indicated that predatory practices may be but 
are not limited to below cost pricing and the use of closed conferences 
employing deferred rebates. Other actions or practices may very well 
fall into the definition of ``predatory practices,'' as the list is not 
exhaustive. However, CENSA's comment in this regard does serve to 
clarify and refine the concept the Commission attempted to propose in 
section 560.2(c); accordingly, the Commission has determined to amend 
Sec. 560.2(c) to read as follows:

    (c) Use of predatory practices, possibly including but not 
limited to the use of a vessel or vessels in a particular trade for 
the purpose of excluding, preventing, or reducing competition by 
driving another ocean common carrier out of that trade, and closed 
conferences employing deferred rebates, which unduly impair access 
of a U.S. flag vessel to the trade.

    Finally, CENSA addresses Sec. 560.7(b)(3)(i), in which the 
Commission proposed to include the suspension of service contracts as a 
possible remedy to address restrictive foreign shipping practices under 
section 13(b)(6) of the 1984 Act. CENSA argues that OSRA did not amend 
section 13(b)(6) of the 1984 Act to include the suspension of service 
contracts, although it did amend other sections of the Act to reflect 
this penalty.
    CENSA is mistaken. The Foreign Shipping Practices Act of 1988 
(``FSPA'') as amended by OSRA indicates that ``the actions against 
foreign carriers authorized in subsections (e) and (f) * * * may be 
used in the administration and enforcement of section 13(b)(6) of the 
Shipping Act of 1984.'' See subsection 11a(h). The actions in 
subsections (e) and (f) include, at subsection (e)(1)(B), ``suspension, 
in whole or in part, of any or all tariffs and service contracts.'' The 
suspension of service contracts is authorized by OSRA's modification to 
the FSPA, and is correctly included in Sec. 560.7(b)(3)(i).
    The second comment is from the National Industrial Transportation 
League (``NITL''), a shipper organization. The comment examines 
redesignated part 560, which implements section 13(b)(6) of the 
Shipping Act of 1984, as revised (and renumbered--it was formerly 
section 13(b)(5)) by OSRA. The comment specifically addresses 
Sec. 560.2(c), in which the Commission proposed to amend its 
regulations relating to ``predatory practices'' by including in the 
description of such practices the definition ``possibly including but 
not limited to below market pricing designed to exclude competition.'' 
NITL states that this amendment is not necessitated by OSRA, is vague, 
and is not supported by well-developed law. NITL states that it is 
concerned that the precedent established by this proposed rule, if 
implemented, could be used in other contexts, like claims under section 
10 of the 1984 Act, and that such usage would be inappropriate.
    NITL argues that case law indicates that the term ``predatory 
practices'' is taken to mean pricing activity below costs, not below 
market pricing, citing inter alia Brooke Group, Ltd. v. Brown and 
Williamson Tobacco Corp., 509 U.S. 209 (1993). NITL concludes that the 
reference to ``below market pricing designed to exclude competition'' 
should be eliminated.
    As explained above, in response to CENSA's comment, Sec. 560.2(c) 
has been amended to remove the reference to ``below market pricing.'' 
For this reason, NITL's concerns with the use of the ``below market'' 
language appear to have been mooted. Accordingly, no further change in 
the amended rule is necessitated.
    The third comment received by the Commission is from the China 
Ocean Shipping Company (``COSCO''). COSCO notes that OSRA has 
eliminated several exceptions to the Commission's controlled carrier 
program, which elimination will have the effect of imposing on COSCO 
controlled carrier regulations in the trade between the U.S. and China 
from which it was previously exempt. COSCO further states that it 
should not be considered a controlled carrier, as it allegedly does not 
receive any allocations or subsidies from the Chinese government.
    COSCO's comments are in the nature of a policy-based objection to 
the scope of the controlled carrier provisions, and Congress's deletion 
of certain exceptions. Therefore, no changes to the rule are warranted 
by COSCO's comments.
    The final comment received by the Commission is from Fruit Shippers 
Ltd. This comment, captioned as a response to Docket No. 98-25, in fact 
addresses issues as to the definition of ``common carrier'' in 
Secs. 514.2 and 572.104(f), which were raised in Docket No. 98-29, 63 
FR 70368. Because the comment relates only to those sections, and does 
not address any of the issues in this docket, the Commission will 
consider the comment in the context of that proceeding.
    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., the Chairman of the Federal Maritime Commission has certified to 
the Chief Counsel for Advocacy, Small Business Administration, that the 
rule will not have a significant impact on a substantial number of 
small entities. In its Notice of Proposed Rulemaking, the Commission 
stated its intention to certify this rulemaking because the proposed 
changes affect vessel-operating common carriers, entities that are not 
considered to be small. The comments received did not dispute the 
Commission's intention to certify; therefore, the certification is 
continued.
    This regulatory action is not a ``major'' rule under 5 U.S.C. 
804(2).

List of Subjects

46 CFR Parts 550 and 585

    Administrative practice and procedure, Maritime carriers.

46 CFR Part 551 and 586

    Japan, Maritime carriers.

46 CFR Parts 560 and 587

    Administrative practice and procedure, Maritime carriers.

46 CFR Parts 555 and 588

    Administrative practice and procedure, Investigations, Maritime 
carriers.

46 CFR Part 565

    Administrative practice and procedure, Maritime carriers, Reporting 
and recordkeeping requirements.

    For the reasons set out in the preamble, the Commission amends 46 
CFR parts 550, 551, 555, 560, 585, 586, 587, and 588, and adds new part 
565, as set forth below:
    1. Revise the heading of subchapter C to read:

SUBCHAPTER C--REGULATIONS AND ACTIONS TO ADDRESS RESTRICTIVE FOREIGN 
MARITIME PRACTICES

PART 585--REGULATIONS TO ADJUST OR MEET CONDITIONS UNFAVORABLE TO 
SHIPPING IN THE FOREIGN TRADE OF THE UNITED STATES [REDESIGNATED AS 
PART 550]

    1. Redesignate part 585 as part 550, and transfer newly designated 
part 550 to subchapter C.
    2. The authority citation for redesignated part 550 is revised to 
read as set forth below:

    Authority: 5 U.S.C. 553; sec. 19 (a)(2), (e), (f), (g), (h), 
(i), (j), (k) and (l) of the Merchant Marine Act, 1920, 46 U.S.C. 
app. 876 (a)(2), (e), (f), (g), (h), (i), (j), (k) and (l), as 
amended by Pub. L. 105-258; Reorganization Plan No. 7 of 1961, 75 
Stat 840; and sec. 10002 of the Foreign Shipping Practices Act of 
1988, 46 U.S.C. app. 1710a.

    2A. Add a note to newly designated Part 550 to read as follows:


[[Page 8009]]


    Note to Part 550: In accordance with 44 U.S.C. 3518(c)(1)(B), 
and except for investigations undertaken with reference to a 
category of individuals or entities (e.g., an entire industry), any 
information requests or requirements in this part 550 are not 
subject to the requirements of section 3507 of the Paperwork 
Reduction Act because such collections of information are pursuant 
to a civil, administrative action or investigation by an agency of 
the United States against specific individuals or entities.

    3. Revise redesignated Sec. 550.102 to read as follows:


Sec. 550.102  Scope.

    Regulatory actions may be taken when the Commission finds, on its 
own motion or upon petition, that a foreign government has promulgated 
and enforced or intends to enforce laws, decrees, regulations or the 
like, or has engaged in or intends to engage in practices which 
presently have or prospectively could create conditions unfavorable to 
shipping in the foreign trade of the United States, or when owners, 
operators, agents or masters of foreign vessels engage in or intend to 
engage in competitive methods, pricing practices or other practices 
which have created or could create such conditions.
    4. Revise redesignated Sec. 550.103(a) and (b) to read as follows:


Sec. 550.103  Definitions.

* * * * *
    (a) Act means the Merchant Marine Act, 1920, as amended by Pub. L. 
101-595 and as amended by Pub. L. 105-258.
    (b) Person means individuals, corporations, partnerships and 
associations existing under or authorized by the laws of the United 
States or of a foreign country, and includes any common carrier, tramp 
operator, bulk operator, shipper, shippers' association, importer, 
exporter, consignee, ocean transportation intermediary, marine terminal 
operator, or any component of the Government of the United States.
* * * * *
    5. Revise redesignated Sec. 550.201(a) to read as follows:


Sec. 550.201  Information orders.

* * * * *
    (a) The Commission may, by order, require any person (including any 
common carrier, tramp operator, bulk operator, shipper, shippers' 
association, ocean transportation intermediary, or marine terminal 
operator, or any officer, receiver, trustee, lessee, agent, or employee 
thereof), to file with the Commission a report, answers to questions, 
documentary material, or other information which the Commission 
considers necessary or appropriate;
* * * * *
    6. Revise redesignated Sec. 550.202(b) introductory text, and 
(b)(3) to read as follows:


Sec. 550.202  Type of information

* * * * *
    (b) Shipper, shippers' association, or ocean transportation 
intermediary in the affected trade to furnish any or all of the 
following information:
* * * * *
    (3) Amount of brokerage, ocean transportation intermediary 
compensation or other charges collected or paid in connection with 
shipments in the affected trade; and
* * * * *
    7. Revise the introductory text and paragraph (d) of redesignated 
Sec. 550.301 to read as follows:


Sec. 550.301  Findings.

    For the purposes of this part, conditions created by foreign 
governmental action or competitive methods, pricing practices or other 
practices of owners, operators, agents or masters of foreign vessels 
are found unfavorable to shipping in the foreign trade of the United 
States, if such conditions:
* * * * *
    (d) Restrict or burden a carrier's intermodal movements or shore-
based maritime activities, including terminal operations and cargo 
solicitation; agency services; ocean transportation intermediary 
services and operations; or other activities and services integral to 
transportation systems; or
* * * * *
    8. Revise redesignated Sec. 550.601(c) to read as follows:


Sec. 550.601  Actions to correct unfavorable conditions.

* * * * *
    (c) Suspend, in whole or in part, tariffs and service contracts for 
carriage to or from United States ports, including a common carrier's 
right to use tariffs of conferences and service contracts of agreements 
in United States trades of which it is a member for any period the 
Commission specifies;
* * * * *
    9. Revise redesignated Sec. 550.602 to read as follows:


Sec. 550.602  Penalty.

    A common carrier that accepts or handles cargo for carriage under a 
tariff or service contract that has been suspended under Sec. 550.505 
or Sec. 550.601 of this part, or after its right to use another tariff 
or service contract has been suspended under those sections, is subject 
to a civil penalty of not more than $50,000 for each day that it is 
found to be operating under a suspended tariff or service contract.

PART 586--ACTIONS TO ADJUST OR MEET CONDITIONS UNFAVORABLE TO 
SHIPPING IN THE U.S. FOREIGN TRADE [REDESIGNATED AS PART 551]

    1. Redesignate part 586 as part 551, and transfer newly designated 
part 551 to subchapter C.
    2. The authority citation for redesignated part 551 is revised to 
read as follows:

    Authority: 46 U.S.C. app. 876(1)(b); 46 U.S.C. app. 876 (5) 
through (12); 46 CFR part 550; Reorganization Plan No. 7 of 1961, 26 
FR 7315 (August 12, 1961).

    2A. Add a note to newly designated Part 551 to read as follows:

    Note to Part 551: In accordance with 44 U.S.C. 3518(c)(1)(B), 
and except for investigations undertaken with reference to a 
category of individuals or entities (e.g., an entire industry), any 
information requests or requirements in this part 551 are not 
subject to the requirements of section 3507 of the Paperwork 
Reduction Act because such collections of information are pursuant 
to a civil, administrative action or investigation by an agency of 
the United States against specific individuals or entities.


Sec. 551.3  [Removed]

    3. Redesignated Sec. 551.3 is removed.

PART 587--ACTIONS TO ADDRESS CONDITIONS UNDULY IMPAIRING ACCESS OF 
U.S.-FLAG VESSELS TO OCEAN TRADE BETWEEN FOREIGN PORTS 
[REDESIGNATED AS PART 560]

    1. Redesignate part 587 as part 560, and transfer newly designated 
part 560 to subchapter C.
    2. The authority citation for redesignated part 560 is revised to 
read as follows:

    Authority: 5 U.S.C. 553; secs. 13(b)(6), 15 and 17 of the 
Shipping Act of 1984, 46 U.S.C. app. 1712(b)(6), 1714, and 1716, as 
amended by Pub. L. 105-258; sec. 10002 of the Foreign Shipping 
Practices Act of 1988 (46 U.S.C. app. 1710a), as amended by Pub. L. 
105-258.

    3. Revise redesignated Sec. 560.1(a) to read as follows:


Sec. 560.1  Purpose; general provisions.

    (a)(1) It is the purpose of this part to enumerate certain 
conditions resulting from the action of a common carrier, acting alone 
or in concert with any person, or a foreign government, which unduly 
impair the access of a vessel

[[Page 8010]]

documented under the laws of the United States whether liner, bulk, 
tramp or other vessel, (hereinafter ``U.S. flag vessel'') to ocean 
trade between foreign ports, which includes intermodal movements, and 
to establish procedures by which the owner or operator of a U.S. flag 
vessel (hereinafter ``U.S. flag carrier'') may petition the Federal 
Maritime Commission for relief under the authority of section 
13(b)(6)of the Shipping Act of 1984 (``the Act'') (46 U.S.C. app. 
1712(b)(6)).
    (2) It is the further purpose of this part to indicate the general 
circumstances under which the authority granted to the Commission under 
section 13(b)(6)may be invoked, and the nature of the subsequent 
actions contemplated by the Commission.
    (3) This part also furthers the goals of the Act with respect to 
encouraging the development of an economically sound and efficient U.S. 
flag liner fleet as stated in section 2 of the Act (46 U.S.C. app. 
1701).
* * * * *
    4. Revise redesignated Sec. 560.2(c) to read as follows:


Sec. 560.2  Factors indicating conditions unduly impairing access.

* * * * *
    (c) Use of predatory practices, possibly including but not limited 
to the use of a vessel or vessels in a particular trade for the purpose 
of excluding, preventing, or reducing competition by driving another 
ocean common carrier out of that trade, and closed conferences 
employing deferred rebates, which unduly impair access of a U.S. flag 
vessel to the trade.
* * * * *
    5. Revise the first sentence of the introductory text of 
redesignated Sec. 560.5(a) to read as follows:


Sec. 560.5  Receipt of relevant information.

    (a) In making its decision on matters arising under section 
13(b)(6)of the Act, the Commission may receive and consider relevant 
information from any owner, operator, or conference in an affected 
trade, or from any foreign government, either directly or through the 
Department of State or from any other reliable source. * * *
    6. Revise redesignated Sec. 560.7(b)(3)(i) to read as follows:


Sec. 560.7  Decision; sanctions; effective date.

* * * * *
    (b) * * *
    (3)(i) Suspension, in whole or in part, of any or all tariffs or 
service contracts for carriage to or from United States ports for any 
period the Commission specifies, or until such time as unimpaired 
access is secured for U.S. flag carriers in the affected trade.
* * * * *

PART 588--ACTIONS TO ADDRESS ADVERSE CONDITIONS AFFECTING U.S. FLAG 
CARRIERS THAT DO NOT EXIST FOR FOREIGN CARRIERS IN THE UNITED 
STATES [REDESIGNATED AS PART 555]

    1. Redesignate part 588 as part 555, and transfer newly designated 
part 555 to subchapter C.
    2. The authority citation for redesignated part 555 is revised to 
read as follows:

    Authority: 5 U.S.C. 553; sec. 10002 of the Foreign Shipping 
Practices Act of 1988 (46 U.S.C. app. 1710a), as amended by Pub. L. 
105-258.

    2A. Add a note to newly designated part 555 to read as follows:

    Note to Part 555: In accordance with 44 U.S.C. 3518(c)(1)(B), 
and except for investigations undertaken with reference to a 
category of individuals or entities (e.g., an entire industry), any 
information requests or requirements in this part 555 are not 
subject to the requirements of section 3507 of the Paperwork 
Reduction Act because such collections of information are pursuant 
to a civil, administrative action or investigation by an agency of 
the United States against specific individuals or entities.

    3. Revise redesignated Sec. 555.1 to read as follows:


Sec. 555.1  Purpose.

    It is the purpose of the regulations of this part to establish 
procedures to implement the Foreign Shipping Practices Act of 1988, as 
amended by the Ocean Shipping Reform Act of 1998, which authorizes the 
Commission to take action against foreign carriers, whose practices or 
whose government's practices result in adverse conditions affecting the 
operations of United States carriers, which adverse conditions do not 
exist for those foreign carriers in the United States. The regulations 
of this part provide procedures for investigating such practices and 
for obtaining information relevant to the investigations, and also 
afford notice of the types of actions included among those that the 
Commission is authorized to take.
    4. Revise redesignated Sec. 555.2(a), (c), and (d) to read as 
follows:


Sec. 555.2  Definitions.

* * * * *
    (a) Common carrier, marine terminal operator, ocean transportation 
intermediary, ocean common carrier, person, shipper, shippers' 
association, and United States have the meanings given each such term, 
respectively, in section 3 of the Shipping Act of 1984 (46 U.S.C. app. 
1702);
* * * * *
    (c) Maritime services means port-to-port carriage of cargo by the 
vessels operated by ocean common carriers;
    (d) Maritime-related services means intermodal operations, terminal 
operations, cargo solicitation, agency services, ocean transportation 
intermediary services and operations, and all other activities and 
services integral to total transportation systems of ocean common 
carriers and their foreign domiciled affiliates on their own and 
others' behalf;
* * * * *
    5. Revise redesignated Sec. 555.4(a) and (c) to read as follows:


Sec. 555.4  Petitions.

    (a) A petition for investigation to determine the existence of 
adverse conditions as described in Sec. 555.3 may be submitted by any 
person, including any common carrier, shipper, shippers' association, 
ocean transportation intermediary, or marine terminal operator, or any 
branch, department, agency, or other component of the Government of the 
United States. Petitions for relief under this part shall be in 
writing, and filed in the form of an original and fifteen copies with 
the Secretary, Federal Maritime Commission, Washington, DC 20573.
* * * * *
    (c) A petition which the Commission determines fails to comply 
substantially with the requirements of paragraph (b) of this section 
shall be rejected promptly and the person filing the petition shall be 
notified of the reasons for such rejection. Rejection is without 
prejudice to the filing of an amended petition.
    6. Revise redesignated Sec. 555.8 (a)(2) to read as follows:


Sec. 555.8  Action against foreign carriers.

    (a) * * *
    (2) Suspension, in whole or in part, of any or all tariffs or 
service contracts, including the right of an ocean common carrier to 
use any or all tariffs or service contracts of conferences in United 
States trades of which it is a member for such period as the Commission 
specifies;
* * * * *
    1. Add part 565 to subchapter C to read as follows:

PART 565--CONTROLLED CARRIERS

Sec.
565.1  Purpose and scope.
565.2  Definitions.

[[Page 8011]]

565.3  Classification as controlled carrier.
565.4  Notification to Commission of change in control.
565.5  Exceptions.
565.6  Level of rates and charges generally.
565.7  Effective dates.
565.8  Special permission.
565.9  Commission review, suspension and prohibition of rates, 
charges, classifications, rules or regulations.
565.10  Suspension procedures, period and replacement rates.
565.11  Presidential review.
565.12  Stay, postponement, discontinuance or suspension of action.
565.13  OMB control number assigned pursuant to the Paperwork 
Reduction Act

    Authority: 46 U.S.C. App. 1708, as amended by Pub. L. 105-258.


Sec. 565.1  Purpose and Scope.

    (a) Purpose. The regulations of this part are intended to carry out 
the Commission's mandate under section 9 of the Shipping Act of 1984, 
as amended by the Ocean Shipping Reform Act of 1998, to monitor the 
practices of controlled carriers and ensure that they do not:
    (1) Maintain rates or charges in their tariffs and service 
contracts that are below a level that is just and reasonable; nor
    (2) Establish, maintain or enforce unjust or unreasonable 
classifications, rules or regulations in those tariffs or service 
contracts which result or are likely to result in the carriage or 
handling of cargo at rates or charges that are below a just and 
reasonable level.
    (b) Scope. The regulations contained in this part set forth the 
special procedures whereby controlled carriers' tariffs and service 
contracts become effective and are reviewed by the Commission. These 
regulations in no way exempt controlled carriers from other Commission 
regulations or statutory authority to which they may otherwise be 
subject as ocean common carriers. These regulations apply to all 
controlled carriers operating in the foreign commerce of the United 
States unless excepted under section 9(f) of the Shipping Act of 1984, 
as reflected by Sec. 565.5.


Sec. 565.2  Definitions.

    (a) Controlled carrier means an ocean common carrier that is, or 
whose operating assets are, directly or indirectly owned or controlled 
by a government. Ownership or control by a government shall be deemed 
to exist with respect to any ocean common carrier if:
    (1) A majority portion of the interest in the carrier is owned or 
controlled in any manner by that government, by any agency thereof, or 
by any public or private person controlled by that government; or
    (2) That government has the right to appoint or disapprove the 
appointment of a majority of the directors, the chief operating officer 
or the chief executive officer of the carrier.
    (b) Effective date has the same meaning it has in 46 CFR part 520.


Sec. 565.3  Classification as controlled carrier.

    (a) Notification. The Commission will periodically review the ocean 
common carriers operating in the foreign commerce of the United States 
and will notify any ocean common carrier of any change in its 
classification as a controlled carrier.
    (b) Rebuttal of classification. (1) Any ocean common carrier 
contesting such a classification may, within 30 days after the date of 
the Commission's notice, submit a rebuttal statement.
    (2) The Commission shall review the rebuttal and notify the ocean 
common carrier of its final decision.


Sec. 565.4  Notification to Commission of change in control.

    Whenever the operation, control or ownership of an ocean common 
carrier is transferred resulting in a majority portion of the interest 
of that ocean common carrier being owned or controlled in any manner by 
a government, the ocean common carrier shall immediately send written 
notification of the details of the change to the Secretary of the 
Commission. If a carrier is newly commencing ocean common carrier 
operations in a United States trade, and if a majority portion of the 
carrier is owned or controlled by a government, or if a government may 
approve or disapprove the majority of directors or the chief executive 
or operating officer of the carrier, the carrier shall immediately send 
written notification to the Secretary of the details of such ownership 
or control.


Sec. 565.5  Exceptions.

    All controlled carriers shall be subject to provisions of this part 
and section 9 of the Shipping Act of 1984 except those which meet the 
following exceptions:
    (a) When the vessels of the controlling state are entitled by a 
treaty of the United States to receive national or most-favored-nation 
treatment; or
    (b) When the controlled carrier operates in a trade served 
exclusively by controlled carriers.


Sec. 565.6  Level of rates and charges generally.

    No controlled carrier may maintain or enforce rates or charges in 
its tariffs or service contracts that are below a level that is just 
and reasonable. No controlled carrier may establish or maintain unjust 
or unreasonable classifications, rules, or regulations in its tariffs 
or service contracts. An unjust or unreasonable classification, rule or 
regulation means one that results or is likely to result in the 
carriage or handling of cargo at rates or charges that are below a just 
and reasonable level. See Sec. 565.9(a)(2) (Rate standards).


Sec. 565.7  Effective dates.

    (a) Generally. Except for service contracts, the rates, charges, 
classifications, rules or regulations of controlled carriers may not, 
unless the Commission has granted special permission, become effective 
sooner than the 30th day after the date of publication.
    (b) Open rates--(1) Generally. Controlled carriers that are members 
of conference agreements publishing rates for commodities designated as 
open by the conference are subject to the 30-day controlled carrier 
notice requirement, except when special permission is granted by the 
Commission under Sec. 565.8.
    (2) Conference publication of reduced open rates. Notwithstanding 
paragraph (b)(1) of this section, a conference may, on less than 30 
days' notice, publish reduced rates on behalf of controlled carrier 
members for open-rated commodities:
    (i) At or above the minimum level set by the conference; or
    (ii) At or above the level set by a member of the conference that 
has not been determined by the Commission to be a controlled carrier 
subject to section 9 of the Shipping Act of 1984.
    (c) Independent action rates of controlled carriers. Conferences 
may publish on behalf of their controlled carrier members lower 
independent action rates on less than 30 days' notice, subject to the 
requirements of their basic agreements and subject to such rates being 
published at or above the level set by a member of the conference that 
has not been determined by the Commission to be a controlled carrier 
subject to section 9 of the Shipping Act of 1984.


Sec. 565.8  Special permission.

    Section 8(d) of the Shipping Act of 1984 authorizes the Commission, 
in its discretion and for good cause shown, to permit increases or 
decreases in rates, or the issuance of new or initial rates, on less 
than statutory notice under Sec. 565.7. Section 9(c) of the Shipping 
Act of 1984 authorizes the Commission to permit a controlled carrier's 
rates, charges, classifications, rules or regulations to become 
effective on less than 30 days' notice. The Commission may also in its

[[Page 8012]]

discretion and for good cause shown, permit departures from the 
requirements of this part. The Commission will consider such requests 
for special permission by controlled carriers pursuant to its 
procedures set forth at 46 CFR part 520.


Sec. 565.9  Commission review, suspension and prohibition of rates, 
charges, classifications, rules or regulations.

    (a) (1) Request for justification. Within 20 days of a request 
(with respect to its existing or proposed rates, charges, 
classifications, rules or regulations) from the Commission, each 
controlled carrier shall file a statement of justification that 
sufficiently details the controlled carrier's need and purpose for such 
rates, charges, classifications, rules or regulations upon which the 
Commission may reasonably base its determination of the lawfulness 
thereof.
    (2) Rate standards. (i) In determining whether rates, charges, 
classifications, rules or regulations by a controlled carrier are just 
and reasonable, the Commission shall take into account whether the 
rates or charges which have been published or assessed or which would 
result from the pertinent rates, charges, classifications, rules or 
regulations are below a level which is fully compensatory to the 
controlled carrier based upon that carrier's actual or constructive 
costs.
    (ii) For the purposes of paragraph (a)(2)(i) of this section, 
constructive costs means the costs of another carrier, other than a 
controlled carrier, operating similar vessels and equipment in the same 
or a similar trade.
    (iii) The Commission may also take into account other appropriate 
factors, including, but not limited to, whether:
    (A) The rates, charges, classifications, rules or regulations are 
the same as or similar to those published or assessed by other carriers 
in the same trade;
    (B) The rates, charges, classifications, rules or regulations are 
required to assure movement of particular cargo in the trade; or
    (C) The rates, charges, classifications, rules or regulations are 
required to maintain acceptable continuity, level or quality of common 
carrier service to or from affected ports.
    (3) Time for determination. The Commission shall determine within 
120 days of the receipt of information requested by the Commission 
under this section, whether the rates, charges, classifications, rules 
or regulations of a controlled carrier may be unjust and unreasonable. 
Whenever the Commission is of the opinion that the rates, charges, 
classifications, rules or regulations published or assessed by a 
controlled carrier may be unjust and unreasonable, the Commission shall 
issue an order to the controlled carrier to show cause why those rates, 
charges, classifications, rules or regulations should not be 
prohibited.
    (b) Suspension. Pending a decision on whether to prohibit the 
rates, charges, classifications, rules or regulations of a controlled 
carrier, the Commission may suspend the rates, charges, 
classifications, rules or regulations. See Sec. 565.10.
    (c) Prohibition. The Commission shall prohibit the use of any 
rates, charges, classifications, rules or regulations that the 
controlled carrier has failed to demonstrate to be just and reasonable. 
In a proceeding under this paragraph, the burden of proof is on the 
controlled carrier to demonstrate that its rates, charges, 
classifications, rules or regulations are just and reasonable. The use 
of rates, charges, classifications, rules or regulations published or 
assessed by a controlled carrier that have been suspended or prohibited 
by the Commission is unlawful.
    (d) Publication. All final orders of prohibition shall be published 
in the Federal Register.


Sec. 565.10  Suspension procedures period and replacement rates.

    (a)(1) Suspension prior to effective date. Pending a determination 
as to their lawfulness in a prohibition proceeding as described in 
Sec. 565.9, the Commission may suspend the rates, charges, 
classifications, rules or regulations at any time before their 
effective date.
    (2) Suspension after effective date. In the case of rates, charges, 
classifications, rules or regulations that have already become 
effective, the Commission may, upon the issuance of an order to show 
cause, suspend those rates, charges, classifications, rules or 
regulations on not less than 30 days' notice to the controlled carrier.
    (b) Period of suspension. In any case, no period of suspension may 
be greater than 180 days.
    (c) Implementation. (1) Upon issuance of an order suspending a 
rate, charge, classification, rule or regulation in whole or in part, 
the Commission shall direct the controlled carrier to remove the 
suspended material from its tariff publication; or
    (2) if the matter subject to the suspension order is not covered by 
paragraph (c)(1) of this section, the Commission shall set forth 
procedures in the order for implementing the suspension.
    (3) Publication. All orders of suspension shall be published in the 
Federal Register.
    (d) Replacement rates. Controlled carriers may publish in tariffs 
or file in service contracts rates, charges, classifications, rules or 
regulations in lieu of the suspended matter (``replacement rates'').
    (1) Effective date. In the case of replacement rates which are 
published in tariffs and which are scheduled to become effective during 
a suspension period, may become effective immediately upon either their 
publication in tariffs or upon the effective date of the suspension, 
whichever is later.
    (2) Rejection of replacement rates. The Commission may reject the 
replacement rates, charges, classifications, rules or regulations 
published in tariffs or filed in service contracts to take effect 
during the suspension period if they are unjust and unreasonable. In 
determining whether to reject replacement rates, charges, 
classifications, rules or regulations, the Commission will consider 
whether they would result in total charges (i.e, rate plus applicable 
surcharges) that are lower than the lowest comparable charges effective 
for a common carrier, other than a controlled carrier, serving the same 
trade.
    (3) At the same time it announces replacement rates, the controlled 
carrier shall submit to the Secretary of the Commission, a letter 
identifying the specific competing common carrier's rates, charges, 
classification or rules resulting in total charges which are equal to 
or lower than its own.


Sec. 565.11  Presidential review.

    The Commission shall transmit all orders of suspension or final 
orders of prohibition to the President of the United States 
concurrently with the submission of such orders to the Federal Register 
pursuant to Sec. 565.9(d) or Sec. 565.10(c)(3). The President may, 
within 10 days of either the receipt or effective date of the order, 
request in writing that the Commission stay the effect of the order for 
reasons of national defense or foreign policy.


Sec. 565.12  Stay, postponement, discontinuance or suspension of 
action.

    The Commission may, on its own motion or upon petition, postpone, 
discontinue, or suspend any and all actions taken by it under the 
provisions of this part. The Commission shall immediately stay the 
effect of any order issued under this part as requested by the 
President pursuant to Sec. 565.11.

[[Page 8013]]

Sec. 565.13  OMB control number assigned pursuant to the Paperwork 
Reduction Act

    The Commission has received OMB approval for this collection of 
information pursuant to the Paperwork Reduction Act of 1995, as 
amended. In accordance with that Act, agencies are required to display 
a currently valid control number. The valid control number for this 
collection of information is 3072-0060.

    By the Commission.
Bryant L. VanBrakle,
Secretary.
[FR Doc. 99-3757 Filed 2-17-99; 8:45 am]
BILLING CODE 6730-01-P