[Federal Register Volume 64, Number 108 (Monday, June 7, 1999)]
[Rules and Regulations]
[Pages 30245-30248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14257]


=======================================================================
-----------------------------------------------------------------------

FEDERAL MARITIME COMMISSION

46 CFR Part 551

[Docket No. 96-20]


Port Restrictions and Requirements in the United States/Japan 
Trade

AGENCY: Federal Maritime Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Maritime Commission is requiring U.S. and Japanese 
ocean common carriers in the U.S.-Japan trade to provide reports 
addressing the status of efforts to reform conditions unfavorable to 
shipping in the U.S.-Japan trade. Areas for reporting include reform of 
the ``prior consultation'' system for pre-approving carriers' service 
changes in Japan; entry of non-Japanese carriers into Japan's harbor 
services market; and Government of Japan proposals for broader harbor 
services deregulation. As marketplace developments have overtaken the 
findings in the currently suspended final rule in this proceeding in 
certain respects, the Commission has determined to remove that final 
rule.

DATES: The removal of Sec. 551.2 is effective June 7, 1999. Reports are 
due August 26, 1999, and every 180 days thereafter.


[[Page 30246]]


ADDRESSES: Reports and requests for publicly available information 
should be addressed to: Bryant L. VanBrakle, Secretary, Federal 
Maritime Commission, 800 North Capitol Street, NW., Washington, D.C. 
20573, (202) 523-5725.

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

SUPPLEMENTARY INFORMATION:

Background

    After an extensive investigation regarding potentially unfavorable 
conditions facing U.S. ocean shipping interests in Japanese ports, the 
Commission on February 26, 1997, issued a final rule finding such 
conditions to exist and imposing $100,000 per voyage sanctions against 
Japanese carriers entering United States ports. The rule was originally 
scheduled to take effect on April 14, 1997; however, the Commission 
postponed the effective date of the final rule until September 4, 1997, 
in recognition of assurances by the Japan Ministry of Transport 
(``MOT'') that it and other involved parties would undertake reforms to 
correct the conditions at issue. On September 4, 1997, the Commission, 
having not been presented with any evidence of corrective measures, 
allowed the rule to go into effect, and sanctions began to accrue 
against the Japanese carriers. The rule was again suspended by the 
Commission on November 13, 1997, after the signing of comprehensive 
government-to-government and industry-government accords to 
substantially reform Japanese port practices; at that time, accrued 
fees of $1.5 million were paid by the Japanese carriers.
    The Commission took the above-described actions in this proceeding 
after a comprehensive inquiry into restrictions and requirements 
affecting U.S. carriers and U.S. commerce in Japanese ports. The fees 
assessed in the final rule were deemed necessary in light of the 
Commission's identification of a number of conditions unfavorable to 
shipping warranting action under section 19 of the Merchant Marine Act, 
1920, 46 U.S.C. app. 876:
     Shipping lines in the Japan-U.S. trades were not allowed 
to make operational changes, major or minor, without the permission of 
the Japan Harbor Transportation Association (``JHTA''), an association 
of Japanese waterfront employers operating with the permission of, and 
under the regulatory authority and ministerial guidance of MOT.
     JHTA had absolute and unappealable discretion to withhold 
permission for proposed operational changes by refusing to accept such 
proposals for ``prior consultation,'' a mandatory process of 
negotiations and pre-approvals involving carriers, JHTA, and waterfront 
unions.
     There were no written criteria for JHTA's decisions 
whether to permit or disallow carrier requests for operational changes, 
nor were there written explanations given for the decisions.
     JHTA used and threatened to use its prior consultation 
authority to punish and disrupt the business operations of its 
detractors.
     JHTA used its authority over carrier operations through 
prior consultation as leverage to extract fees and impose operational 
restrictions, such as Sunday work limits.
     JHTA used its prior consultation authority to allocate 
work among its member companies, by barring carriers and consortia from 
freely choosing operators and by compelling shipping lines to hire 
additional, unneeded stevedore companies or contractors.
     MOT administered a licensing standard which blocks new 
entrants from the stevedoring industry in Japan, protecting JHTA's 
dominant position, and ensuring that the stevedoring market remains 
entirely Japanese.
     Because of the restrictive licensing requirement, U.S. 
carriers could not perform stevedoring or terminal operating services 
for themselves or third parties in Japan, as Japanese carriers do in 
the United States.
    On November 10, 1997, U.S. and Japanese officials and relevant 
industry groups (i.e., JHTA, the Japan Shipowners' Port Council 
(``JSPC'') and the Japan Foreign Steamship Association (``JFSA'')) came 
to terms on a number of points for remedying conditions in Japanese 
ports, including:
     A reaffirmance by the Government of Japan (``GOJ'') that 
it would approve foreign shipping companies' applications for licenses 
for port transportation business operations;
     An agreement to simplify the prior consultation system, 
increase transparency through the use of written decisions, and provide 
for dispute settlement procedures in which MOT or an MOT-chaired 
committee would resolve questions and disputes, and MOT would arbitrate 
and issue judgments;
     An agreement among the GOJ and carrier groups to establish 
an alternative to the prior consultation system and to implement the 
alternative system, whereby carriers intending to implement operational 
changes would confer with their terminal operators (who would, to the 
extent required by applicable collective bargaining agreements, consult 
with labor unions either directly or through a collective bargaining 
agent);
     Commitments that prior consultation not be used as a means 
to approve carriers' business plans and strategies, allocate business 
among port transportation business operators, restrict competition or 
infringe on carriers' freedom to select port transport business 
operators;
     Commitments that the GOJ will use its authority to prevent 
the unjustifiable denial of services essential to the conduct of 
licensed activities, to ensure the smooth operation of the port 
transportation business and the improvement of port efficiency, and to 
ensure that operation of the alternative prior consultation process 
will be free from outside interference, harassment, or retaliation.

Discussion

    In the period since the Government of Japan made its commitments to 
market opening and increased accountability, the pace of progress and 
reform in Japan's port transportation sector has been slow. It has been 
reported that no foreign shipping lines have applied for or received 
licenses to operate their own terminals. No carrier appears to have 
invoked or tested the prior consultation dispute settlement procedures 
or other procedural safeguards that were agreed to, and no alternative 
to JHTA's prior consultation system for reconciling carrier service 
issues with the concerns of Japanese labor has been developed. 
Moreover, proposals for broader reform under consideration by Japan's 
Government fall well short of full deregulation.
    There appear to be several reasons for these shortcomings. While 
the Government of Japan has committed to provide licenses to foreign 
carriers to operate port transportation businesses in their own berths, 
it has been reported that Japanese labor unions have communicated 
strong opposition to foreign lines establishing terminal operations, 
including threats of work stoppages or other labor actions. Other 
factors have made foreign entry into this sector more difficult as 
well. The Government of Japan maintains regulatory requirements, 
including ``close ties'' (through equity exchange or long term 
contracts) with subcontractors, that make launching a terminal venture 
more difficult. Furthermore, it appears that recent

[[Page 30247]]

economic factors in Japan, including currency and trade shifts, have 
made carrier investment in Japan's high-cost ports even less attractive 
than before. As a result, some lines have curtailed services in Japan, 
restructured existing arrangements, and shifted other operations to 
more rapidly growing, lower-cost modern maritime centers in the region.
    The reasons for the lack of progress regarding alternatives to 
prior consultation may be similarly complex, potentially involving 
labor concerns or resistance, lack of governmental leadership, and the 
scaling back of some carriers' operations in Japan. Also, while the 
1997 agreements provide for dispute resolution processes, these 
procedures are as yet untested. The reasons for and effects of this 
remain unclear, requiring further information and clarification.
    Given these evolving circumstances, it is necessary for the 
Commission to continue its review of this matter, and to update its 
record in this proceeding. The existing record and the resulting 
findings in the final rule are no longer current, having been overtaken 
in a number of respects by changes in both market conditions and 
governmental policies. The Commission needs to collect further 
information, both now and on an ongoing basis, to effectively evaluate 
whether the unfavorable conditions identified in the rule continue to 
exist, and if so, the extent to which their continued existence arises 
out of or results from foreign laws, rules, or regulations. Such 
oversight is necessary to ensure that U.S. carriers do not face 
restrictions in their operations in Japan that Japanese carriers do not 
face in this country.
    As some of the findings in the Commission's suspended final rule--
for example, findings regarding official refusals to grant licenses--
appear to have been overtaken in part by evolving circumstances and are 
not supported by the current record, the Commission has determined to 
withdraw the suspended rule while it reevaluates the current conditions 
facing U.S. shipping in Japan.
    Removal of the final rule in no way reflects the satisfaction of 
the Commission with the current status of this matter, however, or a 
conclusion of the Commission's interest in the reform of port 
conditions facing Japan-U.S. trade. U.S. carriers and U.S. trade 
continue to bear the high costs of inefficient Japanese waterfront 
practices. There are a number of further steps that the Government of 
Japan appropriately could take to ensure that its market opening 
commitments can become effective. With regard to licensing, the 
Government of Japan could move swiftly to eliminate or liberalize 
regulatory requirements that make entry more difficult, such as the 
close-ties test and regulatory minimum manning requirements. For any 
new entrants to succeed, Japanese authorities must also ensure that 
there will be no illegal boycotts of new entrants to the market, and 
must take action to prevent unlawful threats or harassment. Japanese 
authorities could certainly take further steps as well, including 
providing guidance and leadership in dialogue with interested parties 
to address Japanese labor's concerns with, and resistance to, the entry 
of foreign carriers into Japan's port transportation business.
    Japanese authorities also could appropriately take an active role 
to oversee the prior consultation process and ensure that all parties 
are conforming with the procedures and obligations set forth in 
agreements among MOT, shipowners, and JHTA. Of particular importance is 
the need to enforce the principle that prior consultation should not be 
used to allocate carrier business among operators. Active oversight by 
MOT could ensure that disputes regarding these provisions could be 
addressed and resolved before any conflicts become so severe that a 
formal request for dispute settlement becomes necessary.
    Japanese authorities could also do more to facilitate the creation 
of alternative processes to prior consultation. For such an alternative 
to be possible, the Government of Japan will have to work actively with 
interested parties to provide assistance and advice, including aiding 
in resolving concerns of port labor.
    The Commission will also continue to look closely at regulatory 
changes under consideration by the Government of Japan. In December 
1998, Japan's Transport Policy Council Harbor Transport Subcommittee 
issued an interim report, laying out proposals for potential regulatory 
changes in this sector. These proposals included elimination of the 
supply/demand test for licensing port business operators, which has 
been an issue of serious concern in this proceeding, and ending the 
system of regulatory approval of harbor companies' fees and charges. 
While these could be positive steps, the draft plan as a whole appears 
to fall short of what is needed to remedy current inefficiencies and 
obstacles in Japan's ports, and to ensure an open and competitive 
market for harbor services. As the United States Government pointed out 
to MOT earlier this year, the deregulatory plan retains economically 
burdensome and seemingly unnecessary requirements, including required 
commercial relationships (i.e., terminal operators are required to 
perform at least 70% of their services themselves) and close-tie 
requirements for subcontractors. Most troublesome are regulatory 
minimum manning requirements, which are increased, rather than 
eliminated, in the proposal.
    The Commission will continue to watch these matters closely, to 
ensure that the laws and regulations of the Government of Japan do not 
give rise to unfavorable conditions for U.S. maritime companies or 
trade.
    Therefore, it is ordered, That 46 CFR 551.2, is removed;
    It is further ordered, That the following parties are ordered to 
file reports with the Commission 90 days from the date of service of 
this order, and every 180 days thereafter: American President Lines, 
Ltd.; Sea-Land Service, Inc.; Kawasaki Kisen Kaisha, Ltd.; Mitsui 
O.S.K. Lines, Ltd.; and Nippon Yusen Kaisha. These reports should 
address the following:

    1. Has your company 1 submitted any major matters (as 
defined in ``the Revised Prior Consultation System of 1997'') for 
prior consultation in the past 180 days? (Responses may be limited 
to prior consultation regarding services in U.S.-Japan trades). If 
so, for each major matter presented, describe the request, the 
process followed by the carrier, and how the matter was handled and 
disposed of by JHTA. Indicate specifically whether the procedures 
outlined in paragraph II of ``The Revised Prior Consultation System 
of 1997'' were adhered to by JHTA and your company. If any dispute 
between your company and JHTA under the prior consultation system 
has arisen, has MOT been notified or requested to serve as 
arbitrator? If so, describe in detail what actions, if any, have 
been taken by MOT.
---------------------------------------------------------------------------

    \1\ References to ``your company'' include parent companies, 
subsidiaries, and corporate affiliates with whom common ownership is 
shared.
---------------------------------------------------------------------------

    2. Describe what attempts or inquiries your company has made 
with other shipping lines, port transportation business operators, 
MOT, or any waterfront organizations to create an alternative to the 
prior consultation system as described in the ``Agreement on the 
Improvement of the Prior Consultation System of 1997'' paragraph 
3(2), and describe the responses received.
    3. Describe in detail the status of any legislative or 
regulatory proposals to deregulate or change the laws or standards 
for the provision of marine terminal or stevedoring services in 
Japanese ports, and the likely effects of such changes on your 
business operations.
    4. (For response by APL and Sea-Land only.) Does your company 
have plans to begin performing or offering port harbor 
transportation services in Japan in the forseeable future? If so, 
describe: the planned

[[Page 30248]]

operations in detail; any attempts to obtain a license to operate a 
harbor services business, including any communications your company 
has had with any MOT officials regarding the issuance of licenses; 
and any communications your company has had in Japan with JHTA, 
other steamship or harbor services companies, and any other 
waterfront organization, regarding your company's plans to offer 
harbor transportation services in Japan or efforts to obtain 
licenses to do so.
    5. Describe any new or further restrictions or requirements 
placed on your company regarding the use or operation of terminals 
or harbor services.

List of Subjects in 46 CFR Part 551

    Maritime Carriers.

    For the reasons set out in the preamble, the Commission amends 46 
CFR part 551 as follows:

PART 551--ACTIONS TO ADJUST OR MEET CONDITIONS UNFAVORABLE TO 
SHIPPING IN THE U.S. FOREIGN TRADE

    1. The authority citation for part 551 continues 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).


Sec. 551.2  [Removed]

    2. Remove Sec. 551.2.

    By the Commission.
Bryant L. VanBrakle,
Secretary.
[FR Doc. 99-14257 Filed 6-4-99; 8:45 am]
BILLING CODE 6730-01-U