[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Proposed Rules]
[Pages 24311-24317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11259]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 356

[Docket No. MARAD-99-5609]
RIN 2133-AB38


Eligibility of U.S.-Flag Vessels of 100 Feet or Greater To Obtain 
Commercial Fisheries Documents

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Maritime Administration (MARAD, we, our, or us) is 
soliciting public comments on the new U.S. citizenship requirements set 
forth in the American Fisheries Act of 1998 (AFA), P.L. 105-277, for 
vessels of 100 registered feet or greater. The AFA seeks to raise the 
U.S. ownership and control standards for U.S.-flag fishing vessels 
operating in U.S. waters, to eliminate exemptions for vessels that can 
not meet current citizenship standards, and to help phase out of 
operation many of the largest fishing vessels. These statutory changes 
are intended to give U.S. interests a priority in the harvest of U.S. 
fishery resources. We are required to promulgate final regulations by 
April 1, 2000, regarding the citizenship requirements for ownership and 
control of vessels of 100 registered feet or more that have or are 
seeking a fishery endorsement to their documentation. The regulations 
will become effective on October 1, 2001.
    Section 203 of the AFA specifically requires that the regulations: 
prohibit impermissible transfers of ownership or control; identify 
transactions that will require prior MARAD approval; and identify 
transactions that will not require prior MARAD approval. To the extent 
practicable, the regulations are required to minimize disruptions to 
the commercial fishing industry, to the traditional financing 
arrangements of such industry, and to the formation of fishery 
cooperatives.
    We are seeking public comments related to our implementation of the 
AFA. Your comment is welcome on the questions included in this ANPRM 
following the section ``What information are we requesting?'' or on any 
aspect of our implementation of the AFA.

DATES: You should submit your written comments early enough to ensure 
that we receive them no later than July 1, 1999. In addition, public 
meetings at which oral and written comments may be presented have been 
scheduled for the dates and locations listed in SUPPLEMENTARY 
INFORMATION.

ADDRESSES: Comments should refer to the docket number that appears at 
the top of this document. Written comments may be submitted by mail to 
the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of 
Transportation, 400 7th St., S.W., Washington, DC 20590-0001 or by e-
mail to John T. Marquez, Jr. at ``John.M[email protected]''. All 
comments will become part of this docket and will be available for 
inspection and copying at the above address between 10 am and 5 pm, 
E.T., Monday through Friday, except Federal Holidays. An electronic 
version of this document is available on the World Wide Web at http://
dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: John T. Marquez, Jr. of the Office of 
Chief Counsel. You may contact him by phone at (202) 366-5320, by fax 
at (202) 366-7485, by e-mail at ``John.M[email protected]'', or you 
may send mail to John T. Marquez, Jr., Maritime Administration, Office 
of Chief Counsel, Room 7228, MAR-222, 400 Seventh St., S.W., 
Washington, D.C. 20590-0001.

SUPPLEMENTARY INFORMATION:
Public Hearing Dates and Locations
    1. May 18, 1999, 9:00 a.m. to 5:00 p.m.--South Auditorium, Jackson 
Federal Building, 915 Second Avenue, Seattle, WA;
    2. May 20, 1999, 9:00 a.m. to 5:00 p.m.--Assembly Room, Z.J. 
Loussac Library, 3600 Denall St., Anchorage, AK;
    3. June 9, 1999, 7:00 p.m. to 10:00 p.m.--Holiday Inn--Logan 
Airport, 225 McClellan Highway, Boston, MA;
    4. June 17, 1999, 9:00 a.m. to 1:00 p.m.--Suite 1830, Crescent City 
Room, World Trade Center, 2 Canal Street, New Orleans, LA; and
    5. June 23, 1999, 9:00 a.m. to 1:00 p.m.--Room 6200, Nassif 
Building, 400 7th Street S.W., Washington, D.C.

Comments

How Will We Issue Rules To Implement The AFA?

    We will be using informal rulemaking procedures under the 
Administrative Procedure Act (5 U.S.C. 553) to promulgate regulations 
implementing the AFA. The process of promulgating these regulations 
will include the issuance of the following documents:
    (1) An advance notice of proposed rulemaking (ANPRM).
    (2) A notice of proposed rulemaking (NPRM).
    (3) A final rule.

What is an ANPRM?

    An ANPRM tells the public that we are considering an area for 
rulemaking and requests written comments on the appropriate scope of 
the rulemaking or on specific topics. This ANPRM does not include the 
text of a potential regulation.

What is a NPRM?

    A NPRM proposes our specific regulatory changes for public comment 
and contains supporting information. It generally includes proposed 
regulatory text.

What is a Final Rule?

    A final rule sets out new regulatory requirements and their 
effective date. A final rule will also identify issues raised by 
commenters in response to the notice of proposed rulemaking and give 
the agency's response.

Who May File Comments?

    Anyone may file written comments about proposals made in any 
rulemaking document that requests public comments, including any State 
government agency, any political subdivision of a State, and any 
interested person invited by us to participate in the rulemaking 
process.

How do I Prepare and Submit Comments?

    Your comments must be written and in English. To ensure that your 
comments are correctly filed in the Docket, please include the docket 
number of this document in your comments.
    We encourage you to write your primary comments in a concise 
fashion. However, you may attach necessary additional documents to your 
comments. There is no limit on the length of the attachments. Please 
submit two copies of your comments, including the attachments, to 
Docket Management at the address given above under ADDRESSES. If 
possible, one copy should be in an unbound format to facilitate copying 
and electronic filing.

How can I be Sure that My Comments Were Received?

    If you wish Docket Management to notify you upon its receipt of 
your comments, enclose a self-addressed, stamped postcard in the 
envelope containing your comments. Upon receiving your comments, Docket

[[Page 24312]]

Management will return the postcard by mail. If you send comments by e-
mail, you will receive a message by e-mail confirming receipt of your 
comments. Your e-mail address should be noted with your comments.

What Takes Place at a Public Meeting?

    We have scheduled public meetings in five cities during the sixty 
day comment period to this ANPRM. Meeting locations and times are 
provided above under DATES. A public meeting is a nonadversarial, fact-
finding proceeding conducted by a MARAD representative. Generally, 
public meetings are announced in the Federal Register. Interested 
persons are invited to attend and to present their views to the agency 
on specific issues. There are no formal pleadings and no adverse 
parties, and any regulation issued afterward is not necessarily based 
exclusively on the record of the meeting. A record of oral comments 
will be made at the public meeting; however, commenters are also 
requested to provide their comments to us in writing at the meeting. A 
copy of all written and oral comments made at the public meeting will 
be filed in the docket. Sections 556 and 557 of the Administrative 
Procedure Act (5 U.S.C. 556 and 557) do not apply to public meetings 
under this part.

How can I Participate at a Public Meeting?

    If you would like to speak at one of the public meetings, you 
should notify John T. Marquez, Jr. at least five (5) working days 
before the scheduled meeting. You may notify him by phone at (202) 366-
5320, by fax at (202) 366-7485 or by e-mail at 
``John.M[email protected]''. Your notification should include your 
name, address, phone number, fax number, e-mail address and the party 
that you represent. If you plan to attend the public meeting in 
Washington, DC, you must notify us in advance in order to be admitted 
to the building. Only one oral presentation per company or group should 
be presented.

Is Information that I Submit to MARAD Made Available to the Public?

    When you submit information to us as part of this ANPRM, during any 
rulemaking proceeding, or for any other reason, we may make that 
information publicly available unless you ask that we keep the 
information confidential. If you wish to submit any information under a 
claim of confidentiality, you should submit three copies of your 
complete submission, including the information you claim to be 
confidential business information, to the Chief Counsel, Maritime 
Administration, at the address given above under FOR FURTHER 
INFORMATION CONTACT. You should mark ``CONFIDENTIAL'' on each page of 
the original document that you would like to keep confidential.
    In addition, you should submit two copies, from which you have 
deleted the claimed confidential business information, to Docket 
Management at the address given above under ADDRESSES. When you send 
comments containing information claimed to be confidential business 
information, you should also include a cover letter setting forth with 
specificity the basis for any such claim (for example, it is exempt 
from mandatory public disclosure under the Freedom of Information Act, 
5 U.S.C. 552; it is information collected by officials of the United 
States in the course of their employment duties that is exempt from 
disclosure pursuant to 18 U.S.C. 1905).
    We will decide whether or not to treat your information as 
confidential. You will be notified in writing of our decision to grant 
or deny confidentiality before the information is publicly disclosed 
and will be given an opportunity to respond.

Will the Agency Consider Late Comments?

    We will consider all comments that Docket Management receives 
before the close of business on the comment closing date indicated 
above under DATES. To the extent possible, we will also consider 
comments that Docket Management receives after that date.

How can I Read the Comments Submitted by Other People?

    You may read the comments received by Docket Management at the 
address given above under ADDRESSES. The hours of the Docket Room are 
indicated above in the same location. Comments may also be viewed on 
the Internet. To read the comments on the Internet, take the following 
steps: Go to the Docket Management System (DMS) Web page of the 
Department of Transportation (http://dms.dot.gov/). On that page, click 
on ``search.'' On the next page (http://dms.dot.gov/search/), type in 
the four-digit docket number shown at the beginning of this document. 
Example: If the docket number were ``MARAD-1999-1234,'' you would type 
``1234.'' After typing the docket number, click on ``search.'' On the 
next page, which contains docket summary information for the docket you 
selected, click on the desired comments. You may download the comments.
    Please note that even after the comment closing date, we will 
continue to file relevant information in the Docket as it becomes 
available. Accordingly, we recommend that you periodically check the 
Docket for new material.

Background

What are the New Requirements for a Fishery Endorsement Under the 
American Fisheries Act (AFA)?

    Documentation of vessels under federal law is a type of national 
registration which, among other things, serves to establish a vessel's 
eligibility to engage in a specified trade such as the fisheries of the 
United States. This is done through an endorsement on the vessel's 
Certificate of Documentation. In order to obtain a fishery endorsement 
for a documented vessel, the owner of a vessel must comply with the 
requirements set out in sections 12102 and 12108 of Title 46, United 
States Code.
    The AFA was passed as part of the Omnibus and Emergency 
Appropriations Act for FY 1999, PL 105-277, on October 6, 1998. The AFA 
imposes a 75% U.S. citizen ownership and control requirement for owners 
of vessels of 100 registered feet or more who are engaging in the U.S. 
fisheries or wish to enter such trade. We are required to scrutinize 
transfers of ownership and control of such vessels, such as leases, 
charters, mortgages, financings, and other arrangements that might 
convey impermissible control over the management, sales, financing or 
other operation of a vessel or vessel owning entity. This review will 
include the examination of debt instruments which might convey 
impermissible control to a non-U.S. citizen and determinations as to 
whether trustees who hold mortgages on vessels for the benefit of non-
U.S. citizens are qualified under the criteria set forth in the AFA. We 
are seeking public comment in these areas along with suggestions as to 
whether the defined term for ``control'' and ``controlled'' set forth 
in Section 2(c) of the Shipping Act of 1916 (1916 Act), 46 App. U.S.C. 
802(c), should be expanded to include other indications of control. All 
comments will be considered in the preparation of a rulemaking to 
implement the requirements of the AFA applicable to MARAD.
    For vessels measuring 100 registered feet or greater, the owner is 
required by subsection 203(c) of the AFA to file an annual statement of 
citizenship with us setting forth all elements of ownership and control 
necessary to demonstrate

[[Page 24313]]

compliance with the requirements of 46 U.S.C. 12102(c). In implementing 
this section, we are directed to promulgate regulations that follow, to 
the extent practicable, the requirements of 46 CFR Part 355, as in 
effect on September 25, 1997, including the prescribed form of 
citizenship affidavit. The regulations at 46 CFR Part 355 set forth 
MARAD's requirements for determining citizenship under section 2 of the 
1916 Act and can be summarized as follows:
     The entity must be organized and existing under the laws 
of the United States.
     The names and date and place of birth of corporate 
officers and directors must be disclosed, along with an affirmative 
statement that such officers and directors are citizens of the United 
States by virtue of birth in the United States, naturalization, or as 
otherwise authorized by law. The president or other chief executive 
officer, chairman of the board, and all officers authorized to act in 
the absence or disability of such persons must be U.S. citizens, and no 
more of its directors than a minority of the number necessary to 
constitute a quorum can be non-U.S. citizens.
    For other types of entities, such as limited liability companies, 
associations, etc., citizenship requirements are imposed on persons who 
have similar functions as officers and directors of a corporation.
     There are two methods of establishing that 75% of the 
stock of a corporation is owned by U.S. citizens. They are:
    (1) Direct Proof. For corporations with thirty (30) or fewer 
stockholders, the name of each stockholder and the number and 
percentage of shares of stock held by that individual must be given, 
along with a statement that he/she is a citizen of the United States by 
virtue of birth in the United States, naturalization, or as otherwise 
authorized by law. If the stockholder is not a citizen of the United 
States, then the country of which he/she is a citizen must be provided.
    (2) ``Fair Inference.'' If the stock of the corporation is publicly 
traded, U.S. citizenship can be established by using the addresses of 
the stockholders; i.e. relying on corporate books and records at least 
95% of the stock must be held by persons having registered U.S. 
addresses in order to ``infer'' that at least 75 percent (75%) of the 
stock is owned by U.S. citizens. This method of proof of U.S. 
citizenship for corporations, whose stock is publicly traded, dates 
back to 1936 and is based on a court case, Collier Advertising Service, 
Inc. v. Hudson River Day Line, 14 F. Supp. 335 (S.D.N.Y. 1936). In 
addition, the citizenship of all stockholders owning of record or 
beneficially five percent (5%) or more of the stock must be 
established.

Old Standard

    Prior to the passage of the AFA, owners of vessels engaged in the 
fisheries of the United States were required to meet the vessel 
documentation requirements set forth at 46 U.S.C. 2102. These vessel 
documentation requirements and fishery endorsement requirements are set 
forth below:
     an individual was required to be a citizen of the United 
States;
     an association, trust, joint venture, or other entity was 
required to have members all of which were citizens of the United 
States;
     a partnership was required to have general partners that 
were citizens of the United States and the controlling interest in the 
partnership was required to be owned by citizens of the United States; 
and
     a corporation was required (1) to be established under the 
laws of the United States; (2) to have a president or other chief 
executive officer and chairman of its board of directors who were 
citizens of the United States; and (3) to have no more noncitizen 
directors than a minority of the number necessary to constitute a 
quorum. In addition, if a corporation, seeking a fishery endorsement, 
was owned by other corporations, in whole or in part, the controlling 
interest in these corporations in the aggregate had to owned by 
citizens of the United States.

New Ownership and Control Requirements

    Subsection 202(a) of the AFA amended the vessel documentation 
statute by increasing the U.S. citizen ownership and control 
requirement from a majority (at least 51 percent) to at least 75 
percent ownership and control for all vessels, including fish tender 
vessels and floating processors, seeking a fishery endorsement or 
renewal of such endorsement. The effective date of this new U.S. 
citizen ownership requirement is October 1, 2001.
    Subsection 202(a) also provides that, when considering whether a 
vessel owner qualifies for a fishery endorsement, the U.S. citizenship 
requirements of section 2(c) of the 1916 Act apply to entities other 
than corporations, such as limited liability companies, partnerships, 
joint ventures, and other types of entities. The statutory language of 
section 2(c) of the 1916 Act, which we are to apply when determining 
the citizenship status of entities either seeking a fishery endorsement 
or renewing such endorsement is as follows:

    Seventy-five per centum of the interest in a corporation shall 
not be deemed to be owned by citizens of the United States (a) if 
the title to 75 per centum of its stock is not vested in such 
citizens free from any trust or fiduciary obligation in favor of any 
person not a citizen of the United States; or (b) if 75 per centum 
of the voting power in such corporation is not vested in citizens of 
the United States; or (c) if, through any contract or understanding, 
it is so arranged that more than 25 per centum of the voting power 
in such corporation may be exercised, directly or indirectly, in 
behalf of any person who is not a citizen of the United States; or 
(d) if by any other means whatsoever control of any interest in the 
corporation in excess of 25 per centum is conferred upon or 
permitted to be exercised by any person who is not a citizen of the 
United States.

    The citizenship requirements of section 2(c) apply at each tier of 
ownership; therefore, any person or entity whose interest is being 
relied upon to establish the required 75 percent U.S. citizen ownership 
and control, including any parent corporation, partnership or other 
entity, must also comply with the U.S. citizenship requirements of 
section 2(c). In addition, the AFA requires that the 75 percent 
citizenship requirement be applied in the aggregate. A literal 
interpretation of the requirement to apply the 75 percent citizenship 
requirement both at each tier and ``in the aggregate'' would mean that 
a non-section 2 citizen could not have an ownership or control interest 
of more than 25 percent in a vessel or vessel owning entity by any 
means. For example, a non-section 2 citizen may own up to 25 percent of 
the interest in the primary corporation that owns a vessel with a 
fishery endorsement. However, that same non-section 2 participant would 
not be allowed to have any interest in a parent corporation or any 
other entities at any tier that may have an ownership interest in the 
75 percent of the primary corporation owned by section 2 citizens.
    The AFA also sets forth certain standards that will be applied by 
us in determining ``control'' or ``controlled'' for purposes of section 
12102(c) of title 46, United States Code, and the language of section 
2(c) of the 1916 Act. Specifically, the AFA states that the terms 
``control'' or ``controlled'' shall include:
     the right to direct the business of the entity which owns 
the vessel;
     the right to limit the actions of or replace the chief 
executive officer, a majority of the board of directors, any

[[Page 24314]]

general partner, or any person serving in a management capacity of the 
entity which owns the vessel; or
     the right to direct the transfer, operation or manning of 
a vessel with a fishery endorsement.
    However, the terms ``control'' or ``controlled'' shall not include 
the right to simply participate in the above activities or the use by a 
mortgagee of loan covenants approved by the Secretary. Determining 
``control'' often involves the review and analysis of a specific set of 
facts in a given transaction and goes beyond the mere form of a 
transaction. For example, a non-section 2 citizen's equity investment 
in an entity in excess of its ownership interest might be deemed 
``control''; a non-section 2 citizen's leading role in setting up a 
U.S. company for purposes of engaging in the U.S. fisheries might be an 
indication of control; interlocking corporate officers/directors and 
shareholders between a U.S. citizen entity and a non-section 2 citizen 
entity might be deemed impermissible control; or passing the overall 
economic benefit from the transaction to non-U.S. citizens might be 
deemed impermissible control. In this ANPRM, we are seeking comments on 
the elements of ``control'' that should be considered in determining 
U.S. citizenship for purposes of qualifying for a fishery endorsement.

Leasing and Chartering

    A very significant new standard imposed under 202(a)(3) of the AFA 
is that vessels with a fishery endorsement cannot be leased or 
chartered to an individual who is not a citizen of the United States or 
to an entity that is not eligible to own a vessel with a fishery 
endorsement. If such vessels are chartered or leased to non-section 2 
citizens, the fishery endorsement is immediately invalid upon use as a 
fishing vessel.

Mortgages and Financing

    The AFA sets forth the eligibility requirements for lenders who 
wish to obtain a preferred mortgage as security for their loan. A 
lender will be eligible for a preferred mortgage if: (a) The lender is 
in compliance with the U.S. citizenship requirements needed for a 
fishery endorsement; (b) the lender is a state or federally chartered 
financial institution that complies with the ``controlling interest'' 
requirements of section 2(b) of the 1916 Act, including, among other 
things, 51% U.S. citizen ownership and control; or (c) the lender uses 
a section 2 citizen trustee to hold the mortgage.
    The use of a section 2 citizen trustee to hold the mortgage is one 
of long-standing in the maritime industry and resulted from a court 
case, Chemical Bank New York Trust Company v. Steamship Westhampton, 
358 F.2nd 574 (4th Cir. 1965). The court held that the mortgage on the 
ship WESTHAMPTON, although given to a section 2 citizen trustee, was 
not entitled to preferred status because the bond which was secured by 
the mortgage was an interest in a vessel under section 37 of the 1916 
Act, and the issuance of the bond to a non-section 2 citizen holder had 
not been approved by MARAD. We have authority under sections 9 and 37 
of the 1916 Act to approve of certain transfers of interest in section 
2 citizen-owned vessels to non-section 2 citizens. Within months of the 
court's decision in Westhampton, the Congress enacted legislation 
whereby the issuance, assignment or transfer to non-section 2 citizens 
of notes, bonds, or other evidence of indebtedness, secured by a 
mortgage on a U.S. vessel, was acceptable so long as the trustee 
holding the mortgage had our approval. The so-called ``Westhampton 
trustee'' statute was repealed by the Congress in 1996. However, the 
``Westhampton trustee'' concept has been incorporated in the AFA and 
will permit foreign financing in the U.S. fishing industry.
    The purpose of the trustee holding the mortgage is to prohibit the 
non-section 2 citizen lender from exercising prohibited types of 
control over the vessel or its owner. Non-section 2 citizen lenders may 
have certain rights conveyed to them in loan documents through negative 
financial loan covenants. However, use of such covenants may require 
our approval and such approval will be dependent upon whether elements 
of ``control'' over the vessel owner or the vessel are being 
transferred to the non-section 2 citizen lender. Pursuant to this 
ANPRM, we are interested in soliciting comments from the public on what 
restrictions should be imposed on foreign lenders. For example, should 
we give blanket approval for a trustee to operate a vessel temporarily 
without our consent for reasons related to safety, repairs, drydocking 
or other circumstances?

Specific Vessels

    Subsection 202(a)(5) of the Act further amends 46 U.S.C. 12102(c), 
by adding a new paragraph (5) that exempts the following vessels from 
the 75 percent standard, provided the owners of the vessels continue to 
comply with the fishery endorsement law in effect on October 1, 1998: 
(1) vessels engaged in fisheries under the authority of the Western 
Pacific Fishery Management Council; and (2) purse seine vessels engaged 
in tuna fishing in the Pacific Ocean outside the exclusive economic 
zone or pursuant to the South Pacific Regional Fisheries Treaty. 
Fishery endorsements issued by the Secretary for these vessels would be 
valid only in those specific fisheries and the vessels would not be 
eligible to receive a fishery endorsement to participate in other 
fisheries unless the owner complied with the 75 percent standard.
    A new paragraph at 46 U.S.C. 12102(c)(6) prevents new large fishing 
vessels from entering U.S. fisheries, including former U.S.-flag 
fishing vessels that have reflagged in recent years to fish in waters 
outside the U.S. exclusive economic zone. Specifically, it prohibits 
the issuance of fishery endorsements to vessels greater than 165 feet 
in registered length, or of more than 750 gross registered tons, or 
that have an engine or engines capable of producing a total of more 
than 3,000 shaft horsepower. Two exceptions are permitted:
    (1) (i) the vessel had a valid fishery endorsement on September 25, 
1997;
    (ii) the vessel is not placed under foreign registry after October 
6, 1998, the date of the enactment of the AFA; and
    (iii) in the event the vessel's fishery endorsement is allowed to 
lapse or is invalidated after October 6, 1998, an application for a new 
fishery endorsement is submitted to the Secretary of Transportation 
(Secretary) within 15 business days; or
    (2) the owner of the vessel demonstrates to the Secretary that a 
regional fishery management council has recommended and the Secretary 
of Commerce has approved specific measures after the date of the 
enactment of the AFA to allow the vessel to be used in fisheries under 
that council's authority. The regional councils have the authority and 
are encouraged to submit for approval to the Secretary of Commerce 
measures to prohibit vessels that receive a fishery endorsement under 
section 12102(c)(6) from receiving any permit that would allow the 
vessel to participate in fisheries under their authority, so that a 
vessel cannot receive a fishery endorsement through measures 
recommended by one council, then enter the fisheries under the 
authority of another council.
    Subsection 203(g) of the AFA provides limited exemptions from the 
new U.S.-control and ownership requirements in 46 U.S.C. 12102(c) for 
the owners of five vessels (the EXCELLENCE, GOLDEN ALASKA, OCEAN 
PHOENIX, NORTHERN

[[Page 24315]]

TRAVELER, and NORTHERN VOYAGER) under certain conditions. The exemption 
applies only to the present owners, and the subsection not only 
requires all subsequent owners to comply with the 75 percent standard, 
but requires even the present owners to comply if more than 50 percent 
of the interest owned and controlled in that owner changes after 
October 1, 2001. The exemption also automatically terminates with 
respect to the NORTHERN TRAVELER or NORTHERN VOYAGER if the vessel is 
used in a fishery other than one under the jurisdiction of the New 
England or Mid-Atlantic fishery management councils, and automatically 
terminates with respect to the EXCELLENCE, GOLDEN ALASKA, or OCEAN 
PHOENIX if the vessel is used to harvest fish.

Penalties

    Subsection 203(e) of the AFA provides that the Secretary shall 
revoke the fishery endorsement of any vessel subject to 46 U.S.C. 
12102(c), as amended by subtitle I of the AFA, whose owner does not 
meet the 75% ownership requirement or otherwise fails to comply with 46 
U.S.C. 12102(c).
    Subsection 203(f) of the AFA expands the penalties under 46 U.S.C. 
12122 (a) and (b), and makes the owner of a documented vessel for which 
a fishery endorsement has been issued liable to the United States 
Government for a civil penalty of up to $100,000 for each day in which 
such vessel has engaged in fishing within the exclusive economic zone 
of the United States, if the owner or the representative or agent of 
the owner knowingly made a false statement or representation with 
respect to the eligibility of the vessel under 46 U.S.C. 12102(c) in 
applying for, or applying to renew, such fishery endorsement. This 
subsection increases the penalties for fishery endorsement violations 
and is intended to discourage willful noncompliance with the new 
requirements.

Fishery Cooperatives

    Generally, subsection 210(e)(1) of the AFA prohibits any individual 
or entity from harvesting more than 17.5% of the pollock in the Bering 
Sea and Aleutian Islands (BSAI) directed pollock fishery to ensure 
competition. Subsection 210(e)(2) directs the North Pacific Council to 
establish an excessive share cap for the processing of pollock in the 
BSAI directed pollock fishery. At the request of the North Pacific 
Council or the Secretary of Commerce, an individual who is believed to 
have exceeded the harvesting or processing caps in either 210(e) (1) or 
(2), may be required pursuant to subsection 210(e)(3) to submit such 
information to the Administrator of MARAD as the Administrator deems 
appropriate to allow the Administrator to determine whether such 
individual or entity has exceeded either such percentage. The 
Administrator shall make a finding as soon as practicable upon such 
request and shall submit such finding to the North Pacific Council and 
the Secretary of Commerce.

International Agreements

    Subsection 213(g) of the AFA specifies that in the event the new 
U.S. ownership and control requirements or preferred mortgage 
requirements of subtitle I of the Act are deemed to be inconsistent 
with an existing international agreement relating to foreign investment 
with respect to a specific owner or mortgagee on October 1, 2001 of a 
vessel with a fishery endorsement, that the provision shall not apply 
to that specific owner or mortgagee with respect to that particular 
vessel to the extent of the inconsistency. Subsection (g) does not 
exempt any subsequent owner or mortgagee of the vessel, and is 
therefore not an exemption that ``runs with the vessel.'' In addition, 
the exemption in subsection (g) ceases to apply even to the owner on 
October 1, 2001 of the vessel if any ownership interest in that owner 
is transferred to or acquired by a foreign individual or entity after 
October 1, 2001.

What Information are We Requesting?

    We are requesting comments, suggestions and information relating to 
the changes in the statutory requirements to obtain a fishery 
endorsement for a documented vessel of 100 feet or greater in 
registered length and the regulations necessary to implement those 
requirements. Comments are requested specifically on the questions 
presented below and on any other aspect that the commenter believes 
would be helpful to us in drafting regulations to implement the AFA. 
Unless specifically stated otherwise, when used in the following 
questions the term ``vessel'' refers to vessels of 100 registered feet 
or more that have or are seeking a fishery endorsement.

Questions

I. Financing and Mortgages

    We will be reviewing financing transactions involving non-section 2 
lending institutions to determine whether covenants in these loan 
documents convey, either directly or indirectly, control over the 
vessel or vessel owner. We recognize that certain loan covenants are 
not indicative of control by a non-citizen lender over a section 2 
citizen vessel owner as previously discussed. However, we are seeking 
input regarding the typical covenants found in loan documents involving 
fishing vessels that may be unique from those found in other commercial 
vessel financing arrangements.
    1. What are examples of conventional covenants found in typical 
loan documents involving the financing of fishing vessels?
    2. Are there mortgage covenants used in traditional fishing vessel 
financing arrangements concerning the use, operation, or control of the 
vessel, whether actual or contingent, that could be considered to give 
the lender or mortgagee control over the vessel, such as the ability to 
remove or replace the master of the vessel?
    3. Are there standard mortgage covenants that we should approve of 
in advance for use, such as the ability to restrict the vessel owner 
from incurring additional debt without the lender's approval, the 
ability to restrict the vessel owner from selling assets without the 
lender's approval, etc?
    4. Are there mortgage covenants that should require our approval on 
a case-by-case basis prior to use?
    5. Should loan agreements and other agreements between section 2 
citizen owners of fishing vessels and foreign lenders be permitted to 
take effect prior to our approval?
    6. Foreign lenders may obtain preferred mortgages on fishing 
vessels greater than l00 registered feet provided they use a trustee 
arrangement (commonly referred to as the ``Westhampton Trustee''). We 
have long-standing experience in connection with the Westhampton 
Trustee and, prior to its elimination by Congress along with other 
requirements relating to mortgagees, we had regulations found at 46 CFR 
part 221 (1997) governing the use of Westhampton Trustees. The AFA 
revives the use of the Westhampton Trustee for fishing vessels. Should 
we adopt similar requirements under the AFA to those contained in our 
earlier regulations for trustees/mortgagees? Are there other 
requirements that should be added?
    7. To what extent are vessels financed by fish processors or 
through entities other than traditional lending institutions? Do such 
financing arrangements contain covenants that differ from covenants 
used by traditional lending institutions?
    8. Should we preclude an entity that has a contract for the 
purchase of all or

[[Page 24316]]

a significant portion of a vessel's catch from financing the purchase, 
reconstruction, or any other transaction relating to the vessel?

II. Management and Control

    The AFA directs us to scrutinize leases, charters, and similar 
arrangements for purposes of determining whether impermissible control 
``over the management, sales, financing, or other operations of an 
entity'' is being conveyed to non-section 2 citizens. In addition, we 
are specifically required under the AFA to review contracts involving 
the purchase over extended periods of time of all, or substantially 
all, of the living marine resources harvested by a fishing vessel.
    1. Are vessel management companies frequently used in the U.S. 
fisheries? If so, what is their role; i.e., duties and 
responsibilities.
    2. What is the role and responsibility of a sales manager in the 
fishing industry? Should a vessel be eligible for a fishery endorsement 
if the sales manager is not a 75 percent owned and controlled U.S. 
citizen?
    3. What types of long-term contracts for sale of all or a large 
portion of the catch from a vessel are used in the fishing industry? Do 
such contracts have covenants that give the purchaser of the vessel's 
catch control over the operation of the vessel or the vessel's owner?
    4. Should a section 2 citizen vessel owner be precluded from 
entering into an exclusive sales contract, providing for the sale of 
all or a significant portion of its catch, with a non-section 2 citizen 
entity? If allowed, should the terms of these contracts be restricted 
in any way?
    5. We have consistently construed the ability by a non-section 2 
citizen to discipline, remove or replace the master of a vessel as an 
indication of control over the vessel, and the granting of such right 
to a non-section 2 citizen as prohibited. Are there unique 
circumstances unknown to MARAD which should be considered prior to 
adopting a similar requirement for U.S. documented vessels with a 
fishery endorsement?
    6. Should every contract or business arrangement that the vessel 
owner enters into with a non-section 2 citizen require our prior 
approval? If not, what contracts or other business arrangements should? 
Should it matter whether the business arrangement affects the operation 
of the vessel, or is it enough if it affects the overall operation of 
the fishing business?
    7. Should section 2 citizen owners of such fishing vessels be 
required to submit the contracts or business arrangements for advance 
approval prior to entering into the transaction? If not, should there 
be a time imposed for submission for approval after entering into such 
transactions; i.e. within thirty (30) days or some lesser period?
    8. The AFA requires that 75 percent of the interest in an entity 
that owns a vessel with a fishery endorsement be owned and controlled 
by section 2 citizens at each tier and in the aggregate. If the phrase 
``in the aggregate'' is determined to preclude a non-section 2 citizen 
from having a combined interest from its total participation at every 
tier of more than 25%, what impact will that have on vessel owners, 
mortgagees, lenders, managers, etc . . .?

III. Fishery Cooperatives

    We are seeking information that will help us to evaluate how 
fishery cooperatives should be considered in the context of determining 
the U.S. citizenship of vessel owners, especially the role of non-
section 2 citizen participants in fishery cooperatives. Responses to 
the following questions will assist in developing our regulations.
    1. Who can become a member of a fishery cooperative? How are 
fishery cooperatives managed? Does a member receive a ``membership 
interest'' in the fishery cooperative and does each member have one 
vote or are there circumstances whereby a member might have more than 
one vote on matters requiring a vote by the members?
    2. What role do shoreside processors play in fishery cooperatives?
    3. Should a non-section 2 citizen be prohibited from becoming a 
member of a fishery cooperative?
    4. If a fishery cooperative enters into any agreement with non-
section 2(c) citizens, should that agreement be subject to our approval 
prior to entering into the agreement or within thirty (30) days of 
entering into the agreement?
    5. What types of regulatory requirements related to the ownership 
and control of a vessel or vessel owning entity would impede or 
facilitate the ability of parties to enter into fishery cooperatives?

IV. General and Procedural

    In addition to the questions set forth above, there are a number of 
areas in which input from the fishing industry would be beneficial in 
developing our regulations. They are as follows:
    1. What regulatory requirements, within the framework of the AFA, 
should we adopt to protect the limited fishery resources and ensure 
that qualified U.S. citizens primarily benefit?
    2. Subsection 210(e)(2) of the AFA directs the North Pacific 
Council to establish an excessive share cap for the processing of 
pollock in the directed pollock fishery. At the request of the North 
Pacific Council or the Secretary of Commerce, an individual who is 
believed to have exceeded the harvesting or processing caps in either 
210(e) (1) or (2), may be required pursuant to subsection 210(e)(3) to 
submit such information to the Administrator of MARAD as the 
Administrator deems appropriate to allow the Administrator to determine 
whether such individual or entity has exceeded either percentage. 
Should we establish set procedures to address charges that a party has 
exceeded the excessive share cap or should findings be made on an ad 
hoc basis?
    3. What procedure should we have for findings under the 
requirements of the AFA that the vessel owner does not qualify as a 
citizen for purposes of obtaining a fishery endorsement?
    4. Are there any known conflicts or possible violation of 
international treaty agreements created by the imposition of the 
section 2(c) citizenship requirements on owners of U.S. documented 
vessels with a fishery endorsement, trustees, and mortgagees?
    5. Are there any unique issues within the fishing industry or 
particular fisheries relating to the ownership, operation, management, 
control, financing, or mortgaging of fishing vessels of which we should 
be aware in promulgating rules to implement the AFA?
    6. What costs related to the implementation of the new citizenship 
and control requirements for vessels of 100 feet or greater mandated by 
the AFA are likely to be incurred by vessel owners, operators and 
managers, lending institutions, mortgagees, and other participants in 
the fishing industry?

Other Issues

    This request for comments concerning the desirability of rulemaking 
is not limited to the foregoing. We are also seeking comments and/or 
suggestions concerning other issues that should be addressed in 
regulations implementing the requirements of the AFA for which MARAD is 
responsible.

Plain Language

    This ANPRM is one of our first rulemaking documents to be published 
under the new plain language requirements. We welcome any comments and 
suggestions on the use and effectiveness of plain language techniques 
in this document or other suggestions to improve our use of plain 
language in future rulemakings.

[[Page 24317]]

Rulemaking Analysis and Notices

Executive Order 12866 (Regulatory Planning and Review)

    Any rule that is promulgated may be considered an economically 
significant regulatory action under section 3(f) of E.O. 12866; 
therefore, this rule has been reviewed by OMB. The rule also is 
considered significant under DOT Policies and Procedures. We cannot 
estimate at this time whether this rulemaking will be economically 
significant because we have not published a specific proposal. A 
preliminary regulatory evaluation will be prepared that reflects the 
comments to this ANPRM.

Federalism

    We have analyzed this ANPRM in accordance with the principles and 
criteria contained in Executive Order 12612 and have determined that 
any rule that might be subsequently promulgated would not have 
sufficient federalism implications to warrant the preparation of a 
Federalism Assessment.

Regulatory Flexibility Act

    Prior to commencing further rulemaking, the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) requires us to consider whether our 
proposals will have a significant impact on a number of small entities. 
``Small entities'' include independently owned and operated small 
businesses that are not dominant in their field and that otherwise 
qualify as ``small business concerns'' under section 3 of the Small 
Business Act (15 U.S.C. 632).
    Any regulations developed pursuant to this advance notice of 
proposed rulemaking may reasonably be expected to affect the following 
small entities: small businesses and individual U.S. citizens currently 
owning documented fishing industry vessels; individuals and small 
businesses seeking to sell or mortgage documented fishing industry 
vessels; small businesses seeking to document fishing industry vessels 
in the future; and lending institutions engaging in fishing industry 
vessel financing.
    At the present time, we cannot state that any further rulemaking in 
this area will not have a significant economic impact on a substantial 
number of small entities. If you believe that this rulemaking will have 
a significant economic impact on your business, please submit a comment 
(see ADDRESSES) explaining in what way and to what degree this proposal 
will economically affect your business. If you think that your business 
qualifies as a small entity, and that further rulemaking will have a 
significant economic impact on your business, please submit a comment 
explaining why you think your business qualifies as a small entity and 
how this rulemaking may economically affect your business. In addition, 
we welcome comments from anyone in the general public who believes that 
these regulations may impact small business entities.

Environmental Impact Statement

    Any rule that is subsequently promulgated is not expected to 
significantly affect the environment; therefore, an Environmental 
Impact Statement is not likely to be required under the National 
Environmental Policy Act of 1969. When regulations are proposed, an 
appropriate determination will be available in the docket for 
inspection or copying where indicated under ADDRESSES.

Paperwork Reduction Act

    We cannot yet estimate the paperwork burden which may result from 
any further rulemaking on this issue, but it is expected that comments 
received on this advance notice of proposed rulemaking will assist the 
agency in estimating the potential paperwork burden, as required under 
the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). If you have 
comments on the potential information collection burden, please submit 
a comment (see ADDRESSES) explaining your concerns. If new 
recordkeeping requirements result from future proposed rulemaking, we 
will submit those recordkeeping requirements to the Office of 
Management and Budget for review.

Unfunded Mandates Reform Act

    This proposed rule does not impose unfunded mandates under the 
Unfunded Mandates Reform Act of 1995. It does not result in costs of 
$100 million or more to either State, local, or tribal governments, in 
the aggregate, or to the private sector, and is the least burdensome 
alternative that achieves the objectives of the rule.

International Trade Impact Assessment

    The final rule that will result from this rulemaking is not 
expected to contain standards-related activities that create 
unnecessary obstacles to the foreign commerce of the United States. If 
you believe that this rulemaking will have international trade impacts, 
we welcome your comments.

    By order of the Maritime Administrator.

    Dated: April 30, 1999.
Joel C. Richard,
Secretary.
[FR Doc. 99-11259 Filed 5-5-99; 8:45 am]
BILLING CODE 4910-81-P