[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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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:
---------------------------------------------------------------------------

    \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 
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------

    \47\ Sullivan Report at 308.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \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