[Federal Register Volume 75, Number 213 (Thursday, November 4, 2010)]
[Notices]
[Pages 68019-68020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27812]



[[Page 68019]]

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DEPARTMENT OF TRANSPORTATION

Maritime Administration

[Docket No. MARAD-2007-0012]
RIN 2133-AB69


Determination of Foreign Reconstruction or Rebuilding of U.S.- 
Built Vessels That Participate in the Capital Construction Fund and 
Cargo Preference Programs

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Notice of Withdrawal.

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SUMMARY: The Maritime Administration (MARAD) is withdrawing and 
terminating its notice published in the Federal Register on November 
14, 2007, at 72 FR 64109, which requested comments on what standards 
MARAD should apply concerning determinations of foreign reconstruction 
of U.S.-built vessels that participate in the Capital Construction Fund 
(CCF) program and foreign rebuilding of U.S.-built vessels that 
participate in the cargo preference program. Initially, when the notice 
was published, it was considered useful to obtain public comment on 
whether MARAD should issue regulations on standards applicable to 
determination of rebuilding or reconstruction. At the time the notice 
was published, the Coast Guard's approach to rebuilding was an 
unsettled area of law and a particular issue had arisen with regard to 
MARAD's method of determination in a foreign rebuild context. That 
matter was resolved and in December 2009, the Coast Guard's method of 
carrying out rebuilding determinations was affirmed by the United 
States Court of Appeals for the Fourth Circuit. Likewise, MARAD's 
approach to such determinations had been affirmed by the United States 
Court of Appeals for the Second Circuit. Even though the standards are 
different as applied regarding the cargo preference program, the two 
approaches would only rarely produce a different result. Furthermore, 
because they are generally applied in different circumstances, they 
even more rarely produce inconsistent results regarding the same 
vessel. MARAD has been requested to make a determination only twice in 
the last fifteen years. Therefore, a new rule is not required.

DATES: The notice published at 72 FR 64109 (November 14, 2007) is 
withdrawn and terminated on November 4, 2010.
    Docket: For access to the docket to read background documents, 
please go to http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Murray A. Bloom, Chief, Division of 
Maritime Programs, Office of Chief Counsel, Maritime Administration, 
1200 New Jersey Ave., SE., Washington, DC 20590; Ph. (202) 366-5320, 
fax: (202) 366-3511; or e-mail [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    Three maritime promotional statutes mandate use of U.S.-built 
vessels and generally provide that a U.S.-built vessel becomes 
ineligible to carry preference cargo if the vessel is determined to 
have been reconstructed or rebuilt in a foreign country.
    Section 12132(b) of title 46, United States Code, provides that a 
vessel eligible to engage in the U.S. coastwise trade and later rebuilt 
outside the United States may no longer engage in the coastwise trade. 
This statute is administered by the U.S. Coast Guard. The Coast Guard's 
regulations that implement the statute are set forth in 46 CFR part 67. 
In determining whether a vessel has been rebuilt, the Coast Guard 
examines the amount of steel replaced on a vessel. The Coast Guard's 
interpretation of its regulations regarding rebuilding was affirmed in 
Shipbuilders Council of America, Inc. v. United States Coast Guard, 578 
F.3d 234 (4th Cir. 2009) and followed in the more recent case decided 
December 3, 2009, in Shipbuilders Council of America v. United States 
Dept. of Homeland Security, 673 F.Supp.2d 438 (E.D.Va. 2009).
    Chapter 535 of title 46, United States Code, established the 
Capital Construction Fund (CCF) program, whereby a U.S. citizen owner 
of an eligible vessel may defer Federal income taxes on income derived 
from the operation of an eligible vessel to the extent that income is 
deposited into a fund to be used solely for the acquisition, 
construction or reconstruction of qualified vessels. The statutory 
definitions of both eligible and qualified vessels, as pertaining to 
the CCF program, require such vessels, if reconstructed, to be 
reconstructed in the United States. MARAD administers the CCF program 
(except for the CCF applicable to fishery vessels and administered by 
the National Oceanic and Atmospheric Administration) under regulations 
located at 46 CFR part 390. To evaluate reconstruction under the CCF 
program, MARAD follows determinations made by the Coast Guard for Jones 
Act purposes. Under the CCF, because most vessels are Jones Act vessels 
and must meet Coast Guard limitations for rebuilding, it is appropriate 
for CCF vessels to meet only the single test for Coast Guard and MARAD.
    Chapter 553 of title 46, United States Code, provides that 
preference be given in the carriage of U.S. Government-impelled cargoes 
to privately-owned commercial vessels of the United States. The statute 
excludes any vessel rebuilt in a foreign country, unless the vessel 
shall have been documented under U.S. registry for at least three years 
prior to seeking preference cargoes. MARAD regulations at 46 CFR part 
381 govern shipment of preference cargoes. To assess rebuilding under 
cargo preference rules, MARAD examines the extent of shipyard work and 
whether vessel type has been or would be changed, and how the changes 
to the vessel would affect trade, U.S. shipyards, and purposes and 
policy of the Merchant Marine Act. MARAD's authority to apply a 
standard to rebuilding determinations, different from the Coast 
Guard's, was affirmed in Aquarius Marine Co. v. Pena, 64 F.3d 82 (2nd 
Cir. 1995). This case was followed by MARAD's final opinions in Barge 
Connor, Docket No. A-198 (Oct. 26, 2005) and Matson Navigation Company, 
MARAD Docket No. A-199 (Dec. 9, 2008).

II. Summary of the Notice

    On November 14, 2007, MARAD published a notice requesting comments. 
It was published at 72 FR 64109. The notice requested comments as to 
how MARAD should administer the programs assigned to it and sought 
answers to four questions. MARAD received 21 comments from 10 
commenters. Commenters included U.S. shippers, individuals, and 
shipping associations. A discussion of the comments follows.

III. Discussion of Comments

    The notice requested comments on four topics pertaining to foreign 
rebuild and reconstruction standards as applied to the CCF program and 
cargo preference. The questions included: (1) What substantive 
standards should MARAD apply to determine whether a CCF vessel has been 
reconstructed or a cargo preference vessel has been rebuilt; (2) what 
procedures should the MARAD adopt to investigate whether a CCF vessel 
has been reconstructed or a cargo preference vessel has been rebuilt; 
(3) what role, if any, should unrelated third parties, such as 
competitors or shipyards, play in developing a record of decision on 
whether a CCF vessel has been reconstructed or a cargo preference 
vessel has been rebuilt; and (4) what public disclosure criteria should 
apply

[[Page 68020]]

to the record of decision on whether a CCF vessel has been 
reconstructed or a cargo preference vessel has been rebuilt. In 
response to question one as to which substantive standards MARAD should 
apply to determine whether a CCF vessel has been reconstructed or a 
cargo preference vessel has been rebuilt, the majority of commenters 
responded that there were already established precedents in the 
Aquarius Marine Co. case and MARAD's determinations in Golden Monarch 
and Barge Connor; two others suggested that MARAD adopt the Coast 
Guard's standard for rebuild/reconstruction determinations. MARAD will 
maintain the status quo by adhering to the established precedents. As 
to question number two regarding what procedures MARAD should adopt to 
inquire into whether a CCF vessel has been reconstructed or a cargo 
preference vessel has been rebuilt, a majority of the commenters felt 
participants in the CCF and cargo preference programs should seek 
advisory opinions from MARAD prior to having work performed outside the 
United States. One commenter suggested that MARAD enter into a 
Memorandum of Understanding with the Coast Guard to be notified of all 
applications for rebuild determinations and then make an independent 
determination based upon the application submitted to the Coast Guard. 
MARAD noted in its decision in Barge Connor that it would have provided 
an advisory decision to Moby Marine Corporation if asked prior to work 
having been performed in Colombia. MARAD is willing to provide advisory 
opinions and will do so when asked. Such advisory opinions will be 
published in the Federal Register.
    As to the third question posed in the notice regarding what role, 
if any, that unrelated third parties should play in developing a record 
of decision on whether a CCF vessel has been reconstructed or a cargo 
preference vessel has been rebuilt, all commenters felt third parties 
should play a substantial role in developing the record.
    A variety of comments were received in response to question four 
regarding public disclosure of records of decision. There was general 
consensus that MARAD should publish its final rulings in the Federal 
Register. MARAD currently does not publish its rulings in the Federal 
Register. Instead, previous final opinions and orders may be found on 
MARAD's Web site at http://www.marad.dot.gov in its Electronic Reading 
Room. However, MARAD will publish final decisions and orders relating 
to the rebuilding of vessels, as it pertains to programs administered 
by MARAD, in the future.

IV. Reason for Withdrawal

    MARAD's procedures on foreign rebuilding for cargo preference 
purposes were affirmed in Aquarius Marine Co. in 1995 and reaffirmed in 
the Barge Connor (2005) and Matson (2008) decisions. This is a settled 
area of law. Also, MARAD received no objections to its practice that 
CCF reconstruction follow Coast Guard guidance. MARAD and the Coast 
Guard have different standards for rebuilding as discussed herein, but 
those standards have a very slight chance of overlapping or producing 
conflicting results. This is so because the differing standards address 
diverse segments of the vessel market. Thus, there is no need for a new 
rule or to amend the cargo preference regulations or the CCF 
regulations with respect to rebuild or reconstruction determination 
standards.

    By Order of the Maritime Administrator.

     Dated: October 25, 2010.
Christine Gurland,
Secretary, Maritime Administration.
[FR Doc. 2010-27812 Filed 11-3-10; 8:45 am]
BILLING CODE 4910-81-P