[Federal Register Volume 66, Number 11 (Wednesday, January 17, 2001)]
[Notices]
[Pages 4068-4074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1358]
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DEPARTMENT OF TRANSPORTATION
Maritime Administration
[Docket No. MARAD-2001-8665]
ARICA--Applicability of Ownership and Control Requirements to
Obtain a Fishery Endorsement to the Vessel's Documentation
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Invitation for public comments on a petition requesting MARAD
to issue a determination that the ownership and control requirements
and the preferred mortgage requirements of the American Fisheries Act
of 1998 and 46 CFR Part 356 are in conflict with an international
investment agreement.
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SUMMARY: The Maritime Administration (``MARAD'') is soliciting public
comments on a petition from the owners and mortgagees of the vessel
ARICA--Official Number 550139 (hereinafter the ``Vessel''). The
petition requests that MARAD issue a decision that the American
Fisheries Act of 1998 (``AFA'' or ``Act''), Division C, Title II,
subtitle I, Pub. L. 105-277, and the implementing regulations at 46 CFR
part 356 (65 FR 44860 (July 19, 2000)) are in conflict with the
Agreement Between the United States of America and Denmark Regarding
Friendship, Commerce and Navigation, 421 UNTS 105, TIAS: 4797,12 UST
908951 (1961) (``Denmark Treaty'' or ``FCN''). The petition is
submitted pursuant to 46 CFR 356.53 and 213(g) of AFA, which provide
that the requirements of the AFA and the implementing regulations will
not apply to the owners or mortgagees of a U.S.-flag vessel documented
with a fishery endorsement to the extent that the provisions of the AFA
conflict with an existing international agreement relating to foreign
investment to which the United States is a party. This notice sets
forth the provisions of the international agreement that the Petitioner
alleges are in conflict with the AFA and 46 CFR part 356 and the
arguments submitted by the Petitioner in support of its request. If
MARAD determines that the AFA and MARAD's implementing regulations
conflict with the Denmark Treaty, the requirements of 46 CFR Part 356
and the AFA will not apply to the extent of the inconsistency.
Accordingly, interested parties are invited to submit their views on
this petition and whether there is a conflict between the Denmark
Treaty and the requirements of both the AFA and 46 CFR Part 356. In
addition to receiving the views of interested parties, MARAD will
consult with other Departments and Agencies within the Federal
Government that have responsibility or expertise related to the
interpretation of or application of international investment
agreements.
DATES: You should submit your comments early enough to ensure that
Docket Management receives them not later than February 16, 2001.
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., SW, Washington, DC 20590-0001. You may
also send comments electronically via the Internet at http://dms.dot.gov/submit/. All comments will become part of this docket and
will be available for inspection and copying at the above address
between 10 a.m. and 5 p.m., E.T., Monday through Friday, except Federal
Holidays. An electronic version of this document and all documents
entered into this docket are available on the World Wide Web at http://dms.dot.gov.
[[Page 4069]]
FOR FURTHER INFORMATION CONTACT: John T. Marquez, Jr. of the Office of
Chief Counsel at (202) 366-5320. You may send mail to John T. Marquez,
Jr., Maritime Administration, Office of Chief Counsel, Room 7228, MAR-
222, 400 Seventh St., SW, Washington, DC, 20590-0001 or you may send e-
mail to [email protected].
SUPPLEMENTARY INFORMATION:
Background
The AFA was enacted in 1998 to give U.S. interests a priority in
the harvest of U.S.-fishery resources by increasing the requirements
for U.S. Citizen ownership, control and financing of U.S.-flag vessels
documented with a fishery endorsement. MARAD was charged with
promulgating implementing regulations for fishing vessels of 100 feet
or greater in registered length while the Coast Guard retains
responsibility for vessels under 100 feet.
Section 202 of the AFA, raises, with some exceptions, the U.S.-
Citizen ownership and control standards for U.S.-flag vessels that are
documented with a fishery endorsement and operating in U.S.-waters. The
ownership and control standard was increased from the controlling
interest standard (greater than 50%) of Sec. 2(b) of Shipping Act, 1916
(``1916 Act''), as amended, 46 App. U.S.C. 802(b), to the standard
contained in Sec. 2(c) of the 1916 Act, 46 App. U.S.C. 802(c), which
requires that 75 percent of the ownership and control in a vessel
owning entity be vested in U.S. Citizens. In addition, section 204 of
the AFA repeals the ownership grandfather ``savings provision'' in the
Anti-Reflagging Act of 1987, Pub. L. 100-239, Sec. 7(b), 101 Stat 1778
(1988), which permits foreign control of companies owning certain
fishing vessels.
Section 202 of the AFA also establishes new requirements to hold a
preferred mortgage on a vessel with a fishery endorsement. State or
federally chartered financial institutions must now comply with the
controlling interest standard of Sec. 2(b) of the 1916 Act in order to
hold a preferred mortgage on a vessel with a fishery endorsement.
Entities other than state or federally chartered financial institutions
must either meet the 75% ownership and control requirements of
Sec. 2(c) of the 1916 Act or utilize an approved U.S.-Citizen Trustee
that meets the 75% ownership and control requirements to hold the
preferred mortgage for the benefit of the non-citizen lender.
Section 213(g) of the AFA provides that if the new ownership and
control provisions or the mortgagee provisions are determined to be
inconsistent with an existing international agreement relating to
foreign investment to which the United States is a party, such
provisions of the AFA shall not apply to the owner or mortgagee on
October 1, 2001, with respect to the particular vessel and to the
extent of the inconsistency. MARAD's regulations at 46 CFR 356.53 set
forth a process wherein owners or mortgagees may petition MARAD, with
respect to a specific vessel, for a determination that the implementing
regulations are in conflict with an international investment agreement.
Petitions must be noticed in the Federal Register with a request for
comments. The Chief Counsel of MARAD, in consultation with other
Departments and Agencies within the Federal Government that have
responsibility or expertise related to the interpretation of or
application of international investment agreements, will review the
petitions and, absent extenuating circumstances, render a decision
within 120 days of the receipt of a fully completed petition.
The Petitioners
Arica Fishing Company Limited Partnership (``Arica Fishing Co.'')
is the owner of the Vessel. Arica Fishing Co. is owned by JOMM
Enterprises, Inc, the General Partner, and limited partners Royal
Greenland Inc.-USA, JZ, Ltd., Kenneth Morrison, and Robert F. Allen.
Royal Greenland Inc.-USA directly owns 47% of Arica Fishing Co. and
indirectly owns an additional percentage through its participation in
both JOMM Enterprises, Inc. and JZ, Ltd.. Royal Greenland, Inc.-USA is
a Washington State Corporation that holds an aggregate interest at all
tiers of the partnership ownership structure of approximately 54%.
Royal Greenland, Inc.-USA is a subsidiary of Royal Greenland
Trading ApS, a Danish company registered in Denmark. In 1994, Royal
Greenland Trading ApS was approached to invest in U.S. fishing
operations on the West coast of the United States. The following year
Royal Greenland agreed to make these investments through a U.S.
subsidiary, Royal Greenland Inc.-USA. Arica Fishing Co, Royal
Greenland, Inc.-USA, Royal Greenland Trading ApS, JOMM Enterprises,
Inc. and JZ, Ltd are hereafter collectively referred to as the
``Petitioner'' or ``Petitioners.''
Requested Action
The Petitioners seek a determination from MARAD under Sec. 213(g)
of the AFA and 46 CFR 356.53 that they are exempt from the U.S. citizen
ownership and control requirements of the AFA and 46 CFR part 356 on
the grounds that the requirements of the AFA and 46 CFR part 356, as
applied to Petitioners with respect to the Vessel, conflict with U.S.
obligations under the Denmark Treaty. Specifically, the Petitioners
request that MARAD determine that the ownership and control
restrictions do not apply to Royal Greenland Trading ApS, its wholly-
owned subsidiary Royal Greenland, Inc.-USA, or its equity ownership in
the Vessel, through its ownership interest in Arica Fishing Company
Limited Partnership, JOMM Enterprises, Inc., and JZ, Ltd.
Petitioner's Description of the Conflict Between the FCN Treaty and
Both 46 CFR Part 356 and the AFA
MARAD's regulations at 46 CFR 356.53(b)(3) require Petitioners to
submit a detailed description of how the provisions of the
international investment agreement or treaty and the implementing
regulations are in conflict. The entire text of the Denmark Treaty is
available on MARAD's internet site at http://www.marad.dot.gov. The
description submitted by the Petitioner of the conflict between the
Denmark Treaty and both the AFA and MARAD's implementing regulations
forms the basis on which the Petitioner requests that the Chief Counsel
issue a ruling that 46 CFR part 356 does not apply to Petitioner with
respect to the Vessel. The Petitioner's description of how the
provisions of the Denmark Treaty are in conflict with both the AFA and
46 CFR Part 356 is as follows:
Summary of Argument
The ownership and control provisions of the AFA are directly
inconsistent with the U.S-Denmark Treaty of Friendship, Commerce and
Navigation (the ``Denmark Treaty''), an existing international
agreement relating to foreign investments to which the United States
is a party. The issue is relevant because there is investment by
Royal Greenland Trading, a Danish company, in the U.S. flag fishing
vessel Arica that would be directly impaired by the AFA.
Specifically, the AFA's unambiguous, retroactive discrimination
against fishing companies with foreign ownership interests, for the
benefit of super-majority U.S. owned fishing companies--as applied
to Danish investment in such companies--is directly at odds with the
Denmark Treaty.
The purpose of the Denmark Treaty is to encourage investment
between the United States and Denmark. The Treaty prohibits the
impairment of rights legally acquired by Danish investors in U.S.
enterprises. The Denmark Treaty also explicitly accords Danish
investors national treatment--treatment by the U.S. government as if
such investors were U.S. nationals, with respect to their
investments in the United States. Most plainly, the Denmark Treaty
explicitly forbids interference with Danish investors'
[[Page 4070]]
rights to manage enterprises which they have established or
acquired.
Therefore, under Section 213(g) of the Act, the irreconcilable
conflict between the investment protection provisions of the Denmark
Treaty and the AFA's retroactive impairment of Royal Greenland
Trading's investment rights requires Marad to grant this petition to
exempt from the U.S. citizen ownership and control requirements of
the AFA Royal Greenland Trading's equity ownership in the Arica
(through its ownership interest in Arica Fishing Company Limited
Partnership, JOMM Enterprises, Inc., and JZ, Ltd.).
The U.S. Treaties of Friendship, Commerce and Navigation Are a Class of
International Agreements Protecting Bilateral Investment
The Denmark Treaty was one of a group of post-World War II
treaties designed to create open-door investment between the U.S.
and nearly twenty other countries. Unlike previous agreements, these
``Friendship, Commerce and Navigation'' treaties dealt explicitly
with corporate investment between countries.
The purpose of the FCN treaties in the post-war period was to
provide a stable environment for private international
investment.\14\ The FCN treaties sought ``national treatment,'' \15\
and were intended to create an ``open door'' for foreign
investment.\16\ After the war, the United States ``took the lead in
developing [a liberal] international investment regime, and began to
negotiate a series of Friendship, Commerce and Navigation treaties,
a major purpose of which was to protect U.S. investment abroad.''
\17\
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\14\ Walker, Modern Treaties of Friendship, Commerce and
Navigation, 42 Minn. L. Rev. 805 (1958). Herman Walker, Jr., the
chief commentator on the purpose of the Friendship, Commerce and
Navigation (``FCN'') treaties, served, at the time of the drafting
of the Treaty as Adviser on Commercial Treaties at the State
Department and was responsible for formulation of the postwar form
of the FCN Treaty, negotiating several of the treaties for the
Untied States. See Sumitomo Shoji America Inc. v. Avagliano et al.,
457 U.S. 176, 182 (1982).
\15\ Walker, Modern Treaties of Friendship, Commerce and
Navigation, 42 Minn. L. Rev. 817 (1958).
\16\ ``National Treaties'' is defined by Article XXII of the
Denmark Treaty as ``treatment accorded within the territories of a
Party upon terms no less favorable than the treatment accorded
therein, in like situations, to nationals, companies, products,
vessels or other objects, as the case maybe, of such parties.''
National treatment in to be accorded automatically and without
condition of reciprocity (Sullivan Report at page 64; see, infra at
p.5 fn. 19.)
Harold F. Lidner, Deputy Assistant Secretary of State for
Economic Affairs, testified before the Senate during hearings on
ratification of the Denmark Treaty (among others) and corrected U.S.
Senator Sparkman at this hearing on his misapprehension that
``national treatment'' meant treatment of U.S. nationals in a
foreign nation in the same way foreign nations were treated in the
United States, clarifying that it meant, instead, treatment of
foreign nationals in the U.S. exactly as U.S. citizens are treated.
Hearing Subcommittee on Commercial Treaties and Consular
Conventions, at p. 7, 82nd Cong. (May 9, 1952).
\17\ Vandevelde, Sustainable Liberalism and The International
Investment Regime, 19 Mich. J. Int'l L. 373 (1998).
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Federal courts recognized the FCN treaties as ``the medium
through which the U.S. and other nations could provide for the
rights of each country's citizens, their property and their
interests, in the territories of the other.'' \18\ The treaties were
the means by which nationals of each country could ``manage their
investment in the host country.'' \19\
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\18\ Spiess v. C. Itoh and Co. (Am.) Inc., 643 F.2d 353, 361
(5th Cir. 1981), vacated on other grounds, 457 U.S. 1128 (1982),
quoting Walker, Treaties for the Encouragement and Protection of
Foreign Investment: Present Untied States Practice 5 Am J. Comp. L.
229 (1956).
\19\ Lemnitzer v. Philippine Airlines, 783 F. Supp. 1238 (N.D.
Cal. 1991), quoting Spiess, supra at 361.
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These FCN treaties ``define the treatment each country owes the
nationals of the other; their rights to engage in business and other
activities within the boundaries of the former; and the respect due
them, their property and their enterprises.'' \20\ Foreign
investment issues were a centerpiece of the Treaties' purpose:
\20\ Wickes v. Olympic Airways, 745 F.2d 363 (6th Cir. 1984),
quoting Walker, Modern Treaties of Friendship Commerce and
Navigation, 42 Minn. L. Rev. 805, 806 (1958).
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``[The FCN treaties] preoccupation with [national treatment
issues] has been especially responsive to the contemporary need for
a code of private foreign investment; and their adaptability for use
as a vehicle in the forwarding of an investment aim follows from
their historical concern with establishment matters.'' \21\
\21\ Walker, Modern Treaties of Friendship, Commerce and
Navigation, 42 Minn. L. Rev. 805, 806 1958).
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The FCN Treaties reached after World War II, had:
``a new consideration * * * which lent special impetus to the
program following World War II, [that consideration] was the need
for encouraging and protecting foreign investment, responsively to
the increasing investment interests of American business abroad and
to the position the United States has now reached as principal
reservoir of investment capital in a world which has become acutely
``economic development'' conscious.'' \22\
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\22\ Wickes v. Olympic Airways, 745 F.2d 363 (6th Cir. 1984),
quoting Walker, The Post-War Commercial Treaty Program of the United
States, 73 Pol. Sci. Q. 57, 59 (1957); See also, Waldek, Note,
Proposals for Limiting Foreign Investment Risk Under the Exon-Florio
Amendment, 42 Hastings L.J. 1175, 1235 (1991).
It is also important to note that the FCN Treaties, including
the Denmark Treaty, are self-executing treaties, that is, they are
binding domestic law of their own accord, without the need for
implementing legislation.\23\ Such treaties are the supreme law of
the land, and even federal statutes ``ought never to be construed to
violate the law of nations if any other possible construction
remains.'' \24\ Only when Congress clearly intends to depart from
the obligations of a treaty will inconsistent federal legislation
govern.\25\
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\23\ See e.g., Zenith Radio Corp. v. Matsushita Electric
Industrial Co. Ltd., 494 F. Supp. 1263, 1266 (E.D. Pa. 1980).
\24\ McCulloch v. Sociedad Nacional de Marineros de Honduras,
372 U.S. 10, 21 (1963).
\25\ Id. See also Sumitomo Shoii America, Inc. v. Avagliano et.
al., 457 U.S. 176 (1982).
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The U.S.-Denmark Treaty of Friendship, Commerce and Navigation Protects
Danish Investment in U.S. Companies and is Clearly Inconsistent with
the American Fisheries Act
The Denmark Treaty contains 26 Articles, several of which
contemplate, and expressly prohibit, retroactive limitations on
foreign investment in U.S. companies, such as those imposed by the
AFA.\26\
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\26\ The conflict between the AFA and certain international
treaties has been recognized by one of the principal authors of the
Act. Senator Slade Gorton (R-WA), one of the chief sponsors of the
final legislation, was quoted in the press shortly after the Act
passed questioning the validity of the new ownership provisions in
relation to these investment treaties: `Another provision [of the
American Fisheries Act] requires vessels operating in this fishery
to have at least 75 percent U.S. ownership three years after the law
goes into effect, but [Senator Slade] Gorton said this
``Americanization'' feature ``may very well be found invalid'' under
U.S. trade agreements if challenged by foreign ownership interests.
Marine Digest and Transportation News at p. 29 November 1998)
(emphasis added).
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A. Proclamation: Encouraging International Investment
The first provision of the Denmark Treaty, entitled ``A
Proclamation,'' contains broad language relevant to an understanding
of the subsequent Treaty Articles relating to bilateral investment.
The Proclamation states:
``The United States of America and the Kingdom of Denmark,
desirous of strengthening the bonds of peace and friendship
traditionally existing between them and of encouraging closer
economic and cultural relations between their people, and being
cognizant of the contributions which may be made toward these ends
by arrangements encouraging mutually beneficial investments,
promoting mutually advantageous commercial intercourse and otherwise
establishing mutual rights and privileges, have resolved to conclude
a Treaty of Friendship, Commerce and Navigation, based in general
upon the principles of national and of most-favored-nation treatment
unconditionally accorded * * *'' (emphasis added).
By emphasizing the importance of international investments, the
Proclamation provides the Denmark Treaty's context for interpreting
its investment protection provisions.\27\ In entering into this
Treaty, the United States recognized, and accepted as
``consideration,'' the advantages provided by
[[Page 4071]]
foreign investment in this country and protection of U.S.
investments abroad.\28\ The national treatment benefits of the
Danish Treaty are ``to be accorded automatically and without
condition of reciprocity.'' \29\
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\27\ The Sullivan Report is an Article-by-Article discussion of
the standard draft treaty of Friendship, Commerce and Navigation,
based on the record of negotiation, State Department messages
providing instructions, and internal memoranda dealing with issues
raised in the course of negotiations, that was completed in
November, 1973. The Sullivan Report states that the standard FCN
Treaty Preamble (designated ``Proclamation'' in the Denmark Treaty
``does have legal effect, for the courts rely on it at as a guide to
interpretation concerning the applicability of the operative
articles.'' Sullivan Report at 62.
\28\ Harold F. Linder, Deputy Assistant Secretary of State for
Economic Affairs, testified before the Senate during hearings on
ratification of the Denmark Treaty (among others) as follows: ``. .
. These treaties are not one-sided. They are drawn up in mutual
terms, in keeping with their character as freely negotiated
instruments between sovereign equals. Rights assured to Americans in
foreign countries are assured in equivalent measure to foreigners in
this country. Hearing, Subcommittee on Commercial Treaties and
Consular Conventions, May 9, 1952 at p. 6
\29\ Sullivan Report at 64. Although the Denmark Treaty requires
investment protection without the requirement of reciprocity, it may
be useful to note that a review of the Jones Study, infra p. 7 at
fn. 23 shows no incidents of State Department conflicts with Denmark
under the Denmark Treaty).
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B. Article VIII: Managing Commercial Enterprises
Paragraph 1 of Article VIII of the Denmark Treaty states that
nationals of each signatory Nation shall be permitted to:
``constitute companies for engaging in commercial,\30\
manufacturing, processing [and] financial * * * activities, and to
control and manage enterprises which they have been permitted to
establish or acquire \31\ * * * for the foregoing and other
purposes.'' (emphasis added).
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\30\ The Minutes of interpretation appended to the Denmark
Treaty state: ``The word ``commercial'' as used in Article VII,
paragraph 1 and Article VIII paragraph 1, does not extend to the
fields of navigation and aviation. The word ``commercial'' ``relates
primarily but not exclusively to the buying and selling of goods and
activities incidental thereto.'' Royal Greenland Inc. -USA is
chiefly concerned with the sale of fishery products and activities
incidental thereto. It is also important to note that the term
``navigation'' does not include commercial fishing. First, the
Danish Treaty mentions ``national fisheries,'' and ``inland
navigation'' as separate, independent activities under paragraph 3,
Article XIX. ``Navigation'' is generally defined as ``the act of
sailing a vessel on water.'' Black's Law Dictionary, 7th ed. West
Publishing, 1999. Finally, it may be important to note that in the
Denmark Treaty, the word navigation is represented by the Danish
word ``sofort,'' which means transportation activity on sea and
would not include fishing or fish processing. Had fishing or fish
Processing been intended, the appropriate word would have been
``fiskrei.''
\31\ This provision as well as others found in Article VII of
the standard draft treaty examined by the Sullivan Report, is
considered ``the heart of the treaty.'' Sullivan Report at 124.
Royal Greenland Trading owns Royal Greenland Inc.-USA, a U.S.
entity owning interests through a variety of entities in the fishing
vessel Arica. There is no question that Royal Greenland Inc.-USA
engages in commercial activities directly or through related
entities: the sale of fish harvested by the fishing vessel Arica,
and the fish processing undertaken aboard the vessel Arica.\32\
Royal Greenland Inc.-USA is also directly engaged in financial
activities: e.g., the investment of funds in the U.S. fishing
industry.
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\32\ See, e.g. State Department opposition to H.R. 12275
(expanding the definition of fisheries to include processing
activities) as contrary to U.S.-Japan FCN treaty; processing
activities under the FCN are entitled even to prospective national
treatment, Aug. 17, 1964. Jones Study at 80 (citation infra at p. 7
fn 29).
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The AFA would force Royal Greenland Trading to divest itself of
its current ownership and control of Royal Greenland, Inc.--USA,
requiring the sale of 75% of that company's equity in order for it
to be able to maintain its investment in Arica Fishing Company
Limited Partnership.\33\ Forced divestiture is facially inconsistent
with the control and management protections required by Article VIII
of the Denmark Treaty, above.
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\33\ Alternatively, Royal Greenland USA would be forced to sell
its direct investment in the Arica Fishing Company, L.P., which
would have the same impact on its parent company, Royal Greenland
Trading.
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The clear conflict between Article VII.1 of the Denmark Treaty
and the AFA can be seen from the stated purpose of the original bill
that was eventually enacted as the AFA:
``to prevent foreign ownership and control of United States flag
vessels employed in the fisheries in the navigable waters and
exclusive economic zone of the United States * * *'' (emphasis
added).\34\
\34\ S. 1221, 105th Cong. (preamble) (1997).
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One additional point regarding Paragraph 1 of Article VIII is
worthy of note. Article VIII states that it protects the control
only of enterprises which a Danish entity has ``been permitted to
establish or acquire.'' That is, only retroactive limitations, such
as the one here at issue, are forbidden.
2. Paragraph 2: National Treatment
Paragraph 2 of Article VIII states:
``Companies, controlled by nationals and companies of either
Party and constituted under the applicable laws and regulations
within the territories of the other Party for engaging in the
activities listed in paragraph 1 of the present Article, shall be
accorded national treatment therein with respect to such
activities.'' (emphasis added).
Under the definition of national treatment,\35\ paragraph 2 of
Article VIII requires that duly constituted companies controlled by
Danish entities shall be treated precisely as if they were U.S.
investors. Such an obligation can hardly be met by requiring the
transfer of ownership and control of a company from Danish investors
to U.S. investors.
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\35\ See supra at p. 3, fn. 9.
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The U.S. State Department has repeatedly recognized this
interpretation of Article VIII. For example, in 1971, the State
Department opposed legislation in Guam requiring that 50% of the
voting stock of corporations doing business in Guam be owned by U.S.
citizens. The State Department took the position that such
legislation was inconsistent with Article VII of the Japan FCN
Treaty, which, (as do Articles VII and VIII of the Denmark Treaty),
establishes a right to national treatment of non-U.S. companies and
nationals engaged in business activity.\36\
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\36\ The State Department's position on this and other FCN
issues are reviewed in the ``Jones Study,'' prepared by Ronny E.
Jones for the U.S. State Department, and is a compilation of post-
World War II State Department positions on FCN Treaties through
1981. See e.g. State Department position re: Letter to A. Papa (U.S.
Attorney General's office) from F.R. Brown (Legislative Counsel of
11th Legislature of Guam), Sept. 27, 1971, Jones Study at 76. See
also, State Department position concluding under the French FCN
Treaty that control and national treatment provisions ``bar new
discriminatory limitations from being applied to established or
authorized operations and rights of a protected foreign company''
(differentiating from permissible prospective limitations on
ownership), Jones Study at 54; State Department position opposing
Korean government's restricting foreign majority ownership of
companies in certain industries, October, 1972, Jones Study at 86;
State Department position opposing Thai government's restrictions on
majority ownership of companies in some industries. 1972 Jones Study
at 104-106.
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In sum, the provisions of the AFA requiring retroactive
divestment of Danish ownership of a business entity in the United
States are facially inconsistent with both paragraphs of Article
VIII of the Denmark Treaty that explicitly protect foreign investors
engaged in the control of U.S. companies.
C. Article VI, Paragraph 4: Impairment of Interest in Supplied Capital
Is Prohibited
Paragraph 4 of Article VI of the Denmark Treaty prohibits:
``unreasonable or discriminatory measures that would impair the
legally acquired rights or interests within its territories of
nationals and companies of the other Party in the enterprises which
they have established, or in the capital, skills, arts or technology
which they have supplied.'' (emphasis added).
The explicit purpose and effect of the AFA is to discriminate
against foreign nationals and companies. The Act's ownership
provisions require divestment of substantial equity in U.S. fishing
vessels and the loss of future profits from the enterprise. On their
face, these provisions directly ``impair the legally acquired
interests'' of Danish investors both ``in the enterprises which they
have established,'' and ``in their capital * * * which they have
supplied.''
It is clear from the expressed purposes of the FCN treaties, and
from this provision in particular, that their central goal was to
encourage capital investment between treaty signatories by
protecting potential investors from the fear that government action
would retroactively impair equity ownership rights in that
investment. It was only in this context of mutually understood and
guaranteed investment rights that open invitations to foreign
capital to develop the U.S. fishing fleet could be, and was,
successful.
Thus, the retroactive forced divestment of owned equity imposed
on Danish investors by the AFA directly violates Article VI of the
Denmark Treaty, and as such is inconsistent with the Treaty as
contemplated under Section 213(g) of the Act.
D. Article VII: National Treatment Required
Paragraph 1 of Article VII of the Denmark Treaty states:
``Nationals and companies of either party shall be accorded * *
* national treatment with respect to engaging in all types of
commercial * * * [and] * * * financial activities.''
[[Page 4072]]
As set forth above, the AFA directly affects Danish nationals
and their companies that are ``engaging in * * * commercial and
other business activities.'' Royal Greenland Trading engages in
commercial and financial investment activities through a subsidiary,
Royal Greenland Inc.-USA. The Denmark Treaty requires that Royal
Greenland Trading's commercial and investment activities be accorded
national treatment, and as demonstrated above, the AFA's explicit
discrimination against non-U.S. citizens violates this national
treatment provision when applied to Danish investment.
Paragraph 2 of Article VII also requires most-favored-nation
treatment with respect to ``organizing, participating in and
operating companies of [the United States].'' Most-favored-nation
treatment is defined by Article XXII of the Denmark Treaty as
``treatment accorded * * * upon terms no less favorable than the
treatment accorded therein, in like situations, to nationals,
companies, products, vessels or other objects, as the case may be,
of any third country. Thus, it is important to note that if
nationals of any other country are afforded protection under section
213(g) of the Act failure to provide the same protection to Danish
nationals would also be inconsistent with Article VII.
E. Article IX: Protection of Movable Property
Article IX of the Denmark Treaty explicitly applies the
protections afforded by the rest of the Treaty, and in particular
those protections secured by Articles VII and VIII, to the purchase,
ownership and disposition of property.
Paragraph 4 of Article IX sets out the only conditions under
which nationals and companies of either party may be required to
dispose of property they have acquired.\37\ Subparagraph a,
Paragraph 4 of Article IX permits such a requirement for movable
property so long as such a requirement conforms to Article VIII,
paragraph 1 and all other provisions of the Denmark Treaty. As set
forth above and below, the retroactive equity divestment
requirements of the AFA do not conform with Article VIII and the
other provisions of the Denmark Treaty. Article IX of the Denmark
Treaty, in effect, repeats that ownership of movable property may
not be subject to forced retroactive divestiture.\38\
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\37\ ``Nationals and companies of either Party shall be accorded
national treatment within the territories of the other Party with
respect to acquiring * * * and with respect to owning movable
property of all kinds . . . subject to the right of such other Party
to limit or prohibit, in a manner that does not impair rights and
privileges secured by Article VIII, paragraph 1, [See discussion at
pp. 58 supra] or by other provisions of the present treaty, alien
ownership of particular materials that are dangerous from the
standpoint of public safety and alien ownership of interests in
enterprises carrying on particular types of activities.'' (emphasis
added).
\38\ ``The term ``discriminatory'' as used in this context would
comprehend denials of either national or most-favored-nation
treatment, or both . . . the intent is to protect against
retroactive impairment of vested rights if the acquisition of such
rights was lawful * * *'' (emphasis added). Sullivan Report at 115.
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F. Article I: Equitable Treatment Required for Danish Interests
Article I of the Denmark Treaty states:
``Each Party shall at all times accord equitable treatment to
the persons, property, enterprises and other interests of nationals
and companies of the other Party.''
This Article was intended to provide a fail safe mechanism in
the Treaty to ensure that fair and equitable treatment be afforded
to nationals of both countries.\39\ The forced divestiture of
investments and/or sale of assets cannot be viewed as equitable
treatment under any logical reading of Article I. Nevertheless, if
this Article has any meaning whatsoever, at the very least, it
cannot mean forcing a sale of valuable assets, such as the equity
interest in a fishing company.
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\39\ This Article ``provides a basis for making representation
against actions detrimental to [a signatory's] interests that may
not be covered by any specific legal rule in the treaty, as, for
example, a measure that is superficially nondiscriminatory but is so
framed as to harm only some [signatory's] interest * * *. the
construction leading to a just or equitable result is to be
preferred.'' Sullivan Report at 67. See also, Webster's New
Universal Unabridged Dictionary, Barnes and Noble Books, 1996,
``Equitable: Characterized by equity or fairness; just and right;
fair; reasonable: equitable treatment of all citizens''; Black's Law
Dictionary, 7th ed. West Publishing, 1999, ``Equitable: just;
conformable to principles of justice and right.''
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G. Article VI, Paragraph 3: Taking of Property Requires Just
Compensation
Paragraph 3 of Article VI of the Denmark Treaty requires that
the U.S. government cannot take property belonging to Danish
nationals:
``without the prompt payment of just compensation. Such compensation
shall be in an effectively realizable form and shall represent the
full equivalent of the property taken; and adequate provision shall
have been made at or prior to the time of taking for the
determination and payment thereof * * * ''
There is no practical difference between forcing a sale of
property to the U.S. government and forcing such a sale to American
nationals.\40\ Thus, to the extent that a forced sale of property
(1) diminishes the value of the asset for the company by virtue of
the AFA's passage; or (2) results in a below-market sale of assets,
the AFA violates Article VI,\41\ as it makes no provision for
compensation of Danish investors.\42\ \43\
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\40\ The rule of just compensation covers partial takings. In
such cases, the compensation should be a full approximation of the
amount by which the taking impaired the value of the property.''
Sullivan Report at 117.
\41\ At the very least, paragraph 3 of Article VI requires
application of a standard similar to that under the 5th Amendment to
the United States Constitution. Paragraph 5 of Article VI requires
that Danish citizens ``shall in no case be accorded * * * less than
national treatment * * * with respect to the matters set forth'' in
paragraph 3. No federal court would permit the government to force a
sale of assets by a U.S. citizen, thus denying that citizen any use
of that property in the future, without requiring just compensation.
Further, the Danish Protocol 2 appended to the Denmark Treaty
requires that the provision of Article VI for payment of just
compensation shall extend to interests held directly or indirectly
by nationals and companies of either party.
\42\ ``The intent of this requirement [that provision is made
for the determination and payment of compensation] is to afford
protection against ex post facto proceedings that could work to the
disadvantage of the person whose property is taken.'' Sullivan
Report at 119.
\43\ Even with respect to the forced sale of ``materials
dangerous from the standpoint of public safety,'' permitted under
Article IX of the Treaty, the Danish Treaty requires that ``a term
of at least five years shall be allowed in which to effect such
disposition.'' Subparagraph b, Paragraph 4, Article IX.
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H. Article XIX: Vessels Flying the U.S. Flag are Deemed U.S. Vessels
For Purposes of Access to U.S. Fisheries
Paragraph 4 of Article XIX of the Denmark Treaty states:
``each Party may reserve exclusive rights and privileges to its own
vessels with respect to * * *. national fisheries.'' (emphasis
added).
This provision allows the U.S. and Denmark to reserve exclusive
rights and privileges to ``its own vessels'' operating in the
fisheries of their respective countries. The national identity of a
vessel is determined by the country in which the vessel is
documented, i.e. by the flag that it flies. The national identity of
a vessel is not determined by the nationality of the investor in the
owning entity.\44\
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\44\ In order to be documented under the U.S. flag, for example,
a vessel must be owned by a U.S. citizen corporation, partnership or
other entity. There is no limitation on the citizenship of the
investment for the basic documentation. 42 U.S.C. 12102(a). Should
the vessel be used in specific trades, such as coastwise or
fisheries, there may be limitation on the citizenship of the
investors. 46 U.S.C. 12106; 12108. It is significant to note that at
the time the Denmark Treaty was signed there was no such limitation
on fishing vessels. It was not until 1988 that a prospective
limitation was imposed on the citizenship of the investors in an
entity owning a vessel with a fisheries endorsement. See, The
Commercial Fishing Industry Vessel Anti-Reflating Act of 1987;
Section 7(b) of Public Law 100-239.
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The Arica is a U.S. vessel documented under the laws of the
United States. The U.S. entity owning this U.S. flag vessel--like
General Motors, Ford Motor Company and Coca-Cola--has foreign
investors. The purpose of this provision in the Treaty was to allow
the United States and Denmark the opportunity to restrict fisheries
to vessels each country could control. That control, historically,
has always been through the flag of the vessel, subjecting the
vessel to our environmental, labor and tax laws--not to
[[Page 4073]]
allow the foreign investment capital to be taken.
This issue is further clarified by Paragraph 2 of Article XIX,
which states explicitly:
``Vessels under the flag of either Party * * * shall be deemed
to be vessels of that Party * * *''
Thus, the United States has the full authority to reserve
exclusive rights and privileges to the U.S. flag vessel Arica, ever
since Royal Greenland Trading made its first investment in the
Vessel. What the United States has not had the right to do under the
Denmark Treaty is to take away that investment once it was made.
Article XIX does not permit the United States to reserve rights or
privileges under the Denmark Treaty for some of ``its vessels''
(those with super-majority U.S. investment) as against others of
``its vessels'' (those that include some Danish investment). On the
contrary, it guarantees U.S. fishing vessels with Danish investment
equal access to U.S. fisheries.
I. Article XXI: Restrictions on the Rights of ``Third Country''
Nationals Are Not Applicable to the Danish Citizens of Greenland
Greenland is a legal territory of Denmark, not an independent
country.\45\ Residents of Greenland are Danish citizens. The Danish
Constitution of 1953 covers all parts of Denmark, including
Greenland. Subsequent to this constitution, Greenland was
administered as a department directly under the central Danish
government authority. In 1978, a parliamentary statute established
Greenlandic ``home-rule'' effective May 1, 1979 for some internal
legal areas. However, Greenland remains a legal part of the
sovereign nation, Denmark, and is subject to Danish statutes, such
as the ``Companies Act.''
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\45\ ``Greenland first came under Danish rule in 1380. In the
revision of the Danish Constitution in 1953, Greenland became part
of the Kingdom and acquired the representation of two members in the
Danish Folketing * * * Greenland is part of the Kingdom of Denmark,
and the Danish Government remains responsible for foreign affairs,
defense and justice.'' The Europa World Year Book 1999, Europe
Publications Ltd. (1999); Volume I at pp 1203-04.
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As stated earlier,\46\ Royal Greenland Trading, the Danish
company with investment in Arica Fishing Company Limited
Partnership, is owned by investors in the Territory of Greenland.
Article XXI, Paragraph 1(d) of the Denmark Treaty denies:
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\46\ See Exhibit A and discussion accompanying supra at p.2 fn.
6.
``to any company in the ownership or direction of which nationals of
any third country or countries have directly or indirectly a
controlling interest, the advantages of the present Treaty, except
with respect to recognition of juridical status and with respect to
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access to courts.'' (emphasis added).
This reservation is a provision to permit piercing the corporate
veil when nationals of non-signatories seek to ``obtain rights under
the treaty through the device of obtaining and exercising interests
in companies of the treaty partner * * * Absent such a provision,
such corporate interests could take advantage of the definition of
``companies'' [in the Treaty], which establishes place of
incorporation as the sole test of the nationality of a
corporation.\47\ (emphasis added).
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\47\ Sullivan Report at 308.
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Greenland is not a ``third country'' within the meaning of this
provision. Greenland is a territory of Denmark, dependent upon it
for foreign policy determinations. It is also facially evident that
no ``device'' to gain the benefits of the Treaty has taken place.
The ownership arrangements for Royal Greenland Inc.-USA were
completed long before enactment of the AFA. The duly constituted
Danish company Royal Greenland Trading has the right to expect the
protection afforded all incorporated Danish companies under the
Denmark Treaty.
J. Article XXIII: Restriction on the Denmark Treaty's Application to
Greenland Does Not Apply to Greenlandic Investment in a Duly
Constituted Danish Company
Article XXIII of the Denmark Treaty states:
``The territories to which the present Treaty extends shall
comprise all areas of land and water under the sovereignty or
authority of each of the Parties, other than Greenland, the Panama
Canal Zone and trust Territory of the Pacific. ''
As set forth above, Royal Greenland Trading is a duly
incorporated Danish company, subject to Danish government authority
and chartered by the Danish Crown. Royal Greenland Trading is
located at Langerak 15, 9220 Aalborg, Denmark. Overall, Royal
Greenland Trading's affiliated companies have several hundred
employees in Denmark. Article XXII, Paragraph 3 states:
``* * * Companies constituted under the applicable laws and
regulations within the territories of either Party shall be deemed
companies thereof and shall have their juridical status recognized
within the territories of the other `party.' ''
Thus, the Denmark Treaty is absolutely explicit that:
``the place of charter or incorporation [i]s the sole fact
determining the nationality of the company. This test is in contrast
to the so-called `seat' test favored in some European countries
where the location of the real center of management of the company
or the place or places where its principal activities are carried on
are looked to as determining its nationality, even though its
incorporation may be in another country. Under the test of place of
incorporation, there is no specific requirement of a substantial de
facto contact of the company with the chartering country other than
the issuance of the charter * * * Adoption of the single test of
place of incorporation was based in part on the practical
consideration that it makes the nationality of a company simple and
easy to determine.'' \48\ (emphasis added).
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\48\ Sullivan Report at 318-20.
The only exception to this ``place of charter or incorporation''
rule, is that set forth in Article XXI of the Denmark Treaty
discussed in Section I above. As discussed, Danish citizen investors
residing in Greenland do not fall within the narrow exception for
third country nationals seeking by device to take advantage of
another nation's favorable trade relations. Therefore, Royal
Greenland Trading must be afforded the protections for Danish
companies under the Denmark Treaty.
In addition, it is important to recognize that Article XXIII was
not intended to preclude protection for the Danish nationals of
Greenland and their companies, to which Danish law applies. It
appears clear that this exception was intended to protect areas
having special territorial, commonwealth or merely military
relationships with their home countries, such as the Panama Canal
Zone and the U.S. Trust Territory of the Pacific Islands. Such
policy rationales are not applicable to investments by the Danish
citizens of Greenland in their host country.
V. Conclusion: Royal Greenland Trading is Entitled to an Exemption
Under Section 213(g) of the American Fisheries Act Because the Act's
Retroactive Ownership and Control Provisions are Inconsistent With the
Denmark Treaty.
The Danish Treaty clearly contemplates the very category of
investment restrictions here at issue. It is important to recognize
that should the United States or Denmark have wished to exclude
investment in the fishing industry vessels of one party on behalf of
the nationals or companies of the other, they could easily have done
so. For example, Article XIV of the Treaty relates to prohibitions
and restrictions on imports. Paragraph 4 of Article XIV explicitly
excludes from the protections of the Article ``advantages accorded *
* * products of [each country's] national fisheries.'' Similarly,
Paragraph 4 of Article XIX reserves exclusive rights and privileges
to each signatory's own vessels with respect to national fisheries.
The Treaty simply does not permit forced divestment of investment--
or a prohibition on management of that investment--in U.S. companies
operating in the national fisheries.
The overlapping, self-reinforcing investment protections
provided by the several Articles analyzed in this petition were
clearly intended to prohibit the category of coerced retroactive
investment divestiture required by the AFA. The Treaty's explicit
agreement as to a national's right to control interests in companies
they have established in each Treaty partner's territory, its
requirement for the highest possible degree of investment
protection--national treatment, and its prohibition of the
impairment of equity rights gained by supplied capital, are all,
singly and in the aggregate, at odds with the AFA's ownership
provisions.
If the investment of Royal Greenland Trading is not protected,
the implications would be significant and the economic climate
fostered by the Treaty damaged. Forcing the sale of Danish
nationals' assets in the industry they helped to create would likely
make more far reaching free trade agreements difficult. The United
States has long been a champion worldwide of free market investment,
often decrying other governments' actions in restricting their
import markets, currencies and venture capital opportunities. To
interpret the Treaty
[[Page 4074]]
so as to permit enforced, retroactive loss of assets, and the
expulsion of Danish nationals overseeing their own investments from
their corporate positions may seriously weaken the standing of the
U.S. to continue in its leadership role.
Marad should therefore grant Royal Greenland Trading's petition
pursuant to Section 213(g) of the AFA and 46 C.F.R. 356.53
promulgated thereunder, and rule that the citizen ownership and
control restrictions in the Act and those portions of 46 C.F.R. Part
356 that implement those restrictions do not apply to Royal
Greenland Trading ApS (or its wholly-owned subsidiary) with respect
to its ownership equity in the vessel Arica (O.N. 550139), through
its ownership interest in Arica Fishing Company Limited Partnership,
JOMM Enterprises, Inc., and JZ, Ltd.
This concludes the analysis submitted by Petitioner for
consideration.
Dated: January 11, 2001.
By Order of the Maritime Administrator.
Joel Richard,
Secretary, Maritime Administration.
[FR Doc. 01-1358 Filed 1-16-01; 8:45 am]
BILLING CODE 4910-81-P