Appendix — Independent U. S. Tanker Owners Committee v. Skinner
Supreme Court brief1990
Ask Donna
What actually matters in this document.
Text
— |
- Sune ats
89-1223. i) aN |
Ne, = ;
JAN 31 1999 |
JOSEPH F. SPANICL 48
IN THE ——.
Supreme Court of the Wuited States
OCTOBER TERM, 1989
INDEPENDENT U.S. TANKER OWNERS COMMITTEE, et al.,
Petitioners.
SAMUEL K. SKINNER, SECRETARY OF THE UNITED STATES
DEPARTMENT OF TRANSPORTATION, et al.,
Responde nts.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
DANIEL P. LEVITT JOSEPH A. KLAUSNER *
REID & PRIEST ALLAN A. TUTTLE
40 West 57th Street MICHAEL D. ESCH
New York, NY 10019 PATTON, Boccs & BLow
(202) 603-2000 2550 M Street, N.W.
Washington, DC 20037
(202) 457-6000
Counsel for Petitioner
Independent U.S. Tanker
Owners Committee
Counsel for Petitioner Overseas
Shipholding Group, Inc.
* Counsel of Record
| Additional Counsel Listed on Inside Cover]
WILSON - Eres PRINTING Co., INC. - 789-0096 - WASHINGTON. D.C. 20001
rin OY
Vy
ROBERT J. BLACKWELL
ANNE E. MICKEY
Dow, LOHNES & ALBERTSON
1255 23rd Street, N.W.
Suite 500
Washington, DC 20037
(202) 857-2500
Counsel for Petitioners
American Trading Transportation Co., Inc.,
Cove Maritime Companies, Inc.,
Falcon Carriers, Inc.,
Keystone Shipping Co.,
Sun Transport, Inc.
Appendix A:
Appendix B:
Appendix C:
Appendix D:
Appendix E:
TABLE OF CONTENTS
Opinion of United States Court of Ap-
peals for the District of Columbia Cir-
cuit, entered August 22, 1989 0...
Order of the United States Court of Ap-
peals for the District of Columbia Cir-
cuit, denying petitions for rehearing, en-
tered November 2, 1989 000000.
Order of the United States Court of Ap-
peals for the District of Columbia Cir-
cuit, denying suggestions for rehearing
en banc, entered November 2, 1989 ........
Opinion of the United States District
Court for the District of Columbia, en-
- tered April 29, 1988 ...... AREA Dnt! OO nee
Construction-Differential Subsidy Re-
payment, Final Rule, Maritime Admin-
istration, Department of Transporta-
tion, 52 Fed. Reg. 23522 (June 22,
I acicckinsecesvidiacnctercabdacsaseamo Leas
Page
la
22a
23a
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 16, 1989 Decided August 22, 1989
No. 88-5313
INDEPENDENT U.S. TANKER OWNERS COMMITTEE, et al.
V.
SAMUEL K. SKINNER, in his capacity as
Secretary of the United States Department
of Transportation, et al.
~ AMERICAN PETROFINA, INCORPORATED,
Appellant
& consolidated case Nos. 88-5314, 88-5317, 88-5318
88-5319, 88-5320 & 88-5324
Appeals from the United States District Court
for the District of Columbia
(Civil Action Nos. 87-01685 & 87-02102)
Richard A. Olderman, Attorney, U.S. Department of
Justice, with whom John R. Bolton, Assistant Attorney
Genera) at the time the brief was filed, Jay B. Stephens,
U.S. Attorney, and Leonard Schaitman, Attorney, U.S.
a atte
2a
Department of Justice, were on the brief, for federal ap-
pellants. Michael Kimmel, Attorney, U.S. Department of
Justice, also entered an appearance for federal appellants
in Nos. 88-5319 and 88-5320.
A. Stephen Hut, Jr., with whom Patrick J. Carome,
Raymond B. Ludwiszewski, Michael Joseph, and Thomas
L. Mills were on the brief, for appellants/intervenors
Atlantic Richfield Co. and SPC Shipping, Inc.
Roy G. Bowman, Richard H. Saltsman, and Daniel
Joseph were on the brief for appellant American Petro-
fina, Inc. R. Bruce McLean also entered an appearance
for appellant American Petrofina, Inc.
William E. McDaniels and Joseph A. Klausner, with
whom Daniel P. Levitt, Allan A. Tuttle, Michael D. Esch,
Robert J. Blackwell, Anne E. Mickey, and Kevin T.
Baine were on the joint brief, for appellees.
Robert H. Loeffler entered an appearance for State of
Alaska, appellant in No. 88-5324 and appellee in No. &88-
5313.
Before BUCKLEY and WILLIAMS, Circuit Judges, and
GEORGE H. ReEvERCOMB,* U.S. District Judge for the
District of Columbia.
Opinion for the court filed by Circuit Judge BUCKLEY.
BUCKLEY, Circuit Judge: Under the Merchant Marine
Act, the Department of Transportation may provide con-
struction subsidies to vessels, but the subsidized vessels,
with certain exceptions, may not operate domestically.
The rule under review reaffirms an earlier one that al-
lowed three tankers to repay their construction subsidies
in return for permission to ship domestically. The chal-
lenged rule was issued and made immediately effective
* Sitting by designation pursuant to 28 U.S.C. § 292(a).
3a
less than one month before Congress passed an appropria-
tions rider that barred the use of appropriated funds to
promulgate or implement such subsidy repayment agree-
‘ments.
Appellee tanker owners argue that the rider renders
the rule null and void both because Congress intended the
rider to apply retroactively and because it prevents the
Department’s Maritime Administration from taking the
further actions they claim to be necessary before the rule
is fully implemented. Appellees also claim that the regu-
lation is procedurally defective.
The district court accepted these arguments or varia-
tions of them and vacated the rule. We hold that Con-
gress’ appropriations rider applies prospectively only and
does not reach the challenged rule because it is self-
implementing. We also conclude that the procedural chal-
lenges are without merit. We therefore reverse.
I. BACKGROUND
The Merchant Marine Act of 1936 (“Act”), 46 U.S.C.
§§ 1101 et seg. (1982), was enacted, in part, to place
American merchant vessels operating in foreign trade on
a more equal footing with foreign-built and manned ves-
sels. To this end, the Act authorizes the Secretary of
Transportation (“Secretary”) to subsidize construction
costs for ships built in American shipyards on the con-
dition that vessels receiving such subsidies “shall be op-
erated exclusively in foreign trade, or on a round-the-
world voyage.” Jd. §$ 1151 & 1156. Congress, however,
made certain exceptions to this rule. For example, with
the Secretary’s approval, a vessel financed through a
“construction-differential subsidy” (“CDS”) may oper-
ate domestically for a maximum of six months per year
provided that the vessel repays a pro rata share of the
subsidy. Jd. § 1156.
<<
4a
The agency with immediate administrative responsibil-
ity over the merchant marine is the Maritime Adminis-
tration (‘““MarAd’’). See 49 C.F.R. §1.4(j) (1) (1987).
MarAd was originally located within the Department of
Commerce, but was transferred to the Department of
Transportation (“DOT” or “Department”) in August
1981. See 46 U.S.C. § 1601 (1982). Authority over spe-
cific aspects of the CDS program has been assigned to a
three-member Maritime Subsidy Board located within
MarAd. 49 C.F.R. § 1.4(k).
This case involves the latest in a series of attempts by
successive administrations to permit certain very large
erude oil carriers (“VLCCs”) to repay their subsidies
in return for permission to operate domestically full-
time. These efforts were prompted, first, by a determina-
tion that the vessels could no longer compete in foreign
commerce as a result of the world oversupply of tankers
that had arisen since 1970, and second, by the need, fol-
lowing the completion of the Alaskan pipeline, for an in-
crease in domestic tanker capacity to carry Alaskan oil
to Panama where it is transshipped to Atlantic and Gulf
Coast ports. See 52 Fed. Reg. 23,522.
Thus in the late 1970’s, the Secretary of Commerce en-
tered into subsidy repayment arrangements on a case-by-
case basis. His authority to do so was challenged, and,
in Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S.
572, 597 (1980), the Supreme Court held “that the Act
empowers the Secretary to approve full-repayment/
permanent-release transactions.”
On October 15, 1980, the Secretary of Commerce pub-
lished and made immediately effective an interim rule
that limited the full CDS repayment option to tankers
over a certain weight and provided that the Secretary
would only accept repayment in “exceptional circum-
stances” after a determination that the vessels had little
prospect for viable employment in foreign trade over an
5a
extended period. 45 Fed. Reg. 68,393, 68,394 (1980).
On November 13, 1980, MarAd approved repayment for
the VLCC BAY RIDGE. Shortly thereafter, the Inde-
pendent U.S. Tanker Owners Committee (“ITOC”) chal-
lenged the interim rule as well as the approval of the
subsidy repayment by the BAY RIDGE. In Independent
U.S. Tanker Owners Committee v. Lewis, 690 F.2d 908,
918-20 (D.C. Cir. 1982) (“ITOC I’), we upheld the
challenge after finding that the agency had failed to pro-
vide an adequate “general statement of the [rule’s] basis
and purpose” as required by section 553(c) of the Ad-
ministrative Procedure Act (“APA”), 5 U.S.C. § 553(c).
Nevertheless, we allowed the BAY RIDGE to continue
operating in domestic commerce. /d. at 931.
Following TOC I, the Secretary of Transportation,
who had by then acquired jurisdiction over shipping mat-
ters, issued a new regulation providing that for a one-
year period beginning June 6, 1985, any CDS tanker
could enter into a repayment transaction. 50 Fed. Reg.
19,170, 19,178 (1985) (“1985 rule”). During this period,
three additional VLCCs—the ARCO INDEPENDENCE,
ARCO SPIRIT, and BROOKLYN—took advantage of the
rule and repaid in excess of $100 million in subsidies
and interest. See 52 Fed. Reg. 23,522, 23,524 (1987).
ITOC challenged the 1985 rule and, in Independent
U.S. Tanker Owners Committee v. Dole, 809 F.2d 847,
854 (D.C. Cir. 1987) (“TOC II”), we held that DOT
had once again failed to provide an adequate statement
of basis and purpose. We vacated the rule but withheld
issuance of our mandate until July 16, 1987 “to avoid
further disruptions in the domestic market [by permit-
ting the VLCCs to continue in domestic commerce pro
tem] and to ailow the Secretary to undertake further
proceedings to address the problems of the merchant
marine trade.” Jd. at 855.
After our decisions in JTOC JI, MarAd initiated an in-
formal rulemaking and, on June 22, 1987, published the
———————:———<—
6a
final rule (“1987 rule’) that is at issue here. The rule
(in which the Secretary concurred) provides in pertinent
part:
The Maritime Administration reaffirms the allowance
of the irreversible total repayment of unamortized
construction-differential subsidy (CDS), with inter-
est and rescission permanently of the domestic trad-
ing restrictions related to the grant of CDS for tank-
ers of any deadweight tonnage for applications ap-
proved between June 6, 1985 and June 5, 1986, in
accordance with the terms and conditions of pava-
graph (b) of this section [specifying methods of
computing interest, etc.]. The approved applications
were for the ARCO INDEPENDENCE, ARCO
SPIRIT and BROOKLYN.
52 Fed. Reg. 23,522, 23,536 (June 22, 1987). The Sec-
retary made the rule effective immediately upon publica-
tion, invoking the ‘good cause” exception to the thirty-
day waiting period between issuance and effectiveness re-
quired by section 553(d) of the APA, 5 U.S.C. § 553(d)
(1982). Id.
Meanwhile, Congress had begun work on a rider to an
appropriations bill that was designed to bar CDS re-
payment arrangements. On July 11, 1987, the President
signed the Supplemental Appropriations Act of 1987
(“Appropriations Act”) which provides (at section 505)
that none of the appropriated funds “shall be used to
propose, promulgate, or implement any rule or regula-
tion” with respect to the repayment of subsidies in order
to relieve CDS vessels from their commitment to foreign
commerce. Supplemental Appropriations Act, Pub. L. No.
100-71, § 505, 101 Stat. 471 (1987) (“section 505’’).
ITOC and certain tanker owners successfully chal-
lenged the 1987 rule in the U.S. District Court for the
District of Columbia. The court ordered the rule vacated
on a finding that Congress had intended to bar the prom-
7a
ulgation of a CDS repayment rule after the date of our
ITOC II decision, January 16, 1987. The court also con-
cluded that it was improper for MarAd to issue the regu-
lation when it knew that Congress was at work on section
505. Finally, the court found the regulation procedurally
defective for two reasons: first, MarAd did not have
good cause to waive the thirty-day waiting period; and
second, the rule was arbitrary and capricious because
the agency had failed to provide an adequate statement
of its basis and purpose. /ndependent U.S. Tanker Own-
ers Committee v. Burnley, Civ. Action Nos. 87-1685 &
87-2102 (D.D.C. Apr. 29, 1988) (“‘Mem. Op.’’).
Appellees reassert an additional claim not reached by
the district court, namely, that MarAd had no authority
to issue the rule because that responsibility had been
delegated to the Maritime Subsidy Board. As appellees
failed to present this objection during the rulemaking
process, however, they are precluded from doing so at
this time. See National Sanitary Landfill, Inc. v. Thomas,
849 F.2d 1516, 1521 (D.C. Cir. 1988), cert. denied, 109
S. Ct. 1528 (1989).
II. DISCUSSION
A. Procedural Issues
We begin with a discussion of the procedural issues
because if, as the district court found, the 1987 rule
was invalid ab initio, we wiil not need to consider the
effect of section 505 of the Appropriations Act.
1. Waiver of Thirty-Day Waiting Period
As an alternative ground for striking down the 1987
rule, the district court held that the agency had violated
section 553(d) of the APA by failing to observe the stat-
utorily mandated thirty-day waiting period between the
date of the 1987 rule’s publication and the date of its
effectiveness. Mem. Op. at 22-25. Section 553(d) pro-
vides:
——
8a
The required publication or service of a substantive
rule shall be made not less than 30 days before its
effective date, except—
(1) a substantive rule which grants or recognizes as
exemption or relieves a restriction;
(2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good
cause found and published with the rule.
5 U.S.C. § 553(d) (1982).
In the notice accompanying the publication of the rule
in the June 22, 1987 Federal Register, the Maritime Ad-
ministrator invoked the “‘good cause” exception provided
by subsection (d)(3) (“good cause exception”) to the
thirty-day waiting period required by section 553/d) by
explaining that “|t|he rule must be made effective prior
to the |/70C II) imposed deadline of July 16, 1987 in
order to avoid disruptions in the domestic trade.” 52 Fed.
teg. at 23,536. The Administrator also stated that be-
cause the three ships affected by the rule had been oper-
ating in the domestic trade for more than a year, the
public did not need time to prepare for their permanent
entry into domestic service. /d. In the proceedings be-
fore the district court, the government also claimed ex-
emption under subsection (di (1) (“(di(1) exception’)
which excepts a substantive rule that “relieves a restric-
tion” because the 1987 rule lifted the ban on the three
vessels’ participation in domestic shipping.
The district court rejected the government’s claim of a
(d) (1) exception becayes it had not been asserted in the
agency’s published notice, characterizing it as a post hoc
rationalization that an agency may not advance for the
first time on appeal. Mem. Op. at 22-23. The court then
dismissed the claim to a good cause exception on the
ground that as the agency could and should have delayed
the rule’s effective date until July 15, one day prior to
the expiration of the /TOC II stay, the agency had failed
—
9a
to demonstrate good cause for the June 22 effective date.
Id. at 23-25.
We need not determine whether the good cause excep-
tion is applicable in this instance because we find that
the agency’s alternative claim under the (d)(1) excep-
tion is valid. Despite the district court’s characterization,
the Secretary’s invocation of the exception is not a post
hoc rationalization. We are dealing here not with the
reasoning by which an agency seeks to justify its actions,
but with a pure question of law: Was the 1987 rule sub-
ject to the thiry-day waiting requirement? The answer is
straightforward. The section 553(d) waiting period does
not apply to “a substantive rule . . . which relieves a
restriction,” 5 U.S.C. § 553(d)(1); as the MarAd regula-
tion is such a rule, it is not subjeci to the requirement.
As the statute itself relieves MarAd of any obligation
to defer the effectiveness of its rule, it is under no obliga-
tion to make an explicit claim of the right to do so. Cf.
Hou Ching Chow v. Attorney General, 362 F. Supp. 1288,
1292 (D.D.C. 1973) ‘rejecting agency’s proffered reason
for dispensing with the thirty-day waiting period but
holding sua sponte that the challenged rule granted an
exemption within the meaning of subsection (d)(1)). By
way of contrast, the good cause exception must be claimed
because the statute explicitly requires agencies to assert
affirmatively their exemption “for good cause found and
published with the rule.” 5 U.S.C. §553(d)(3) (em-
phasis added’. In sum, the good cause exception must be
invoked and justified; the (d) (1) exception applies auto-
matically.
Appellees contended, at oral argument, that the (d)
(1) exception did not apply in instances, such as the
present one, where a thirty-day waiting period might
benefit third parties. Although they were unable to sup-
ply specific references, appellees claimed that the APA’s
legislative history and the Attorney General’s Manual on
DT
10a
the Administrative Procedure Act supported their posi-
tion. Having consulted both sources, we can find nothing
in the former that touches on this question, while the
latter actually contradicts appellees’ position:
The fact that an interested person may object to
such issuance, amendment, or repeal of a rule does
not change the character of the rule as being one
“granting or recognizing exemption or relieving re-
striction”, thereby exempting it from the thiry-day
requirement.
Attorney General’s Manual on the Administrative Proce-
dure Act 37 (1947).
2. The Agency's Explanation of the Rule
The district court also found the 1987 regulation to be
arbitrary and capricious, and therefore unlawful under
5 U.S.C. § 70612) (A) (1982), because it found MarAd’s
explanation to be inconsistent with the evidence before
the agency and the objectives of the Merchant Marine
Act. Mem. Op. at 13-18. We respectfully disagree.
In [TOC II, we held that the statement of basis and
purpose for the 1985 rule was inadequate because the
Secretary had failed “to provide a sufficiently reasoned
discussion of why [the 1985] rule was adopted and al-
ternatives were rejected in light of the policies of the
Merchant Marine Act.” 809 F.2d at 851. In her ex-
planation of the 1985 rule, the Secretary had relied on
policies, such as economic efficiency, use of underemployed
resources, increased competition, and deregulation, that
are not explicitly listed among the Merchant Marine Act’s
stated goals. At the same time, she failed to explain why
they were “implicit in or compatible with the statutory
objectives.” Jd. at 853.
The preamble of the Act states that its purpose is to
further the development and maintenance of an ade-
quate and well-balanced American merchant marine,
lla
to promote the commerce of the United States, [and]
to aid in the national defense. . . .
Pub. L. No. 74-835, 49 Stat. 1985 (1936). Section 101 of
the Act provides:
It is necessary for the national defense and develop-
ment of its foreign and domestic commerce that the
United States shall have a merchant marine (a) suf-
ficient to carry its domestic water-borne commerce
and a substantial portion of the water-borne export
and import foreign commerce of the United States
and to provide shipping service essential for main-
taining the flow of such domestic and foreign water-
borne commerce at all times, (b) capable of serving
as a naval and military auxiliary in time of war or
national emergency, {c) owned and operated under
the United States fiag by citizens of the United
States, insofar as may be practicable, (d) composed
of the best-equipped, safest, and most suitable types
of vessels, constructed in the United States and
manned with a trained and efficient citizen person-
nel, and (e) supplemented by efficient facilities for
shipbuilding and ship repair. It is declared to be the
policy of the United States to foster the development
and encourage the maintenance of such a merchant
marine.
46 U.S.C. § 1101 (1982).
The Administrator asserts that the 1987 rule promotes
two statutory objectives. First, by allowing the VLCC’s
to remain in the domestic fleet, the rule promotes the
goal of ensuring that the “most suitable types of vessels”’
will make up the merchant marine. He defines suitability
to mean “suitability of particular vessels for the U.S.
commerce, and suitability of vessels to serve as naval
auxiliaries.” 52 Fed. Reg. at 23,525. Second, the Ad-
ministrator maintains that the rule ensures that the U.S.
merchant marine will be a ‘“‘well-balanced”’ fleet
rd
12a
composed of a mix of vessels that are suitable for
serving particular trades. While VLCCs are more
suitable than smaller, handy-sized tankers for the
long-haul, high volume crude oil trades, e.g., Valdez-
Panama, handy-sized tankers . . . are better suited
than VLCCs for U.S. coastwise trades.
Id. at 23,527.
Appellees argue that the VLCCs will not increase the
fleet’s suitability because other tankers are newer, better
designed, safer, faster, and more fuel efficient. These
arguments, however, do not undermine the premise be-
hind the Administrator’s conclusion—namely, that the
VLCCs feature economies of scale that make them partic-
ularly appropriate for the long Alaska-to-Panama trip.
See, e.g., id. at 23,526 (“In port, costs per ton increase
with ship size; at sea, however, costs per ton decline
with ship size.”’)
Appellees also contest the agency’s finding that the
tankers will contribute to a ‘“‘well-balanced” fleet. They
argue that the Alaska-Panama route will soon expire
because of a decrease in the production of Alaskan Oil
and because of the advent of a new pipeline from Cali-
fornia to Texas that will obviate the need for shipments
from Alaska to Texas through Panama. The Administra-
tor acknowledges that demand on the Alaska-Panama
route might decrease in the future (id. at 23,530) but
nevertheless concludes that the rule’s benefits outweigh
its detriments.
In [TOC II, we complained that the agency had given
only cursory treatment to the rule’s effect on domestic
trade. 809 F.2d at 852. This deficiency has been cor-
rected. First, the Administrator explores the problem of
excessive tonnage and concludes that the rule will not
exacerbate it. On the contrary, he finds that the presence
of the three VLCCs in the domestic fleet “has stabilized
the trade by allowing permanent entry of a limited num-
13a
ber of suitable tankers into the {[Alaskan-Panama] trade
instead of the uncertainty of the six-month waivers for
an uncertain number of VLCCs.” 52 Fed. Reg. at 23,530.
Second, the Administrator argues that if the VLCCs left
the domestic trade, the increased use of smaller ships
with higher costs per ton-mile would result in higher
rates for crude oil transportation, with a consequent di-
version to pipelines that would reduce overall tanker em-
ployment. Id.
In ITOC II, we also found that the agency had not
dealt in sufficient detail with the rule’s effect on the goal
of ensuring thai the U.S. merchant marine be capable of
carrying ‘a substantial portion of the water-borne export
and import foreign commerce of the United States.” See
809 F.2d at 852-53. In his discussion of the rule, the
Administrator asserts that in view of the world over-
supply of tankers and the higher operating costs experi-
enced by U.S. flag vessels, the likely result of the removal
of the VLCC’s from domestic trade is that they would be
scrapped rather than used in international shipping. 52
Fed. Reg. at 23,529.
Appellees contend that MarAd should have responded
to this situation by providing the three VLCCs with
“operating-differential subsidies,” see 46 U.S.C. § 1173
(a), rather than transferring them to the domestic fleet.
The agency rejected this alternative because, among other
things, the price “would be exhorbitant . . . approximately
$5 million annually per ship. ... There would be no
incentive for efficient operation, and the Government
would become the guarantor of profitable operation.” 52
Fed. Reg. at 23,523.
One could argue that this cost is the price we should
be ready to pay to achieve the explicit congressional ob-
jective of a U.S. merchant fleet that is capable of meeting
domestic needs as well as carrying “a substantial por-
tion” of U.S. water-borne import and export commerce
“at all times.” 46 U.S.C. $1101. The Secretary, how-
—
l4a
ever, has been vested with the authority to determine
when operational subsidies should be provided, not the
courts.
In ITOC II, we found that the agency had not satis-
factorily addressed the 1985 rule’s impact on the Act’s
goal of maintaining a merchant marine capable of serv-
ing as a naval auxiliary, and noted a Navy warning that
the rule might result in the loss of certain “handy-sized”
tankers. 809 F.2d at 853. Appellees argue that the 1987
rule will undermine national defense because the VLCCs
will drive out smaller ships that would prove more use-
ful to the Navy in the event of war. Id. The Navy,
however, has expressed its support for the 1987 rule,
Admin. Rec. at 1289 ‘letter dated June 10, 1987 from
Dep't of the Navy to MarAd), and certified the three
VLCC’s as militarily useful. 52 Fed. Reg. at 23,526. Un-
der these circumstances, we cannot conclude that MarAd
has failed to consider the rule’s impact on national
security.
The Administrator addresses the 1987 rule’s impact on
two of the Act’s other goals. He acknowledges that re-
taining the VLCC’s in the domestic trade will result in
a net loss of up to 300 jobs for U.S. seamen. Id. at
23,531. On the other hand, he rejects appellees’ conten-
tion that the 1987 rule will hurt the U.S. shipbuilding
business by depriving it of the opportunity to build new
ships arguing that retaining the three VLCCs in the
domestic trade is unlikely to have a “significant adverse
effect” on U.S. shipyards. He asserts that it is doubtful
that any company would build new VLCCs because of
their high construction costs and the probable decline in
the volume of oil that will be shipped from Alaska to
Panama in the 1990’s. Nor would shippers build smaller
tankers as substitutes for the VLCCs because they would
be unsuitable for the Alaska-Panama route. The Admin-
istrator maintains that if the rule is set aside, other
CDS-built tankers will likely fill the resulting shortage
15a
by applying for temporary permission to ship domes-
tically, as permitted under the Act. Jd. at 23,527-28.
Finally, in [TOC II, we criticized the Secretary be-
cause her explanation for the rejection of alternatives to
the 1985 rule focused on non-statutory criteria that fa-
vored the rule, while admitting that the rule created
“problems that impinge on the statutory objectives and
that might be avoided under some of the alternative
measures.” 809 F.2d at 854. In his statement in sup-
port of the present rule, the Administrator examines each
of the alternatives in terms of the Act’s objectives and
persuasively argues that because of the suitability of the
VLCCs for the Alaska-Panama route, the rule better
serves the Act’s overall goals. 52 Fed. Reg. at 23,534-35.
We conclude that the Administrator has cured the
shortcomings we identified in JTOC II and provided a
sufficient statement of basis and purpose for the 1987
rule. As he concedes, the rule will result in some reduc-
tion in employment. While this is unfortunate, this court
has previously acknowledged that the Department may
not be able to pursue all of the Act’s goals simul-
taneously:
It may be, of course, that present conditions in the
world shipping market make it impossible for the
Secretary to find a way to meet all of the statutory
objectives. If this is the problem, she should discuss
it frankly and directly when she considers which
measures to adopt in light of the objectives explicitly
set out in the Act.
ITOC II, 809 F.2d at 854 n.4. In the case before us,
the agency has exhibited the required candor. While some
of its judgments are no doubt controversial, Congress has
entrusted them to the agency, and not the courts. We
also find that while others might interpret the evidence
in different ways, the Administrator’s conclusions have
adequate support in the record. We therefore find that
————————
16a
MarAd acted neither arbitrarily nor capriciously, but in
full accord with its legal responsibilities and the purposes
of the Act.
3. Preemption of Legislative Action
The district court suggests that the 1987 rule must be
set aside because MarAd had advance notice of congres-
sional opposition to CDS repayments and, therefore,
should have deferred publication until Congress had had
the opportunity to make its will known:
Rather than heed the command of Congress, the
agency chose to outrace Congress by issuing a final
rule before Congress could complete the legislative
process. The agency’s action was nothing more than
an attempt te subvert the will of Congress, and thus,
cannot stand.
Mem. Op. at 5-6.
We offer two comments. First, while the agency was
fully aware that there was strong congressional opposi-
tion to the rule, it was by no means clear that the final
version of the appropriations bill would contain section
505 because the Senate had already been persuaded to
drop the section from its version of the Supplemental
Appropriations Act. Second, however unseemly a race
to preempt congressional action may at times appear, we
know of no principle that holds that the executive branch
must stay its mand whenever it learns that the legisla-
tive branch may change the law. We say this notwith-
standing the district court’s reference to our decision in
National Treasury Employees Union v. Devine, 733 F.2d
114 (D.C. Cir. 1984). Mem. Op. at 8-11.
Devine is readily distinguishable. That case involved
controversial changes in federal personnel practices that
the Office of Personnel Management (“OPM”) had first
proposed on March 30, 1983 and then incorporated in
modified form in proposed regulations that it issued on
July 14, 1983. One month later, on August 15, Congress
17a
adopted an appropriations rider similar to section 505
that forbade the commitment or expenditure of any funds
to implement OPM’s March 30 or July 14 proposals be-
fore October 15, 1983. 733 F.2d at 115. Immediately
following the expiration of the rider, OPM published a
somewhat modified form of the same regulations, with an
effective date of November 25, 1983. In the meantime, on
November 12, Congress passed another funding resolu-
tion again barring OPM from committing or expending
any funds to implement or administer the regulations
that would take effect thirteen days later. /d. at 115-16.
We found clear indications in the legislative history
that Congress “wished to prevent the effectuation of
major changes in personnel management policies before
it had an adequate opportunity to consider possible legis-
lative solutions.” Jd. at 120. We also stated, in dicta,
that “even assuming arquendo that the regulations could
be implemented workahly without further participation
by the OPM, it is evident that Congress intended to pre-
vent” the implementation of the proposed regulations.
Id. at 120. Nevertheless, Devine is inapposite because
we found that OPM’s final regulations were incapable of
implementation not because they had been invalidated by
congressional action, but because OPM, which “had to
play a critical and continuing role in their implementa-
tion, administration, and enforcement,” had been denied
the funds required to put them into effect. Id. at 119.
By contrast, MarAd need not take any further action
before the 1987 rule becomes fully operational. See dis-
cussion below at 20.
B. Section 505
Section 505 of the Appropriations Act reads as follows:
None of the funds appropriated or made available
by this or any other Act or otherwise appropriated
or made available to the Secretary of Transporta-
tion or the Maritime Administrator for purposes of
administering the Merchant Marine Act, 1936, as
18a
amended (46 U.S.C. 1101 et seq.), shall be used by
the United States Department of Transportation or
the United States Maritime Administration to pro-
pose, promulgate, or implement any rule or regula-
tion, or, with regard to vessels which repaid subsidy
pursuant to the rule promulgated by the Secretary
May 3, 1985 and vacated by Order of the U.S. Court
of Appeals for the D.C. Cireuit January 16, 1987,
conduct any adjudicatory or other regulatory pro-
ceeding, execute or perform any contract, or par-
ticipate in any judicial action with respect to the
repayment of construction differential subsidy for the
permanent release of vessels from the restrictions in
section 506 of the Merchant Marine Act, 1936, as
amended: Provided, That such funds may be used
to the extent such expenditure relates to a rule which
conforms to statutory standards hereafter enacted by
Congress.
The district court held that section 505 voided the
1987 rule because
Congress’ choice of language indicates an intent to
bar the agency from promulgating any CDS repay-
ment rule as of the date of the Court of Appeals’ de-
cision, January 16, 1987 until or unless it acted later.
Mem. Op. at 7. As Congress acted almost six months
following our decision in JTOC IJ and nineteen days after
publication of the 1987 rule, the court’s holding requires
that the section be given retrospective effect. We there-
fore, evaluate the court’s interpretation in light of the
principle of statutory construction providing that
a retrospective operation will not be given to a stat-
ute which interferes with antecedent rights... un-
less such be “the inequivocal and inflexible import
of the terms, and the manifest intention of the leg-
islature.”’
United States v. Security Indus. Bank, 459 U.S. 70, 79
(1982) (citation omitted) (ellipsis in original).
; 19a
We find it difficult to reconcile the district court’s
interpretation with the plain language and stated purpose
of section 505. Although it refers to the JTOC II deci-
sion, section 505 applies to any CDS repayment arrange-
ment, and it operates exclusively as a restriction on the
expenditure of appropriated funds. Such a prohibition is
inherently prospective as the language does not purport
to reach expenditures already made. Moreover, the pro-
vision that no funds “shall be” used for the enumerated
purposes speaks only to future expenditures. See 1A
C. Sands, Sutherland Statutory Construction 693 (4th
ed. 1985) (‘It is obvious that the word ‘shall,’ in itself,
cannot ‘include’ the past.’’).
Appellees offer two alternative reasons why section 505
must be given retrospective effect despite the prospective
thrust of its language. First, they contend that inter-
preting section 505 as allowing the 1987 rule to stand
would render it a nullity because the Department had
indicated before section 505 was enacted that it would
not accept repayment from any CDS vessels other than
the three that were the subject of the 1987 rule. There-
fore, appellees argue, as the section applies exclusively to
the three VLCCs, we must reject a construction that
would give the section prospective effect only because that
would deprive Congress’ action of meaning. We find this
argument unconvincing for several reasons: It presup-
poses that the statutory language is susceptible te an
alternative construction, which we find it not to be; it
ignores the fact (as appellees themselves call to our at-
tention in their appeal to legislative histery) that a
number of members of Congress believed that section
505 would nullify the rule through the prospective denial
of funds for its implementation (see, e.g., 134 Cong.
Ree. $9142 (daily ed. July 1, 1987) ‘remarks of Sen.
Hollings) ; 134 Cong. Rec. H2792 (daily ed. July 8, 1987)
(remarks of Rep. Carr): 134 Cong. Rec. S10866 (daily
ed. July 29, 1987) (remarks of Sen. Mikulski) ); and fi-
nally, section 505 could well have been intended to guard
————————
20a
against the possibility that the Department might change
its mind and enter into repayment arrangements with
additional CDS vessels.
Second, appellees argue that section 505’s legislative
history evidences Congress’ intention that the appropria-
tions measure apply retroactively to bar the 1987 regula-
tion. That argument also founders on the stubborn fact
that the statute, with its use of the verb “shall” and its
focus on expenditures, cannot be read to apply retroac-
tively. There being no ambiguity to be resolved, an ap-
peal to legislative history is inappropriate. See, e.g., Gar-
cia v. United States, 469 U.S. 70, 76 n.3 (1984) (“ ‘Re-
sort to legislative history is only justified where the face
of the Act is inescapably ambiguous.’ ’’) (citation omitted) ;
Overseas Education Ass’n v. FLRA, 876 F.2d 960 (D.C.
Cir. 1989) (Buckley, J., concurring). While some pro-
ponents of section 505 may well have intended it to pre-
vent MarAd from adopting the 1987 rule, we are none-
theless bound by its language, which accurately reflects
Congress’ decision to rely on the appropriations process
to achieve its policy objectives. Restrictions on expendi-
tures of appropriated funds are inherently prospective,
and we have no authority to give them retroactive effect.
We now reach appellees’ argument that section 505
effectively nullifies the 1987 rule because it bars the use
of appropriated funds to implement it. According to ap-
pellees, MarAd must take two further actions before the
1987 rule becomes operative: It must amend the vessels’
CDS contracts to delete the restrictions on domestic trad-
ing, and it must respond to the appellees’ petitions for
rehearing. MarAd asserts, however, and we agree, that
because payment from the three VLCCs has already been
received and because the tankers have operated domes-
tically since 1985, the rule affirms the right of the ARCO
INDEPENDENCE, ARCO SPIRIT, and BROOKLYN to
remain in domestic commerce, and their contracts need
not be amended to cenfirm this right.
woe Ni ants” eel ll
2la
Nor are we persuaded by appellees’ remaining argu-
ment, which is based on a regulation that provides that
“!t}he {Maritime} Administration’s decision or order
shall be stayed pending resolution by the Administration
of a petition for reopening... .” 46 C.F.R. § 201.171
(1988). According to them, this regulation prevents the
1987 rule from going into effect until the agency re-
sponds to the petitions for reopening filed by ITOC and
others. Section 201.171, however, only applies in in-
stances where the agency has held a formal hearing.
Delta Steamship Lines, Inc., 22 S.S.R. 542, 543 (MSB
1983). As the 1987 rule was promulgated pursuant to
an informal rulemaking, the regulation does not apply.
See 52 Fed. Reg. 12,199 (1987) (initiating notice and
comment rulemaking).
In sum, we find that section 505 neither retrospectively
voids the 1987 rule nor prevents it from becoming fully
operational. As appellees have amply demonstrated, in-
terested members of Congress were fully aware of the
rule’s existence before the conference committee resolved
the differences between the Senate and House versions
of the Supplemental Appropriations Act. Had the con-
ferees wished to vacate the 1987 rule, they could have
done so simply by ordering its revocation. As they did
not, our task is to apply the language they agreed upon
and that Congress enacted into law.
III. CONCLUSION
Section 505 applies prospectively only, and because the
Maritime Administrator is not required to take any fur-
ther action to implement the 1987 rule, it remains in
effect. Nor is the rule procedurally flawed. The Ad-
ministrator was under no obligation to provide a thirty-
day waiting period between issuance and effectiveness,
and we find his statement of its basis and purpose to be
sufficient. Accordingly, we reverse the judgment entered
in the district court.
So ordered.
22a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 88-5313
INDEPENDENT U.S. TANKER OWNERS COMMITTEE et a/,
Petitioner
v.
SAMUEL K. SKINNER, in his capacity as Secretary of
the US Department of Transportation, et a/.,
Re por lent
and consolidated cases
Before: Buckley and Williams, Circuit Judges, and
Revercomb ae lL nited States [)j trict J mive
ORDER
Filed Nov. 2. 1989
Upon consideration of the Petitions for Re
appellees Seatrain Tankers, Inc., et al., American Trad-
ing Transportation Company, Inc. et al., and the Inde-
pendent U.S Tanker Owners Committee, it 1:
ORDERED, by the Court, that the petitions are denied
Per Curiam
FOR THE COURT
CONSTANCE L. Dv!
Clerk
By - ~ Robe rt A. Bont er
ROBERT A. BONNER
Deputy Clerk
tre I teg Stats 1) ’ =. f< thy 1) trict of ¢ }
bia, sitting by designation pursuant to 28 U.S. 92(a
23a
APPENDIX C
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 88-5313
INDEPENDENT U.S. TANKER OWNERS COMMITTEE et al..
Petitioner
SAMUEL K. SKINNER, in his capacity as Secretary of
the US Department of Transportation, et a/.,
Respondent
and consolidated cases
Before: Wald, Chief Judge: Mikva, Edwards, Ruth B.
Ginsburg, Silberman, Buckley, Williams, D. H.
Ginsburg and Sentelle, Circuit Judges
ORDER
Filed Nov. 2, 1989]
The Suggestions For Rehearing En Banc of appellees
Seatrain Tankers, Inc., et al., American Trading Trans-
portation Company, Inc. et al., and the Independent U.S.
Tanker Owners Committee have been circulated to the
full Court. The taking of a vote was requested. There-
after, a majority of the judges of the court in regular
active service did not vote in favor of any suggestion.
Upon consideration of the foregoing it is
ORDERED, by
are denied.
24a
the Court en banc, that the suggestions
Per Curiam
For THE COURT:
CONSTANCE L. DUPRE
Clerk
Robert A. Bonner
ROBERT A. BONNER
Dep ity Clerk
25a
APPENDIX D
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
C.A. No. 87-1685
INDEPENDENT U.S. TANKERS OWNERS COMMITTEE, et al.,
. Plaintiffs,
JAMES H. BURNLEY, IV, et al.,
Defendants.
C.A. No. 87-2102
OVERSEAS SHIPHOLDING GROUP, INC., et al.,
Plaintiffs,
JAMES H. BURNLEY, IV, et al.,
Defendants.
OPINION OF CHARLES R. RICHEY
UNITED STATES DISTRICT JUDGE
[Filed Apr. 29, 1988]
I. INTRODUCTION
These consolidated actions are before the Court on
cross-motions for summary judgment.' The facts are not
disputed. Plaintiffs challenge a final rule issued by the
Secretary of Transportation through the Maritime Ad-
1 These actions were consolidated by Order of the Court dated
September 10, 1987.
a
26a
ministration (“MARAD”) on June 22, 1987. 52 Fed.
Reg. 23522. This rule would reaffirm prior agency ac-
tion that allowed four Very Large Crude Oil Carriers
““VLCCs”) built with construction differential subsidies
(“CDS”) to re-pay these subsidies, with interest, as a
condition for entering the domestic trade. See 50 Fed.
Reg. 19170. This rule previously had been vacated by
the Court of Appeals for the District of Columbia in
Independent U.S. Tanker Owners Committee v. Dole, 809
F.2d 847 (D.C. Cir. 1987) on the ground that the Secre-
tary’s statement of basis and purpose failed to give an
adequate account of how the payback rule served the
objectives of the Merchant Marine Act. The Court of
Appeals specifically found fault with the Secretary’s cur-
sory treatment of these objectives and her substitution of
non-statutory ¢riteria for Congress’ stated objectives in
the Act. See id. at 852, 854. Thus, on remand, the Sec-
retary was afforded the opportunity to square the policies
underlying the CDS repayment rule with the objectives
of the Merchant Marine Act. Id. at 854. As a result of
the Court of Appeals’ decision, handed down January 16,
1987, the payback rule would have been vacated six
2 This rule permitted any tanker vessel built with a construction
differential subsidy, and which had been barred from competing in
the domestic trade on account of that subsidy, to enter the domestic
trade upon repayment of the unamortized portion of the subsidy,
plus interest. See Independent U.S. Tanker Owners Committee v.
Dole, 809 F.2d at 850. Tanker vessels over 100,000 DWT (dead-
weight tons) were given a one-year period that began June 6, 1985
in which to apply for repayment Ultimately, three VLCCs took
advantage of the rule. These vessels are the Arco Independence, the
Arco Spirit, and the Brooklyn. The rule at issue in the instant case
also would confirm the CDS repayment, wtih interest, and recission
of the domestic trading restriction of the Bay Ridge. This ship
had entered the domestic trade in 1980 pursuant to a rulemaking,
45 Fed. Reg. 68393 (October 15, 1980). That rulemaking was
vacated in Independent U.S. Tanker Owners Committee v. Lewis,
690 F.2d 908 (D.C. Cir. 1982). Accordingly, the rule in question
would allow these four vessels to enter, sail, and compete in U.S.
trade and commerce.
27a
months later uniess the Secretary had taken further ac-
tion in the interim. See id. at 855.
Plaintiffs, owners and operators of U.S.-flag tankers
employed in the domestic trade, have challenged this lat-
est rulemaking on a variety of grounds.’ The plaintiffs
contend that the rule is invalid because it contravenes the
express will of Congress, constitutes arbitrary and ca-
pricious action, lacks an adequate explanation of the ex-
istence of “good cause” to make the rule effective upon
publication, violates the agency’s own procedures, and
fails to comply with the National Environmental Policy
Act. Because Congress clearly intended to block the chal-
lenged rulemaking, the Court will grant summary judg-
ment for the piaintiffs. Furthermore, the Court finds that
the rulemaking is arbitrary and capricious in violation
of 5 U.S.C. § 706(2)(A) and that the agency lacked
“good cause” to make the rule effective upon publication
pursuant to 5 U.S.C. § 553(d).
Il. THE CHALLENGED CDS REPAYMENT RULE
CANNOT STAND BECAUSE CONGRESS
CLEARLY INTENDED TO PROHIBIT IT WHEN
IT ENACTED SECTION 505 OF THE SUPPLE-
MENTAL APPROPRIATIONS ACT OF 1987
The Court concludes that Congress clearly intended to
bar the challenged rule when it enacted Section 505 of
‘The plaintiff in C.A. No. 87-1685 is Independent U.S. Tanker
Owners Committee. Plaintiff-intervenors in this action are Ameri-
can Trading Transportation Co., Inc., Cove Maritime Companies,
Inc., Crest Tankers, Inc., Faicon Carriers, Inc., Keystone Shipping
Company, Sun Transport, Inc., Trinidad Corp., and Victory Car-
riers, Inc. The plaintiff in C.A. No. 87-2102 is Overseas Shipholding
Group, Inc. Plaintiff-intervenors in this action are Seatrain Tank-
ers, Inc., Richmond Tankers, Inc., and Stuyvesant Tankers Corp.
The defendants in both these actions are the Secretary of Trans-
portation and the Department of Transportation. Defendant-
intervenors in these actions, American Petrofina, Inc., SPC Ship-
ping, Inc., Atlantic Richfield Co.. and the State of Alaska, support
the agency’s rulemaking.
28a
the Supplemental Appropriations Act of 1987. The Court
of Appeals withheld issuance of its mandate vacating the
subsidy repayment rule for six months in order to give
the agency time to square the rule in terms of compli-
ance with the objectives of the Merchant Marine Act.
Rather than permit the agency the opportunity to recon-
cile the rule with the Act, Congress moved decisively to
end the rulemaking altogether. The agency knew that
Congress opposed CDS repayment and that it was in the
process of legislating that opposition. The agency’s at-
tempt to outrace Congress on this issue cannot be given
effect. In light of Congress’ clear intent, the Court finds
that Section 505 of the Supplemental Appropriations Act
of 1987 applies directly to the challenged rule. There-
fore, the rule must be vacated.
The plaintiffs have argued that, by enacting Section
505 of the Supplemental Appropriations Act of 1987,
Congress intended to prohibit the agency from imple-
menting any payback rule that does not conform to the
statutory standards enacted by Congress, and, specifi-
cally, the rule promulgated by the agency and challenged
in the instant action. The defendants and defendant-
intervenors dispute this contention and claim that to ap-
ply Section 505 so as to invalidate the rule is to give the
law retroactive effect or to sanction repeal of the regu-
lation by implication.’ The defendant-intervenors further
argue that Section 505 of the Supplemental Appropria-
tions Act of 1987, on its face, operates prospectively from
4 See Memorandum of Points and Authorities in Support of
Plaintiffs’ Motion for Summary Judgment (‘Plaintiffs’ Memo-
randum”) at 15-26.
5 See Defendants’ Statement in Opposition to Plaintiffs’ Motion
for Summary Judgment and in Support of Defendants’ Motion for
Summary Judgment (“Defendants’ Statement”) at 17-25; Memo-
randum of Points and Authorities of Defendant-Intervenors’ Oppo-
sition to Plaintiffs’ Motion for Summary Judgment (“Defendant-
Intervenors’ Memorandum”) at 28-30.
ee ON ee
29a
the date of enactment. The Court disagrees with the de-
fendants’ and defendant-intervenors’ position.
A. The Agency Should Have Deferred Publication of the
CDS Repayment Rule Until Congress Completed Con-
sideration of the Funding Measure
As an administrative agency, MARAD is required to
follow a congressional mandate. See Summit Nursing
Home, Inc. v. United States, 572 F.2d 737, 742 (Ct. Cl.
1978). Congress’ position in opposition to CDS repayment
was well known to the agency. In fact, the agency was
aware that Congress was actively considering a CDS re-
payment prohibition so as to prevent any subsidy repay-
ment following the Court of Appeals’ January 16, 1987
decision. Rather than heed the command of Congress,
che agency chose to outrace Congress by issuing a final
rule before Congress could complete the legislative proc-
ess. The agency’s action was nothing more than an at-
tempt to subvert the will of Congress, and thus, cannot
stand.
The challenged rule was issued in final form in the
Federal Register on June 22, 1987. The Supplemental
Appropriations Act of 1987 containing the prohibition
against just such a rulemaking was signed into law by
the President on July 11, 1987. As of the date of publi-
cation of the final rule in the Federal Register, the House
of Representatives had already voted in favor of the pro-
hibition. Furthermore, House and Senate conferees were
already discussing the differences between the two ver-
sions of the funding measure, including the prohibition,
when the rule was published.* The conferees ultimately
reported a bill that contained the original House language
barring any CDS repayment rule. The language of Sec-
tion 505 specifically and expressly addresses any rule-
6 The Sentae version of the Supplemental Appropriations Act of
1987 did not contain any language dealing with a CDS repayment
rule.
30a
making regarding CDS repayment that the agency might
undertake as a result of the Court of Appeals decision in
Independent U.S. Tanker Owners Committee v. Dole, 809
F.2d 847 (D.C. Cir. 1987). Section 505 provides:
None of the funds appropriated or made available
by this or any other Act or otherwise appropriated
or made available to the Secretary of Transportation
or the Maritime Administrator for purposes of ad-
ministering the Merchant Marine Act, 1936, as
amended (46 U.S.C. 1101 ef seq.), shall be used by
the United States Maritime Administration to pro-
pose, promulgate, or implement any rule or regula-
tion, or, with regard to vessels which repaid subsidy
pursuant to the rule promulgated by the Secretary
May 3, 1985 and vacated by Order of the U.S. Court
of Appeals for the D.C. Circuit January 16, 1987,
conduct any adjudicatory or other regulatory pro-
ceeding, execute or perform any contract, or partici-
pate in any judicial action with respect ot the repay-
ment of construction differential subsidy for the
permanent release of vessels from the restrictions in
section 506 of the Merchant Marine Act, 1936, as
amended: Provided, That such funds may be used to
the extent such expenditure relates to a rule which
conforms to statutory standards hereafter enacted
by Congress.
Clearly Congress intended to bar the agency from prom-
ulgating this CDS repayment rule here involved until or
unless the Congress later laid down the standard by
which it could be done. Congress’ choice of language in-
dicates an intent to bar the agency from promulgating
any CDS repayment rule of the date of the Court of Ap-
peals’ decision, January 16, 1987 until or unless it acted
later.
Rather than await the legislative outcome when it knew
that Congress was seriously and actively addressing this
issue, MARAD decided it would determine merchant ma-
3la
rine policy rather than follow Congress’ direction. “It
is not for an administrative agency, however, to preempt
Congressional action or to ‘fill in’ where it believes some
federal action is needed.” Office of Consumers’ Counsel!
v. FERC, 655 F.2d 1132, 1152 (D.C. Cir. 1980). Here
Congress acted decisively and with unmistaken clarity in
declaring that no funds could be used, and the agency
clearly violated this mandate. The agency should have
deferred publication of the rule pending a determination
by Congress as to whether, and to what extent, a pro-
hibition on a CDS repayment rule was necessary and ap-
propriate. Moreover, had it waited, the agency would
have been in a better position to develop a policy con-
sistent with congressional intent. It is the first branch of
government which makes laws, and it is for the second
branch to execute the laws consistent with congressional
authority and mandates. See generally Lyng v. Payne,
106 S. Ct. 2333, 2341 (1986); Stallings v. Harris, 493
F. Supp. 956, 958 (D. Tenn. 1980) (citing Stark v.
Wickard, 321 U.S. 288, 309 (1944) ).
B. In a Situation Similar to this Case, the Court of Ap-
peals for this Circuit Held that, Where an Agency
Issued Final Regulations Prior to Enactment by
Congress of a Statutory Ban on Such Regulations,
the Regulations Were Null and Void
The Court finds that the present case is strikingly
similar, albeit not identical, to NTEU v. Devine, 733
F.2d 114 (D.C. Cir. 1984), aff'g, 577 F.Supp. 738
(D.D.C. 1983). In that case, the Court of Appeals struck
down regulations promulgated prior to passage of legis-
lation containing language prohibiting OPM from prom-
ulgating and implementing new federal personnel regula-
tions because it found, inter alia, a clear indication that
Congress intended that those regulations should not be
allowed to take effect The Court finds in this case that
Congress did not want the agency promulgating or im-
plementing the rule challenged here.
32a
In NTEU v. Devine, the Office of Personnel Manage-
ment proposed changes in federal personnel practices by
way of a rulemaking. Congress opposed these changes
and moved to enact legislation prohibiting the promulga-
tion and implementation of any such rules. While Con-
gress was actively considering a legislative proposal to
bar the proposed rules, the agency issued final regula-
tions. The agency argued, among other points, that the
subsequently passed legislation had no effect on the regu-
lations it had issued because it was not required to take
any subsequent steps to implement the regulations. Al-
though it found that the agency had much to do in order
to implement the regulations, and thus ran afoul of the
express prohibition in the statute against agency action,
the Court of Appeals held that nevertheless, the regula-
tions were null and void because they contradicted con-
gressional intent. The Court of Appeals would not per-
mit the agency to beat Congress to the punch by enacting
regulations which Congress opposed before Congress had
an opportunity to enact a prohibition.
The Court finds that the instant situation closely mir-
rors that which existed in NTEU v. Devine. In both
cases, Congress was actively considering a prohibition on
a discrete agency rulemaking that the agency moved to
issue in final form before Congress completed its con-
sideration. However, in NTEU v. Devine, OPM issued
its final regulations only after the House Appropriations
Committee had recommended that the regulations be
barred. In this case, the House of Representatives had
voted in favor of the prohibition on a CDS payback rule,
and House and Senate conferees were in the process of
discussing that prohibition.
The agency attempts to distinguish NTEU v. Devine
on the ground that the decisions of the District Court
and the Court of Appeals turned on a finding that, con-
trary to OPM’s assertions, the regulations were not self-
enforcing or self-administering. See Defendants’ State-
ment at 23-24. In contrast, MARAD argues that it does
33a
not need to “take any steps to implement a rule which
merely affirms what has already occurred.” Jd. at 24.
The agency claims that “the court in Devine never sug-
gested that actions taken pursuant to OPM’s regulations
prior to enactment of the funding bar were invalid.”
Id. To the contrary, the Court of Appeals, in dicta,
found that “even assuming arguendo that the regulations
could be implemented workably without further participa-
tion by the OPM, it is evident that Congress intended to
prevent this.” 733 F.2d at 120.
In this case, the Court finds that Congress clearly in-
tended to bar promulgation of any rule authorizing CDS
repayment as of January 16, 1987 through enactment of
Section 505 of the Supplemental Appropriations Act of
1987. At least as early as March 25, 1987, the agency
was on notice that Congress was considering barring a
repayment rule when the House of Appropriations Com-
mittee reported a bill containing the prohibitory lan-
guage. On the day that the House passed the CDS pay-
back prohibition, Representative Jones, Chairman of the
House Merchant Marine and Fisheries Committee, stated
on the floor of the House that the language was aimed at
the Notice of Proposed Rulemaking by MARAD regard-
ing the rule. See Cong. Record H2202 (April 23, 1987).
Therefore, in light of the clear indication that Congress
intended to bar the subsidy payback rule here challenged
and mindful of the Court of Appeals’ decision in NTEU
v. Devine, this Court finds that Section 505 of the Sup-
plemental Appropriations Act of 1987 prohibits the im-
plementation of the rule published by the Secretary of
Transportation in the Federal Register on June 22, 1987.
C. Section 505 of the Supplemental Appropriations Act
of 1987 Is a Valid Exercise of Legislative Authority
and Does Not Operate Retroactively Or Repeal the
Contested Rulemaking By Implication
Section 505 of the Supplemental Appropriations Act of
1987 does not operate retroactively nor does it have the
34a
effect of repealing the challenged rule by implication.
Congress intended that the agency not promulgate or im-
plement any CDS repayment rule following the decision
handed down by the Court of Appeals on January 16,
1987. Furthermore, there can be no argument that this
legislation repeals the rule by implication. Congress ex-
pressly barred any CDS repayment rule, including the
one chalienged nere, when it passed this legislation.
In spite of Congress’ clear intent to bar promulgation
of the rule, the agency and the defendant-intervenors
nevertheless argue that Section 505 cannot be given retro-
active effect nor can it be given effect so as to repeal the
rulemaking by implication. See Defendant’s Statement at
29; Defendant-Intervenors’ Memorandum at 28. They
argue that the words “shall be used” connote a meaning
that the prohibition was to take effect from the date of
enactment. This argument is unavailing. The word
“shall” is language of command in a statute. See Asso-
ciation of American Railroads v. Costle, 562 F.2d 1310
1312 (D.C. Cir. 1977) (footnote omitted). The inter-
pretation pushed by the agency and the defendant-
intervenors ‘“‘can be defeated by indications of legislative
intent to the contrary or by obvious inferences from the
structure and purpose of the statute.” United States v.
Rodgers, 461 U.S. 677, 706 (1983) (citation omitted).
The Court concludes that Congress clearly intended this
section to take effect following the Court of Appeals’ de-
cision in Indenendent U.S. Tanker Owners Committee v.
Dole, 809 F.2d 847 (D.C. Cir. 1987). Although amending
the section to specifically cover the June 22, 1987 rule-
making might have been prudent, it certainly was not
essential in view of the fact that the language of, and
expressed rationale for, the legislation indicated its ap-
plicability to the final rule. See NTEU v. Devine, supra,
733 F.2d at 118.
The Court realizes that TVA v. Hill, 487 U.S. 153.
190 (1978), relied on by the defendants and the
35a
defendant-intervenors, stands for the proposition that
substantive changes in the law by means of appropria-
tions bills are to be narrowly construed and that repeal
of laws by implication is disfavored. However, this case
does not implicate that doctrine. With this in mind, the
Court finds that Section 505 does not repeal the rule by
implication since this provision expressly prohibits the
CDS repayment rule. See NTEU v. Devine, 577 F.
Supp. 738, 750 (D.D.C. 1983), aff'd, 733 F.2d 114 (D.C.
Cir. 1984).
III. THE CDS REPAYMENT RULE IS ARBITRARY
AND CAPRICIOUS BECAUSE IT IS NOT CON-
SISTENT WITH THE OBJECTIVES OF THE
MERCHANT MARINE ACT AND, THERE-
FORE, MUST BE VACATED
Notwithstanding the Court’s conclusion that the agency
acted contrary to the express terms of Section 505 of the
Supplemental Appropriations Act of 1987, the Court finds
that this rulemaking is “arbitrary, capricious, an abuse
of discretion or not otherwise in accordance with law.”
5 U.S.C. § 706(2)(A). “Normally, an agency rule would
be arbitrary and capricious if the agency has relied on
factors which Congress has not intended it to consider,
entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so im-
plausible that it could not be ascribed to a difference in
view or the product of agency expertise.” Motor Vehicle
Manufacturers Association v. State Farm Mutual Auto-
mobile Insurance Co., 463 U.S. 29, 43 (1983). “To as-
sure that the necessary factual support for the finding
exists, the reviewing court must examine the evidence
in the existing administrative record.” Center for Auto
Safety v. Dole, 828 F.2é¢ 799, 810 (D.C. Cir. 19%1). In
this case, the agency rule is arbitrary and capricious
because it has relied on factors which Congress has not
intended it to consider and because it has offered an ex-
36a
planation for its decision that runs counter to the evi-
dence before it. Accordingly, the rule must be vacated.
The agency must provide an adequate statement of
basis and purpose, of how this rule “directly further{(s]
the general goals of the [Merchant Marine] Act.” Sea-
train Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572,
588 (1980) (emphasis added); see also Independent U.S.
Tanker Owners Committee v. Dole, 809 F.2d 847, 852
(D.C. Cir. 1987). Here, the agency has acknowledged
that the evidence on the record leads to the conclusion
that the challenged rule wil! not further most of the
objectives of the Act. However, the agency decided that
the advantages of efficiency and transportation savings
outweigh the net adverse impact on vessels and seaman
in the domestic trade. See 52 Fed. Reg. at 23524. A rule
supported by non-statutory criteria at the expense of the
express objectives of the Act is arbitrary and capricious.
A. The Agency's Explanation in Support of the Rule
Runs Counter to the Evidence in the Record and Is
Therefore Arbitrary and Capricious
The goals of the Merchant Marine Act are to develop
and encourage the maintenance of a U.S. merchant
marine that is:
(a) sufficient to carry its domestic waterborne com-
merce and a substantial portion of the water-borne
export and import foreign commerce of the United
States and to provide shipping service essential for
maintaining the flow of such domestic and foreign
water-borne commerce at all times, (b) capable of
serving as a naval and military auxiliary in time of
war or national emergency, (¢)} owned and operated
under the United States flag by citizens of the
United States, insofar as may be practicable, (d)
composed of the best-equipped, safest, and most suit-
able types of vessels, constructed in the United States
and manned with a trained and efficient citizen per-
_—_—— ew nine
37a
sonnel, and (e) supplemented by efficient facilities
for shipbuilding and ship repair.
46 U.S.C. $1101. The Court notes that “efficiency” and
“transportation savings” are not among the enumerated
objectives of the Merchant Marine Act. The Secretary
admits that this rule will not directly further many of
the objectives of the Act. Nevertheless, the Secretary
claims that the rule promotes the Act because the four
VLCCs are suitable for the domestic trade and will pro-
mote and maintain a well-balanced fleet. See 52 Fed.
Reg. at 23525, 23527. The evidence in the record sug-
gests otherwise.
The agency admits that the rule will not directly fur-
ther many of the statute’s objectives. For example,
“MARAD recognizes that the rule will not increase the
participation of U.S.-flag vessels in the foreign trade.”
52 Fed. Reg. at 23525; see also id. at 23528 (“MARAD
acknowledges that [the rule] would not increase or de-
crease the U.S.-flag share of the water-borne export and
import bulk foreign commerce of the United States,”).’
In addition, “MARAD also recognizes that this rule pos-
sibly will result in the lay-up or scrapping of a few
smaller sized crude carriers sooner than would otherwise
occur and that additional seamen possibly will become
unemployed as a result.” Jd. at 23525. Furthermore,
7 The agency secks to justify the rule's impact on the foreign
trade fleet objective of the Merchant Marine Act by relying on a
footnote in the Court of Appeals’ decision in Independent U.S.
Tanker Owners Committee v. Dole in which the Court admonished
the Secretary to discuss present conditions in the world shipping
market “frankly and directly.” See 809 F.2d at 854 n.4. Rather
than do so, the Secretary dismisses this objective by contending
that because the current U.S.-flag foreign trade fleet cannot carry
a substantial portion of U.S. foreign commerce. a lessening in the
size of that fleet will make no difference. Sve 52 Fed. Reg. at 23522.
Merely relying on a finding that surplus tonnage worldwide is at
very high levels does not, per se, moot an objective of the Merchant
Marine Act. Sce id. at 23529.
-
38a
the agency acknowledges that “(while this rulemaking
will not actively promote this goal [of ensuring efficient
facilities for shipbuilding and ship repair], it also will
not have a significant advere (sic) effect on U.S. com-
mercial shipbuilding.” Jd. at 23528. Such a statement
leads this Court to believe that the rule will have at
least some adverse effect on U.S. commercial shipbuild-
ing.
MARAD does not contend that the Alaska North Slope-
Panama (“ANS”) trade lacks sufficient tonnage to trans-
port Alaskan crude oil. Rather, it argues that there is
a need for vessels that can take advantage of greater
economies of scale and thus provide shippers with trans-
portation savings. /d. at 23524. With these “suitable”
vessels in the trade, the agency concludes that the fleet
will be “well-balanced.” The Court concludes that the
agency's proffered justifications for the rule are belied
by the evidence in the record and that, therefore, the
rule is arbitrary and capricious.
By MARAD’s own estimate, Alaskan oil production
will decline in the very near future leading to a con-
comitant decrease in the need for tanker tonnage in the
ANS-Panama trade. The agency has estimated that ANS
tanker loadings are expected to fall as soon as 1989 due
to a decline in production, the opening of the All Ameri-
can Pipeline, and the potential construction of a refinery
at Valdez, the output of which may be transported abroad
by foreign-flag vessels. See 52 Fed. Reg. at 23530 (em-
phasis added). Thus, due to falling demand, these
VLCCs, though so uniquely suited for the ANS-Panama
trade, will be laid up.*
— ——
* MARAD expects these VLC(s to be employed only in the ANS.
Panama trade. Alaska North Slope oil is transported by pipeline
across Alaska to a terminus located at Valdez. The oil is then
loaded onto tankers bound for the U.S. West Coast or Panama.
These vessels would not be used in the West Coast segment of the
ANS trade if demand in the Valdez-Panama trade is insufficient to
39a
In addition, the Court finds it significant that a num-
ber of vessels are idle and laid up. At present, the
Bay Ridge, one of the VLCCs at issue in this rulemaking,
is laid up. 52 Fed. Reg. at 23527. F urthermore, the
VLCCs BT Alaska and BT San Diego have been idled
since August 4, 1987. See id.” In addition, two un-
subsidized VLCCs, the Exxon Valdez and the Exxon
Long Beach, each totaling 209,000 DWT, recently went
into service in the ANS-Panama trade. With three
VLCCs currently laid up, the Court cannot condone a
rulemaking that would add three more VLCCs to the
domestic fleet as a rational decision on the part of the
agency. Thus, the evidence in the record strongly sug-
gests that the challenged rule will not further directly
many of the objectives of the Merchant Marine Act.
Therefore, because the explanation for its decision runs
counter to the evidence before the agency, the rule must
be struck down as arbitrary and capricious. See Motor
Vehicle Manufacturers Association. supra.
B. The Agency Cannot Rely on Non-Statutory Criteria
Such as Efficiency and Transportation Savings to
Support the Rule Because These Are Factors that
Congress Did Not Intend the Agency to Consider
In Promulgating a Rule Pursuant to the Merchant
Marine Act
Having admitted that this rulemaking will not directly
further most of the goals of the Act as required by the
Supreme Court’s decision in Seatrain Shipbuilding Corp.,
the agency contends that the rule wil] further “day-to-
support all four VLCCs, given port constraints and the higher
costs of lightering or operating the ships light loaded. 52 Fed.
Peg. at 23530.
*Each of these vessels totals 188.100 DWT. Administrative
Record at 1357. Their owner, Shell Refinery and Marketing Com-
pany, claims that these vessels may have to be scrapped due to
the rulemaking. 52 Fed. Reg. at 23527.
40a
day” commercial operations by allowing more suitable
ships in the Alaska-Panama trade,” 52 Fed. Reg. at
23524, and will result in a more well-balanced fleet “com-
posed of a mix of vessels that are suitable for serving
particular trades,” 52 Fed. Reg. at 23527. MARAD con-
tinues to rely heavily on its claim that admission of these
VLCCs into the domestic trade will enhance efficiency
and create transportation savings. This may in fact be
true, but it cannot be a justification for the rule. Re-
ducing transportation costs is not an objective of the
Merchant Marine Act. See Independent U.S. Tanker
Owners Committee v. Dole, 809 F.2d at 853. By allow-
ing these vessels to enter the trade, the agency sees a
further benefit in the form of “bumping.” ” Bumping,
according to the agency, will create a pool of small tank-
ers available to meet peak seasonal demand in the up-
coast (U.S. Gulf Coast/East Coast) trade. 52 Fed. Reg.
at 23527. As of May 12, 1987 (the latest date measured
by the agency in this rulemaking), 23 of these smaller,
unsubsidized tankers were inactive.'' The agency has not
adequately explained how bumping directly furthers the
objectives of the Act. In fact, the evidence in the record
strongly suggests that this is not a beneficial effect of the
rule. The agency recognizes that the rule will result
” When these VLCCs are waived into the ANS-Panama trade,
slightly smaller unsubsidized ships are “bumped” from that seg-
ment into the shorter segmert from Valdez to the West Coast.
Vessels engaged in that segment are then bumped into the Panama
Canal-Gulf Coast and Panama Canal-East Coast segments of the
trade forcing smaller unsubsidized ships out of business. Sce
American Trading Transportation Co. v. United States, 791 F.2d
942, 948 (D.C. Cir. 1986). In that case, the Court of Appeals
vacated and remanded the agency’s decision to grant Section 506
waivers because MARAD had failed to give any consideration to
the “bumping” effect. See id. at 948-49.
"Of this total, seven vessels totaling 212,000 DWT were laid
up, 14 vessels totaling 636,600 DWT were temporarily idled, and
two vessels totaling 204,000 DWT were casualties. 52 Fed. Reg.
at 22527.
4la
in layoffs of seamen. 52 Fed, Reg. at 23525, 23531.
Furthermore, the agency foresees that smaller vessels,
which are a critical component of the military’s emer-
gency auxiliary fleet, will be laid up or scrapped. Id. at
23525, 23530. Bumping appears to have the effect of
forcing smaller, unsubsidized vessels out of business to
make room for larger, previously subsidized ones. As
the Court of Appeals stated in American Trading Trans-
port Co. v. United States, 791 F.2d 942, 948 (D.C. Cir.
1986), the Merchant Marine Act “indicates no solicitude
for the interests of large, subsidized vessels that over-
rides consideration of the interests or small, unsubsidized
ships.”
MARAD’s explanation of its rejection of alternatives
to this rule also relies on non-statutory criteria at the
expense of the objectives of the Merchant Marine Act.
The agency has rejected alternatives because they will
not generate transportation savings nor offer possible
environmental protections to the same extent as the rule.
MARAD also justifies the rule on the ground that it will
recoup subsidy payments"? and increase Alaska state
revenues. The agency even rejected one proposed alter--
native which involved admitting less than four VLCCs
because it would not be fair to the excluded vessels. This
focus on non-statutory criteria again renders the rule
defective. See Motor Vehicle Manufacturers Association,
supra; Independent U.S. Tanker Owners Committee v.
Dole, supra, 809 F.2d at 854. MARAD never considered
using Section 506 waivers as an alternative to the rule,”
12 The agency recognizes that the rule may result in U.S. Gov-
ernment defaults. 52 Fed. Reg. at 23534-35. When the cost of
these defaults is combined with the increased outlay by the Navy
to acquire ships that would otherwise be part of the merchant
marine fleet, see supra at 16-17, the agency’s rosy prediction that
the national coffers will be replenished as a result of this rule
is significantly tarnished.
* Under Section 506, a vessel constructed with CDS may, upon
consent by the Secretary of Transportation, operate for up to six
42a
The agency rejected using operating differential sub-
sidies (“ODS”) pursuant to 46 U.S.C. §1173(b) on the
ground that to do so would be too expensive. See Defend-
ants’ Statement at 13-14." The rejection of the ODS
option is never discussed by the agency in terms of how
it helps or hinders the objectives of the Merchant Marine
Act. Once again, the agency, in rejecting alternatives,
has substituted goals other than those specified by Con-
gress.
In consideration of the evidence in the record and the
explanation offered by the agency, the Court concludes
that the challenged rule is arbitrary and capricious pur-
suant to 5 U.S.C. § 706(2)(A). The agency has ignored
the evidence in the record which shows that the rule will
not directly further the objectives of the Merchant
Marine Act. Instead, MARAD has substituted factors
such as efficiency and transportation savings which the
Congress did not intend for it to consider. Therefore,
the rule must be vacated.
1V. THE AGENCY’S PROFFERED EXPLANATION
OF WHY IT WAIVED THE STATUTORILY
PRESCRIBED 30-DAY WAITING PERIOD BE-
TWEEN THE RULE’S PUBLICATION DATE
AND EFFECTIVE DATE FAILS TO CON-
VINCE THE COURT THAT “GOOD CAUSE”
EXISTED
MARAD declared the CDS repayment rule effective
upon publication stating that there was “good cause” to
waive the 30-day waiting period required by 5 U.S.C.
months of the year in the domestic trade upon payment of an
amount that bears the same proportion to the CDS as such tempo-
rary period bears to the entire economic life of the vessel.
14The Secretary of Transportation may, with respect to any
vessel in an essential bulk cargo carrying service... pay... such
sums as he shall determine to be necessary to make the cost of
operating such vessel competitive with the cost of operating similar
vessels under the registry of a foreign country. 46 U.S.C. §1173(b).
AD Cen ee
43a
$ 553(d)(3). In support of the waiver, the agency ar-
gues that it was facing a judicially-imposed court dead-
line and, that, in any case, the public did not need time
to prepare for the rule. See 52 Fed. Reg. at 23536. In
their papers, the agency and the defendant-intervenors
argue that because the rule “grants or recognizes an ex-
emption or relieves a restriction,” it may be made effec-
tive immediately upon publication in the Federal Register
pursuant to 5 U.S.C. §553(di(1). See Defendants’
Statement at 30; Defendant-Intervenors’ Memorandum at
55. However, this rationalization was not offered by the
agency when it published the rule.
The Court must reject the agency’s invocation of § 553
(d)(1) at this late date. The agency claimed the “good
cause” exception pursuant to § 553(d)(3) when it pub-
lished the rule. Courts may not accept post hoc rationali-
zations for agency action; if an agency’s action is to be
upheld, it must be so on the basis of the reason articu-
lated by the agency. See Motor Vehicle Manufacturers
Association v. State Farm Mutual Automobile Insurance
Co., 463 U.S. 29, 50 (1983). This is a rule “directed
at reviewing courts which forbids judges to uphold agency
action on the basis of rationales offered by anyone other
than the proper decisionmakers.” Local 814, Interna-
tional Brotherhood of Teamsters v. NLRB, 546 F.2d 9839,
992 (D.C. Cir. 1976). The rule applies to rationalizations
offered for the first time in litigation affidavits and ar-
guments of counsel. Id. (citing Citizens to Preserve Over-
ton Park, Inc. v. Volpe, 401 U.S. 402, 419 (1971); FPC
v. Texaco, Inc., 417 U.S. 380, 397 (1974); NLRB v. Food
Store Employees Union, Local 347, 417 U.S. 1, 9 (1974).
Therefore, the Court cannot accept the agency’s explana-
tion, offered after it gets to Court and which was not
articulated as a basis for the agency’s action at the time
the rule was published, that because the rule relieves a
restriction, the agency may have been entitled to make
the rule effective upon publication in the Federal Register.
44a
In any event, the Court finds that the agency has not
proffered grounds sufficient to establish that ‘good cause”’
existed to waive the 30-day period between the publica-
tion date and the effective date. The exceptions to the
provision of $ 553(d) permitting an agency to avoid its
obligations to publish a rule not less than 30 days before
its effective date “will be narrowly construed and only
reluctantly countenanced.” See American Federation of
Government Employees v. Block, 655 F.2d 1153, 1156
(D.C. Cir. 1981) (quoting State of New Jersey, Depart-
ment of Environmental Protection v. EPA, 626 F.2d 1038,
1045 (D.C. Cir. 1980). The “good cause” exception is
not an “escape clause” that may be arbitrarily utilized
at the agency’s whim. See id. (citing S. Rep. No. 752,
79th Cong., Ist Sess. (1945), reprinted in Administrative
Procedure Act, Legislative History, 79th Cong. 1944-46
at 200, 201). The exception should be limited to emer-
gency situations. /?. No such emergency existed in this
case to justify making the rule effective immediately
upon publication.
In support of its showing of “good cause,” MARAD
claimed that it was operating under a judicially-imposed
deadline and that the public did not need time to prepare
for the final rule. Neither of these reasons is adequate
to invoke the “good cause’’ exception. While it is true
that the agency was operating under something of a
judicially-imposed deadline (the Court of Appeals’ man-
date vacating the blanket repayment rule was to take
effect July 16, 1987), that fact alone is insufficient.
MARAD’s reliance on American Federation of Govern-
ment Employees v. Block, supra, is misplaced. In that
case, the Department of Agriculture invoked the “good
cause” exception to the requirement that general notice
of a proposed rulemaking be published in the Federa!
Register pursuant to 5 U.S.C. § 553(b)(B) because it
was under a court order to issue certain regulations
+e tet Coe
45a
forthwith. See id. at 1157.'° No such urgency existed in
this case to justify an immediate effective date. MARAD
knew that Congress was actively considering a proposal
to deal with any CDS repayment rule. The agency could
have and should have allowed Congress a period of time
in which to act. An effective date of July 15, 1987, one
day prior to the effective date of the Court of Appeals’
mandate, was the proper course of action.
Furthermore, the fact that the agency decides that the
public does not need time to prepare for the rule does
not, by itself, support a finding of “good cause.” Both
the statute and the legislative history envision a holding
period to permit, in the words of the statute, “an in-
terested person the right to petition for the issuance,
amendment, or repeal of a rule.” 5 U.S.C. § 553(e); sce
also Note, The “Good Cause” Exceptions: Danger to No-
tice and Comment Requirements Under the Administra-
tive Procedure Act, 68 Geo.L.J. 765, 771 n.57 (1980)
(quoting S.Doe. No. 248, 79th Cong., 2d Sess. at 207
(The 30-day delay in the effective date “will afford per-
sons affected a reasonable time to prepare for the effec-
tive date of a rule or rules or to take any other action
which the issuance of the rules may prompt.”). Although
the general public might not have needed time to prepare
for the final rule, persons affected, such as the plaintiffs,
were entitled to at least some time to react to the agen-
cy’s rulemaking before it became final.
Therefore, the Court finds that MARAD’s explanation
in support of its invocation of the “good cause” exception
is insufficient and unavailing.
15 An agency may waive this requirement if it “for good cause
finds . .. that notice and public procedure theeron are imprac-
ticable, unnecessary, or contrary to the public interest.” 5 U.S.C.
§ 553(b)(B).
46a
V. CONCLUSION
For the foregoing reasons, the Court must grant plain-
tiffs’ motion for summary judgment and deny defend-
ants’ motion for summary judgment. Not only has the
agency contravened the express intent of Congress as
articulated in Section 505 of the Supplemental Appropri-
ations Act of 1987, but it has also acted arbitrarily and
capriciously in promulgating the CDS repayment rule.
Furthermore, the agency impermissibly made the rule
effective upon publication in the Federal Register. There-
fore, the Court will declare the rule invalid and order
that it be vacated.
An order in accordance with this Opinion will issue
of even date herewith.
s Charles R. Richey
CHARLES R. RICHEY
United States District Judge
Dated: April 29, 1988
47a
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
C.A. No. 87-1685
INDEPENDENT U.S. TANKER OWNERS COMMITTEE, et al.,
Plaintiffs,
JAMES H. BURNLEY, IV, et al.,
Defendants.
C.A. No. 87-2102
OVERSEAS SHIPHOLDING GROUP, INC., et al.,
Plaintiffs,
JAMES H. BURNLEY, IV, et al..,
Defendants.
ORDER
In accordance with the Opinion issued on even date
herewith, it is by the Court this 29 day of April, 1988,
ORDERED that plaintiffs’ motion f
for summary judg-
ment be, and hereby is, granted; and it is
Lists
FURTHER ORDERED that defendants’ motion f
summary judgment be, and hereby is,
FURTHER ORDERED that the rule
structional differential subsidv repavment issued bv the
‘ o M ~ A ] a eens . — > <b } ] — +h F } = |
Maritime Administration and published in the Federal]
> m. — 99 wf } . |
Register on June 22, 1987, be r s declared
48a
arbitrary and capricious, an abuse of discretion, and con-
trary to law; and it is
FURTHER ORDERED that the rule referred to in
the above-ordered paragraph be, and hereby is, vacated;
and it is
FURTHER ORDERED that any vessel operating in
the domestic trade of the United States pursuant to the
rule held invalid in the above-ordered paragraph be re-
moved from that trade as soon as is practical.
s/ Charles R. Richey
CHARLES R. RICHEY
United States District Judge
49a
APPENDIX E
DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 276
Docket No. R-110]
Construction-Differential Subsidy Repayment
AGENCY: Maritime Administration, Transportation.
ACTION: Final rule
SUMMARY: This final rule allows four vessels that re-
paid their construction-differential subsidy (CDS) in ex-
change for the right to operate in the domestic trade to
emain in that trade. Three of those vessels have been
operating in the Alaska oil trade after repaying their
CDS under a 1985 Department of Transportation rule.
isi January 16, 1987 vacated that rule,
LN the effective date of its order to July 16,
987. The fourth repaid its CDS pursuant to an admin-
| lecision issued in 1980 under an interim rule
ently vacated by the court. However,
vesse | to remain in the domestic
0 nsideration. This final rule al-
remain in the domestic trade
: s of the Mer-
50a
EFFECTIVE DATE: June 22, 1987.
FOR FURTHER INFORMATION CONTACT: Lynne Adams-
Whitaker, Chief, Division of Regulations, 400 Seventh
Street, SW., Washington, DC 20590, Tel. (202) 366-5181.
SUPPLEMENTARY INFORMATION :
Background
The Jones Act (46 U.S.C. 883) generally provides that
all cargo transported in the domestic trade between points
in the United States must be carried on vessels built in
the United States, documented under United States law
and owned by United States citizens. However, U.S. ves-
sels operating in the foreign trade must compete with
foreign-flag vessels that have lower operating and con-
struction costs. In an effort to compensate for higher
U.S. construction costs, Congress passed Title V of the
Merchant Marine Act, 1936, as amended (“the Act’’),
which authorized the payment of construction-differential
subsidy (CDS) for the purpose of building ships in
U.S. shipyards to be operated in foreign commerce. 45
App. U.S.C. 1151 et seg. The Secretary of Transporta-
tion, through the Maritime Administration (MARAD).
may pay as much as half the construction costs of such
vessels. 46 App. U.S.C. 1152. There is no corresponding
subsidy program for vessels constructed by U.S. owners
for use in the domestic trade.
In addition, Title VI of the Act authorized the pay-
ment of an operating-differential subsidy (ODS) for U.S.-
flag vessels manned by U.S. citizens and operated in ac-
cordance with U.S. safety standards. 46 App. U.S.C.
1171. By a policy decision, ODS was not paid to CDS-
built bulk vessels over 100,000 DWT. Because of the
large economies of scale of these vessels, labor costs,
which are the main subsidized item under the ODS pro-
gram, are relatively small in terms of the overall operat-
ing cost.
5la
CDS-built vessels are subject to certain restrictions.
Under section 506 of the Act, vessels constructed with
CDS “shall be operated exclusively in foreign trade or
on a round-the-world voyage... .” 46 App. U.S.C. 1156.
Section 506 of the Act allows CDS vessels to be operated
in the domestic trade in the following limited circum-
stances: (1) On a round voyage from the west coast of
the United States to European ports which includes in-
‘tercoastal U.S. ports; (2) on a round voyage from the
Atlantic coast of the U.S. to the Orient which includes
intercoastal ports of the U.S.; (3) on a foreign voyage
including a stop in Hawaii or an island possession or
territory of the U.S. In addition, CDS vessels may be
operated in the domestic trade with the consent of the
Secretary of Transportation for up to six months in any
year under authority of section 506 with the require-
ment that the vessel owner repay the subsidy on a pro
rata basis. All domestic trading restrictions for each
CDS-built vessel lapse at the end of the vessel’s statu-
tory life. Section 9 of Pub. L. 86-318 (74 Stat. 216) sets
a 20 year economic life for tankers.
The overall objectives of the 1970 amendments to the
Act (Pub. L. 91-469, 84 Stat. 1018) were to provide for
a long-range shipbuilding program of 300 ships in the
next ten years, a general lessening of dependence on ODS
for the liner carriers, and the build up of our bulk carrier
fleet in the U.S. foreign commerce. The envisioned ship-
building program of the 1970 amendments with emphasis
on building bulk carriers, including tankers.’
Prior to the 1970 amendments, the operating subsidy
programs and for the most part the construction subsidy
program of the Merchant Marine Act had been confined
to liner vessels, which operated scheduled services in for-
eign commerce under the regulatory supervision of the
1Conf. Report No. 91-1555, H.R. 15424, Oct. 1, 1970. In fact,
only 34 petroleum tankers were built with CDS authorized by the
1970 amendments.
52a
Federal Maritime Commission. The Congress, in extend-
ing and initially funding the reach of these programs
to the unregulated bulk traders (particularly the dry
bulk trade), specifically recognized the need to make
these vessels “competitive” with foreign flag ships. See
H. Rep. No. 1073, 91st Cong., 1st Sess., 38 (1969) ; Mer-
chant Marine Act, 1936, 603(b), 46 U.S.C. 1173(b).
Unfortunately, the governmental program offered to
U.S.-flag very large crude carriers (“VLCCs,” i.e., tank-
ers over 160,000 DWT) has not enabled them to be com-
petitive in the foreign trade. In 1970, Congress did not
foresee, and perhaps could not have foreseen, the drastic
changes that would occur in the world oil market. The
decline in export of crude oil from the Middle East, in
addition to an oversupply of world tankers built since
1970, has been financially devastating for the world
tanker market. As a consequence, the two ultra large
crude carriers and nine VLCCs constructed with CDS
under the 1970 amendments were left with no significant
competitive opportunities in the foreign commerce.
The domestic market, however, has not fared as poorly.
With the opening in 1977 of the Trans-Alaska Pipeline
System, the demand for U.S.-flag tanker tonnage has in-
creased and that demand has not been completely met by
the existing Jones Act (domestic) fleet. To alleviate the
shortage of suitable Jones Act tanker vessels, MARAD
has allowed CDS-built tankers to enter the trade for up
to six month periods after repaying the subsidy pro rata
under section 506 of the Act and in accordance with 46
CFR Part 250.2 Since 1977, MARAD has approved 43
246 CFR Part 250 establishes procedures by which MARAD may
temporarily waiver (i.e., for no more than six months in any
twelve month period) the domestic trade restrictions on CDS-
built vessels over 200,000 deadweight tons (DWT) in the Alaska-
Panama trade. Applications for such waiver must be accompanied
by information showing that suitable vessels (i.e., those over 100,000
DWT) of a competitor could not be available for the prospective
voyages.
———,
58a
such applications for CDS-built tanker service in the
Alaska oil trade (of those approvals, 37 were for VLCCs).
During 1982 and 1983, approximately six VLCCs per
year entered the domestic trade under six month per-
missions, which was the equivalent of three VLCCs par-
ticipating in the domestic trade on a full-time basis.
Because of the limited duration and availability of
these temporary permissions and the depressed market
conditions confronting tankers in the foreign trade, sev-
eral CDS tanker owners (predominantly those owning
VLCCs) applied for permission to enter the domestic
market on a permanent basis in exchange for the total
repayment of their CDS.
Prior to 1978, requests for permanent repayment were
handled ad hoc. No hearings were held on these requests
and notice of the proposed determinations was not given
to the public. However, after MARAD admitted the
VLCC STUYVESANT (operated by Seatrain Lines) to
the domestic trade, with full CDS repayment, competitors
in that trade brought suit challenging MARADs action.
The Supreme Court ultimately held that the Secretary’s
broad contracting powers and discretion to administer
the Act encompass the authority to grant permanent en-
try into the domestic trade to vessels upon repayment of
CDS. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444
U.S. 572 (1980).
In 1978, MARAD issued a notice of proposed rulemak-
ing (NPRM) that would have set guidelines for per-
manent CDS repayment. 43 FR 51045 (November 2,
1978).
Charterers and owners of six CDS-built vessels applied
for CDS repayment. On October 15, 1980, MARAD
adopted and made immediately effective an interim rule
to govern applications for CDS repayment. 45 FR 68393.
Under the interim rule, approvals would be granted only
for vessels of at least 100,000 DWT, and only in excep-
54a
tional circumstances, after a determination that no fav-
orable opportunities existed for viable employment of the
vessel in foreign trade during a protracted period.
MARAD was to consider a number of factors in deter-
mining whether exceptional circumstances existed.
On November 13, 1980, through an adjudicative de-
cision, issued under the interim rule, MARAD approved
the CDS repayment application for the BAY RIDGE, an-
other Seatrain VLCC. MARAD deferred action on the
other pending CDS repayment applications. On Novem-
ber 25, 1980, the Independent U.S. Tanker Owners Com-
mittee filed a complaint in the U.S. District Court for
review of the interim rule and the BAY RIDGE decision,
alleging substantive and procedural defects in connection
with both actions. The District Court granted summary
judgment for defendants on all counts. An appeal was
taken.
On appeal, the D.C. Circuit held that MARAD was not
legally obligated to issue regulations limiting its discre-
tion and that the interim rule itself did not constitute an
abuse of MARAD’s statutory discretion. Independent
Tanker Owners Committee v. Lewis, 690 F.2d 908 (D.C.
Cir. 1982) {hereinafter referred to as ITOC v. Lewis}.
Nevertheless, the Court vacated the interim rule on pro-
cedural grounds. It concluded that the rule lacked a
general statement of basis and purpose, as required by
the Administrative Procedure Act (5 U.S.C. 551 et seq.),
to explain MARAD’s position on the various issues raised
during the rulemaking proceeding. The Court also found
that adjudication allowing the BAY RIDGE repayment
was procedurally and substantively flawed.
The Court of Appeals remanded the case to the Dis-
trict Court with instructions to vacate the interim rule
and to order new rulemaking procedures, and to vacate
the approval of the BAY RIDGE application, but to allow
the BAY RIDGE to continue in domestic operation pend-
ing reconsideration of the BAY RIDGE adjudication.
no a a
na otal re cad Oe ell ae
55a
The Court left to MARAD’s discretion whether the new
BAY RIDGE decision should await publication of a per-
manent rule regarding CDS repayment. The Court also
left to MARAD’s discretion whether to adopt a perma-
nent rule similar to the interim rule so long as the jus-
tification for the rule adopted was “clearly and thought-
fully presented in a statement published contemporane-
ously with the rule’. JTOC v. Lewis, 690 F.2d at 920.
Following the transfer of MARAD to the Department of
Transportation, the Department published a new NPRM
on January 31, 1983, 48 FR 4408. That NPRM, which
was issued by the Secretary, proposed to permit all CDS-
built U.S. tanker vessels to enter the domestic trade upon
repayment of unamortized CDS plus compound interest.
The notice reviewed the entire history of this issue since
MARAD first accepted total repayment on the VLCC
STUYVESANT and reviewed the comments received on
earlier MARAD rulemakings pertaining to total repay-
ment in return for domestic trading privileges. It in-
vited further comment on these issues and assessed the
economic impact of allowing the owners/operators of these
vessels to determine whether to repay their CDS. The
rulemaking concluded that the Government was not in a
position to assess, on its own, which vessels should, and
which should not, be allowed to meet the needs for addi-
tional capacity in the domestic trade. For example, it
pointed out that only allowing operators in financial jeop-
ardy to repay their CDS was not consistent with the ob-
jectives of the 1936 Act. 48 FR at 4412.
The Department concluded that the marketplace de-
cisions of individual operators would best serve the needs
of the fully deregulated domestic tanker trade, provided
that those operators that repaid were not given an un-
fair competitive advantage vis-a-vis the existing Jones
Act fleet. Id. at 4409-4410.
Accordingly, the Department’s proposed rule required
repayment of an additional amount consisting of com-
56a
pound interest on the unamortized subsidy from the date
of its original receipt. According to the Department’s
analysis, the addition of this amount, which frequently
would exceed the unamortized subsidy itself, would dup-
liecate the financial conditions inherent in a private sector
decision to commit any comparable asset to the domestic
trade, with an allowance only for its age, by allowing the
amortization of the subsidy pursuant to its statutory use-
ful life of 20 years. See 48 FR 4408-4414. Since the
Government does not otherwise .egulate entry of new
capacity in the domestic trade, duplicating the condi-
tions ordinarily governing such entry was deemed the
most appropriate approach by the Department.*
Shortly after the close of the comment period on the
NPRM, the Congress took action to prevent temporarily
the Secretary from promulgating a final rule. The DOT
FY 84 Appropriations Act (Pub. L. 96-78, August 15,
1983) prohibited the enforcement of any rule with re-
spect to the repayment of CDS until 60 days following
the promulgation of any such rule. Thereafter, the Com-
merce Department’s FY 84 Appropriations Act (Pub. L.
98-166, November 28, 1983) imposed an additional re-
striction that prohibited DOT from enforcing any CDS
repayment rule until after June 15, 1984. In August
1984, the FY 85 Appropriations Act for Commerce, Justice
and State, which provides appropriations for MARAD,
imposed yet another restriction. The Act prohibited the
Department from enforcing any CDS repayment rule un-
til May 15, 1985 (Pub. L. 96-411, August 30, 1984).
Thereafter, Congress considered, but did not extend, these
prohibitions.
3 It should be noted that damaged foreign-built vessels may be
acquired and reconstructed for use in the domestic trade under the
Wrecked Vessels Act without prior government approval, provided
a specific amount is expended in the reconstruction (i.e., three times
their salvage value). 46 App. U.S.C. 14.
reer neremameryr sein |
57a
On May 7, 1985, the Department published in the Fed-
eral Register a final rule which allowed any owner of
a tanker built with CDS to repay its subsidy (with in-
terest) and consequently obtain a permanent removal of
domestic trading restrictions. (50 FR 19170). The amount
of repayment included the unamortized CDS on the ves-
sels plus compounded interest on that amount. The in-
terest rate, to be used for computational purposes, was
to be the rate at which the original Title XI obligation
was made or the Title XI long-term bond rate at the
vessel’s delivery. The final rule included a one-year time
limit after the rule’s effective date during which total
CDS repayment had to be made. See 46 CFR 276.3 That
time limit was from June 6, 1985 to June 6, 1986. Dur-
ing that period, three VLCCs repaid their CDS: the
ARCO INDEPENDENCE (262,400 DWT), ARCO SPIRIT
(262,400 DWT), and the BROOKLYN (226,200 DWT).
The total amount of CDS repaid by these ships was
$105.8 million. Those ships are now operating in the
domestic trade.
The final rule was challenged in court. Initially, the
District Court upheld the rule. 620 F. Supp. 1289 (D.D.C.
1985). However, on January 16, 1987, the Court of Ap-
peals for the District of Columbia Circuit held that the
Secretary of Transportation violated section 553(c) of
the Administration Procedure Act by adopting a final
rule which did not contain a statement of basis and pur-
pose giving an adequate account of how the rule served
the objectives. of the Act and why alternatives were re-
jected in light of them. Independent U.S. Tanker Own-
ers Committee v. Dole, 809 F.2d 847 (D.C. Cir. 1987)
(hereinafter referred to as JOTC v. Dole|. The court
found that the Secretary’s failure to provide an adequate
statement of basis and purpose was arbitrary and ca-
pricious. The court vacated the rule, but withheld is-
suance of its mandate until July 16, 1987 “to avoid
further disruptions in the domestic market and to allow
the Secretary to undertake further proceedings to ad-
dress the problems of the merchant marine trade.” Id
58a
at 855. Under the Court’s decision; as of July 16, 1987,
the present rule will be vacated and conditions will be
returned to the status quo ante, before the CDS repay-
ment rule took effect, subject to any further action that
the agency may have taken in the interim.
In response to the JTOC v. Dole decision, MARAD pub-
lished a notice of proposed rulemaking in the Federal
Register (52 FR 12199, April 15, 1987) with a closing
date of May 15 for comments. That NPRM proposed to
reaffirm the allowance of the repayment of CDS, with
interest, and rescission of the domestic trading restriction
for tankers that applied to and were approved by MARAD
pursuant to the 1985 rule between June 5, 1985 and June
6, 1986. The approved applications were for the ARCO
INDEPENDENCE, ARCO SPIRIT and BROOKLYN.
Further, the NPRM proposed to reaffirm the allowance
of the repayment of CDS, with interest, and rescission
of the domestic trading restrictions for the BAY RIDGE,
which was approved to repay its CDS in November 1980.
Since the terms of repayment for the BAY RIDGE were
different from the other three VLCCs (i.e., it repaid in
accordance with conditions stated at the time of repay-
ment of principal and interest), the NPRM imposed the
same conditions on the BAY RIDGE that were imposed
in 1980.4
The proposed rule differed from the 1985 CDS repay-
ment rule in that it did not authorize all vessels that were
built with CDS to repay. Rather, it was limited to those
4 By letter dated March 16, 1987, counsel for the BAY RIDGE
requested that a proceeding on the BAY RIDGE should be conducted
independently of proceedings with respect to the three vessels which
repaid CDS pursuant to the 1985 repayment rule. The court in
ITOC vy. Lewis specifically left te MARAD’s discretion whether
or not the BAY RIDGE decisions should await publication of a
permanent rule governing repayment applications. MARAD has
decided that it is appropriate to consider the BAY RIDGE in this
rulemaking, since it would operate in the same domestic trade as
the other three vessels at issue and involves many of the same issues.
59a
vessels that were already operating in the domestic trade
on a full-time basis pursuant to prior approvals that had
been invalidated by the courts. The proposed rule im-
posed the same terms and conditions on the three tankers
that repaid during the one-year window as were required
in the 1985 CDS repayment rule.
The proposed rule also differed from the 1985 rule in
that the proposed rule was issued by order of the Mari-
time Administrator. By delegation, the Maritime Ad-
ministrator is authorized to administer and carry out the
Act, except for specific authorities delegated to the Mari-
time Subsidy Board (e.g., certain contractual functions,
see 49 CFR 1.4(k) (1), 1.67). 49 CFR 1.45(2), 1.66(e).
While the Maritime Subsidy Board is responsible for
awarding and amending CDS contracts, the Maritime
Administrator is responsible for administering CDS con-
tracts. 49 CFR 1.4(j) (2). Inasmuch as only adminis-
tration of the CDS contracts to the ARCO INDEPEND-
ENCE, ARCO SPIRIT, BROOKLYN and BAY RIDGE
are involved, the Maritime Administrator has the au-
thority by delegation from the Secretary to issue this
rule.
This final rule confirms the repayment of CDS, with
interest, and rescission of the domestic trading restric-
tions for the ARCO INDEPENDENCE, ARCO SPIRIT,
BROOKLYN and BAY RIDGE.
Summary of the Rationale for this Rulemaking
This rule provides a means to further the purposes and
policies of the Merchant Marine Act, 1936, as amended.
There is a tremendous overcapacity of VLCCs in the U.S.
foreign trades. On the other hand, prior to the 1985 rule,
there had been a shortage of VLCCs in the U.S. domestic
trades, which has led to frequent approvals of temporary
permissions under section 508 of the Act for the ANS-
Panama trade. This rule allows four VLCCs that have
not been able to find employment in the foreign trade to
— 60a
move permanently from the foreign to the domestic trade,
upon the repayment, with interest, of the unamortized
portion of the subsidy provided by the U.S. Treasury for
their construction. It is recognized that this action may
possibly adversely affect, though not to the degree claimed
by opponents, vessels and seamen now in the domestic
trade. The net »ossible adverse impact is outweighed by
the resulting stronger, more viable merchant marine.
The primary purpose for permitting the four VLCCs
to enter the domestic trade is to allow the employment
of the most suitable vessels for a more well-balanced U.S.
tanker fleet. The 1936 Act requires consideration of the
impact of this action on suitability of vessels both for
day-to-day commercial operations and military mobiliza-
tion needs. In the absence of the rule, a significant por-
tion of the domestic trade—the transport of crude oil
from Valdez, Alaska to Panama—would face a shortage
of vessels that can take advantage of inherent economies
that larger ships (resulting from the length of haul)
enjoy in the market. The rule furthers day-to-day com-
mercial operations by allowing more suitable ships in the
Alaska-Panama trade. As for military mobilization needs,
the Navy has certified the suitability for military pur-
poses of each of the four vessels the rule would allow into
the domestic trade, and the fleet as a whole will be suit-
able for military needs.
Allowing the four VLCCs into the domestic trade also
results in a better balance of large, medium, and handy-
sized tankers in the domestic fleet. Further, it avoids
the possible lay-up or scrapping of these generally more
modern, more efficient vessels. Instead, a few smaller
vessels may possibly be forced into extended lay-up or
scrapped. As a result of the rule significant oil transport
cost savings will be effected, which, based on the Regu-
latory Impact Analysis, could total as much as $386-542
million.
6la
MARAD recognizes that rule will not increase the
participation of U.S.-flag vessels in the foreign trade.
However, because of changes in the pattern of world de-
mand for crude oil, and reductions in demand for VLCCs
for the foreign trade, it is extremely unlikely that these
vessels would be operating in the U.S. foreign trade in
any event. Absent the rule it is likely that these vessels
would be forced into long-term lay-up and concomitant
waste or scrapped.
MARAD also recognizes that this rule possibly will
result in the lay-up or scrapping of a few smaller sized
crude carriers sooner than would otherwise occur and
that additional seamen possibly will become unemployed
as a result. Opponents of this action generally overstate
these effects. MARAD believes that six Jones Act tank-
ers may possibly be laid up or scrapped as a consequence
of this rule versus possible lay-up or scrapping of four
CDS VLCCs if the rule is not adopted. MARAD also
estimates that possibly between 100 and 225 seafarers
fay lose employment as a result of the rule. (Approxi-
mately 300 seafarers could lose employment because of
the possible displacement of six handy-sized tankers, but
this must be adjusted to account for losses due to less
use of the VLCCs. Since factors other than CDS repay-
ment (including the vessels’ size, age, source of power,
crew requirements, pollution equipment and market con-
ditions) will have an impact on the prospects for employ-
ment of Jones Act tankers, it is not clear that they would
be employed in any event. MARAD believes the direct
benefits of the rule to the fleet as a whole outweigh these
possible adverse effects on other Jones Act tankers and
seafarer employment.
Finally, regardless of the outcome of this proceeding,
the four VLCCs would be entitled to enter the dornestic
trade automatically under the Act at the end of their
statutory (20 year) useful life, at which time their CDS
will have been fully amortized. Thus, the BROOKLYN
62a
would be eligible to enter the domestic trade in 1993, the
ARCO INDEPENDENCE and ARCO SPIRIT in 1997
and the BAY RIDGE in 1999. Thus, this rule merely
serves to accelerate their entry into the domestic fleet,
with the recovery of the unamortized subsidy for the
Treasury, p!us compound interest on that amount. Thus,
the vessels are effectively placed on the same footing as
they would be at the end of the statutory amortization
of their CDS.
The owners or charterers of the four VLCCs must have
believed that it was worthwhile to repay CDS in order to
participate in the domestic trade. Obviously, those com-
panies concluded that they would make a reasonable re-
turn on their investment (i.e., CDS repayment) through
their domestic operations, despite the fact that the domes-
tie trade restrictions would be lifted on their tankers in
six to twelve years.
By the close of the comment period, MARAD had re-
ceived over 100 comments in support of or opposition to
the issuance of this rule from members of Congress, a
Federal agency, operators of both CDS-built and Jones
Act vessels, environmental groups, a fishermen’s associa-
tion, a seafarer’s union, individual seafarers, a shipbuild-
ers’ organization, two shipyards, and the State of Alaska.
MARAD also received several comments after the close
of the comment period, which were placed in the docket.
MARAD now turns to addressing the comments that it
has received.
Discussion of the Comments Received
1. Purposes and Policy of the Merchant Marine Act
Several commenters argued that this rule does not fur-
ther the purposes and policies of the Act. Other comment-
ers agreed with MARAD’s assessment that this rule does
further the objectives of the Act.
MARAD believes that the rule will further the goals
of the Act. The preamble to the Merchant Marine Act,
63a
1936, as amended, states that the intent of the Act is
“fto] further the development and maintenance of an
adequate and well-balanced American merchant marine,
to promote the commerce of the United States, to aid in
the national defense. . . .” The specific goals of the Mer-
chant Marine Act, 1936, as amended, as set out in section
101 of the Act, are to foster the development and encour-
age the maintenance of an American merchant marine
that is:
(a) sufficient to carry out its domestic water-
borne commerce and a substantial portion of the
waterborne export and import foreign commerce of
the United States and to provide shipping service
essential for maintaining the flow of such domestic
and foreign waterborne commerce at all times, (b)
capable of serving as a naval auxiliary in time of
war or national emergency, (c) owned and operated
under the United States flag by citizens of the
United States, insofar as may be practicable, (d)
composed of the best-equipped, safest, and most suit-
able types of vessels, constructed in the United States
and manned with a trained and efficient citizen per-
sonnel, and ‘e) supplemented by efficient facilities
for shipbuilding and ship repair. 46 App. U.S.C.
1101.
MARAD believes that this final rule, which allows the
four CDS-built very large crude carriers (“the four
VLCCs”) to remain in the domestic trade, will benefit
the domestic water-borne commerce by allowing vessels
that are the most “suitable” for the Alaska-Panama oil
trade to serve that trade, and will result in a more
“well-balanced” American merchant marine. The fact
that the four VLCCs have been consistently employed in
that trade since their repayment of CDS (except for the
recent lay-up of the BAY RIDGE) demonstrates their
suitability for and benefit to that trade, as does the
history of six month permissions issued pursuant to sec-
tion 506 of the Act. Although originally built to operate
64a
in the foreign trade, the four VLCCs are not competitive
in that trade. If not allowed to operate in the domestic
trades, the four VLCCs would likely be laid up and
possibly scrapped.
a. Suitability of the Four VLCCs for the Domestic
Trade
‘i) Some commenters (predominantly owners of tank-
ers in the Jones Act trade that would have to compete
with the four VLCCs either directly or indirectly) con-
tended that the four VLCCs are not suitable for the do-
mestic trade and that allowing these four VLCCs to re-
main in the trade will disrupt the domestic tanker fleet.
Atlantic Richfield Company (ARCO) and American Pe-
trofina disagreed, arguing that the four VLCCs will ben-
efit the domestic tanker fleet overall.
A key purpose for allowing the four VLCCs to remain
in the domestic trade is to have a sufficient U.S. domestic
fleet “composed of the best-equipped, safest, and most
suitable types of vessels” for that trade. Suitable vessels
for the Alaska-Panama trade are defined by MARAD
regulation as tank vessels of at least 100,000 DWT en-
gaged in the carriage of Alaskan oil. 46 CFR 250.2(h).
Suitability, in the context of the overall goals of the Act,
means suitability of particular vessels for the U.S. com-
merce, and suitability of vessels to serve as naval aux-
iliaries (for discussion of suitability of the four VLCCs
as naval auxiliaries, see section 1.°
5 “Suitability” is discussed in section 101 of the Act (46 U.S.C.
1101(d) in terms of “best-equipped, safest and most suitable types
of vessels... .” It is also referred to in other sections of the Act
in the context of military usefulness, as in section 501 of the Act.
(46 U.S.C. 1131, 1152, see also 46 U.S.C. 861, 1125) and 46 CFR
Part 250. Participation by Vessels Built with Construction-Differ-
ential Subsidy in the Carriage of Oil from Alaska in the Domestic
Trade.
65a
Tanker demand in the ANS trade depends on ANS
oil production and the distribution of the oil. As produc-
tion increases, so does the amount of tonnage needed to
carry the oil. However, the increase in demand for tank-
ers may not be proportional to oil production if there is
also a change in the distribution of the oil.
Several factors contribute to the sutability of the four
VLCCs for the ANS-Panama trade. VLCCs are more
suitable for long-haul, high volume trades than smaller
tankers, due to economies of scale. That is, tanker oper-
ating costs do not rise as fast as cargo volumes. Studies
of optimal ship size have shown that optimal ship size
is determined by minimizing costs per ton at sea and in
port. (In port, costs per ton increase with ship size; at
sea, however, costs per ton decline with ship size). J.O.
Jansson and D. Shneerson, “The Optimal Ship Size,”
Journal of Transport Economic and Policy,” Journal of
Transport Economic and Policy, 217, 223 (Sept. 1982).
VLCCs are more suitable for the Alaska-Panama leg of
the ANS trade because of the length of the voyage (ap-
proximately 4,950 miles). The at-sea time is significantly
longer than any of the other legs of U.S.-flag oil ship-
ments in the U.S. Another factor contributing to the
suitability of the VLCCs for the Panama leg is the deep-
draft at the Puerto Armuelles terminal in Panama, which
can accommodate those larger tankers. Because of these
factors, VLCCs are able to carry oil in that trade more
efficiently than smaller tankers under 100,000 DWT.
Historically, VLCCs have carried the majority of oil
from Alaska to Panama. During 1986, about half the
full-time equivalent tanker employment in the Alaska-
Panama trade was for vessels from 200,000 DWT to
265,000 DWT; most of the other half was for VLCCs
from 170,000 DWT to 190,000 DWT. A small percent-
age was carried by tankers from 110,000 DWT-137,000
DWT, while only 0.6 percent in 1986 was carried by ves-
sels under 100,000 DWT. (Historically, the share car-
66a
ried by tankers under 100,000 DWT has been no more
than six percent.) Even prior to the 1985 CDS repay-
ment by three of the VLCCs, the Valdez-Panama trade
was overwhelmingly dominated by tankers over 100,000
DWT. Many of these were CDS-built VLCCs operating
under six month permissions in the domestic trade.
The Regulatory Impact Analysis (RIA) also indicate
trends in the distribution of oil by trade and by vessel
tonnage pertinent to this issue. It indicates that since
the permanent entrance of the three CDS-built VLCCs
in the domestic trade (i.e., from 1985-1986), the percent-
age of full-time equivalent tanker employment for VLCCs
over 200,000 DWT in the Alaska-Panama trade has risen
considerably, and employment by vessels under that ton-
nage range has decreased correspondingly.® It appears
therefore that the trend of large VLCCs carrying the
majority of Valdez-Panama ANS trade will continue.
(ii) Several commenters argued that the legislative
history of the Act indicates that the term “suitability”
in section 101 refers solely to military suitability, and
that the four VLCCs are not suitable for military use.
MARAD agrees that usefulness of a vessel for national
defense or military purposes is one factor to be consid-
ered in determining whether a vessel is “suitable” under
section 101. In fact, the four VLCCs at issue have been
certified by the Navy as being so useful. Section 501 of
the Act establishes requirements for approval of appli-
cations by proposed ship purchasers for CDS. One of the
requirements for approval in section 501 is that the Sec-
retary of Transportation must determine that the “plans
and specifications call for a new vessel which will... be
suitable for use by the United States for national defense
or military purposes in time of war or national emer-
*It should be noted, however, that in some years, the full-time
equivalent of three VLCC’s operated in the ANS trade under six
month waivers pursuant to 46 CFR Part 250.
67a
gency .. .” section 501(b) requires the Secretary of
Transportation to submit the plans and specification for
the proposed vessel to the Navy Department “for exam-
ination thereof and suggestions for such change therein
. in order that such vessel shall be suitable for eco-
nomical and speedy conversion into a naval or military
auxiliary, or otherwise suitable for the use of the United
States Government in time of war or national emer-
gency.” 46 App. U.S.C. 1151. If the Secretary of the
Navy approves the plan, the approval shall be certified
to the Secretary of Transportation.
In a letter dated June 22, 1971 to the Assistant Secre-
tary for Maritime Affairs, Department of Commerce, the
Navy Department certified the plans and specifications
on the same ship design as the BROOKLYN and BAY
RIDGE. In that letter, the Navy Department certified
“that the proposed ships are suitable for the use of the
United States Government in time of war and national
emergency.” The Navy Department suggested certain
features to enhance the suitability of the tankers, which
subsequently were included in the plans. On July 3,
1973, the Navy Department approved the plans for the
design of the two ARCO VLCCs, and certified that they,
too, were suitable for use by the government in time of
war or national emergency. The Navy again suggested
certain features that were in accordance with Military
Sealift Command standards. That letter also noted that
the design did not meet basic environmental standards
expected to be established for oil transport vessel, and,
thus, the Navy requested that the final contract plans
and specifications be resubmitted to the Navy for review.
Those plans were subsequently resubmitted to Navy, and
received their approval. Thus, the CDS-built VLCCs
were built with the approval of the Navy as suitable for
use by the government pursuant to section 501 of the Act.
Further, the word “suitable” as used in section 101(d)
of the Act, (i.e., “(d) composed of the best equipped,
-
68a
safest and most suitable types of vessels, constructed in
the United States and manned with a trained and effi-
cient citizen personnel, and ...”) is not limited to suit-
able vessels for use in time of war or national emergency
or for economical and speedy conversion into naval or
military auxiliary. The word also addresses the suit-
ability of vessels for commercial trading purposes. Other-
wise section 101(a) of the Act loses its meaning and
section 101(b) becomes redundant.
MARAD has historically employed the term “suitable”
in referring tu vessels that meet the requirements set out
in section 211(c) of the Act. Thus, the formal findings
which are made by the Maritime Administrator in his
determination as to whether vessels meet the require-
ments of section 211(c) employ the word “suitable.” As
used by the Maritime Administrator in this context
“suitable” refers primarily to commercial characteristics
as described in section 211(c) which would enable a ves-
sel to operate efficiently in commercial operations.
Further, the legislative history to the Act indicates
that “suitable vessels” include those that are “modern”
and “mobile,” * “properly equipped,” and “of adequate
speed and efficiency” * with “reduced fuel consumption.” ®
The legislative history further acknowledges that “larger
and faster ships might be more efficient, not only in de
veloping foreign commerce, but also more desirable as
naval auxiliaries.” '°
MARAD acknowledges the importance of the national
defense objective of the Act, which is clearly an essential
7 House Report No. 1277, The Merchant Marine Bill 1935, 74th
Cong., Ist Sess. 7 (1935).
8 House Document No. 118, 74th Cong., 2nd Sess. 35 (1935).
® See, e.g., Hearings on S. 2582, Merchant Marine Act, 1935,
Committee on Commerce, United States Senate, 74th Cong., 1st
Sess. 120 (1935).
10 Senate Report No. 1721, 74th Cong., 2d Sess., April 3, 1936.
69a
feature of the Act.’' Since the four VLCCs have been
certified by the Navy as being useful to the government
in times of war or national emergency, MARAD believes
that they are “suitable” vessels as defined by the Act and
its legislative history.
b. Well-Balanced Fleet
(i) Several commenters also argued that the domestic
fleet will not be well-balanced under this rule, but will
be top-heavy with VLCCs at expense of 12 handy-sized
tankers. Other commenters believed that VLCCs are
necessary to provide a combination of types of ships for
the varied segments of the domestic oil trade.
The preamble to the Act states that the Act is intended
to “further the development and maintenance of an ade-
quate and well-balanced American merchant marine, to
promote the commerce of the United States...” MARAD
believes that this rule furthers those goals and that to be
well-balanced, the U.S. fleet must be composed of a mix
of vessels that are suitable for serving particular trades.
While VLCCs are more suitable than smaller, handy-
sized tankers for the long-haul, high volume crude oil
trades, e.g., Valdez-Panama, handy-sized tankers (i.e.,
approximately 27,500 DWT) are better suited than
VLCCs for U.S. coastwise trades.
During 1986, all Jones Act VLCCs were employed in
the ANS-Panama and ANS-West Coast crude trades.
Such temporary lay ups can be attributed to seasonality
of the coastwise product trades. Thus, the current Jones
Act tanker fleet, including the repayment VLCCs, ap-
pears to have an adequate mix of VLCCs and smaller
tankers to serve the long-haul crude oil trades as well as
the highly seasonal coastwise trades. In fact, allowing
the four VLCCs to remain in the domestic trade makes
the domestic fleet better balanced than it would be with-
out these vessels in the trade. Without the four VLCCs
11 House Report No. 1950, 75th Cong., 3rd Sess., 13 (1976).
70a
being employed full-time in the Alaskan oil trade, it is
likely that there would not be sufficient small tanker
capacity available to meet peak seasonal demand in the
upeoast (U.S. Gulf/East Coast) trade.
Further, only six percent of the domestic tanker dead-
weight tonnage (a total of twelve tankers of 649,609
DWT) were in long-term lay-up or temporarily idled as
of February 19, 1987. Of those, three tankers (totaling
146,600 DWT) are over 20 years old. The remaining
nine tankers include the PRINCE WILLIAM SOUND
(123,400 DWT) which was in repair, and smaller tank-
ers that could serve in the Alaska-Panama trades, al-
though at much higher cost per ton delivered than the
VLCCs currently operating in that trade. As of May 12,
1987, there were 23 inactive U.S.-flag domestic tankers.
Of these, seven (312,000 DWT) were laid up, 14
(636,600 DWT) were temporarily idled and two
(204,000 DWT) were casualties. The PRINCE WIL-
LIAM SOUND recently was chartered for six months,
the ASPEN was repaired and is scheduled for loading in
Valdez on June 12, 1987. The Navy has announced it
will purchase the SPIRIT OF LIBERTY for the Reserve
Fleet. The CHESAPEAKE has been approved for for-
eign transfer. The remaining tankers could be sufficient
to offset the loss of the three latest CDS-repayment
VLCCs from the ANS-Panama trade, although at a much
higher cost per delivered ton of crude oil. However, if
the repayment VLCCs were removed from the Valdez-
Panama trade, and replaced by laid-up tonnage, there
would be severe shortages of tanker services (at least
through 1989) to meet seasonal peak demands in domes-
tic petroleum trades.
Comparing the February lay-up list to the May list
shows an addition of 11 ships.’* Some of this increase
12 Tankers of less than 8,000 DWT and chemical tankers were
not included in calculating these figures. The RLA lists the laid up,
idle, and casualty tankers as of May 22, 1987.
7la
can be attributed to the delivery of the 209,000 DWT
EXXON LONG BEACH as there has been little change
in the employment of the four CDS-repayment VLCCs
during this period. Although the BAY RIDGE has re-
cently been laid up, MARAD believes there are still ade-
quate employment opportunities in the Valdez-Panama
trade. (See RIA).
(ii) Shell Refinery and Marketing Company com-
mented that the domestic fleet will not be well-balanced
with the four VLCCs in the trade. The basis for this
contention was Shell’s statement that it was given con-
tractual notice of terminaiton of their subcharters for
the B.T. ALASKA and B.T. SAN DIEGO, two VLCCs
-which will be idled as of August 4, 1987. Shell argued
that its two proven “most suitable” tankers and other
Jones Act vessels will be unemployed and _ possibly
scrapped in order to accommodate and reward those who
unwisely invested in CDS vessels.
While some realingments of the tanker fleet has oc-
curred following CDS repayment, that realignment has
resulted from shippers seeking to charter suitable, cost-
effective tankers (see RIA). That shippers have kept the
four VLCCs and the Shell vessels employed since the four
VLCCs repaid their CDS indicates that they are suitable
for the Alaska-Panama trade. The recent lay-up of the
BAY RIDGE and notice of termination of the Shell ves-
sels’ charters do not necessarily indicate at this point
anything beyond anticipated temporary idle tonnage. It
is reasonable to believe that if in fact these vessels are
among the most suitable tankers, they will be employed
in the future and thus contribute to a well-balanced U.S.
flag fleet.
(iii) Several commenters argued that the rule will
cause the U.S. fleet to be unbalanced on the basis that
the U.S. foreign trade fleet will be less adequate because
the four VLCCs will not operate in that trade.
72a
The U.S.-flag tanker fleet engaged in the foreign trade
will in all likelihood be unaffected by this rulemaking.
The four repayment VLCCs were built for the foreign
trades, but because of changes in the geographic pattern
of U.S. foreign oil trades and continually depressed mar-
ket conditions for VLCCs in foreign trades, U.S.-flag
VLCCs have been unable to compete effectively in these
trades (see RIA and section 1.d.(i) below). If the four
VLCCs were removed from the domestic trade, they
would probably not be employed in the U.S. foreign
trades. They would be laid-up or more likely, eventually
scrapped. The agency has not ignored the objective of
fostering a fleet capable of carrying a substantial portion
of U.S. waterborne export and import foreign commerce,
put the reality is that this rulemaking will not discour-
age or enhance that objective.
ce. Impact on Shipyards and Shipbuilding
(i) Several commenters argued that the rule will have
a negative effect on U.S. shipyards, in opposition to the
goals of the Act. Some commenters stated that CDS re-
payment has already destabilized the domestic tanker
industry and, thus, discouraged shipbuilding. Some com-
menters also believed that the rule will particularly dis-
courage the building of militarily useful handy-size tank-
ers. Other commenters believed that domestic construc-
tion has and will continue to decline, due to factors
other than CDS repayment.
One of the objectives of the Act is to encourage the
development of a merchant marine fleet “supplemented by
efficient facilities for shipbuilding and ship repair.”
While this rulemaking will not actively promote this goal,
it also will not have a significant adverse effect on U.S.
commercial shipbuilding. MARAD acknowledges that fu-
ture shipbuilding prospects with or without this rule do
not appear positive. Even without CDS repayment, as
discussed elsewhere, the growth prospects for the domes-
73a
tic petroleum trades are not sufficient to require the con-
struction of additional tanker capacity.
No orders for the construction of unsubsidized tankers
over 100,000 DWT were placed between April 1976 and
August 1984. On August 27, 1984, EXXON placed an
order for construction of two 209,000 DWT tankers in
the United States for employment in the ANS trade. Two
foreign-flag tankers over 190,000 DWT were rebuilt in
the United States for the ANS crude oil trade in 1981
and 1983 under the Wrecked Vessel Act (46 U.S.C. 14).
Under this Act, foreign-built vessels that are wrecked
off the U.S. coast are eligible to enter the U.S. domestic
trade provided the vessel is purchased by a U.S. citizen
and rebuilt in the United States at a cost that is at least
three times the appraised salvage value. The first vessel,
the OVERSEAS BOSTON (123,700 DWT), was rebuilt
in 1981 and the second vessel, the OGDEN COLUMBIA
(136,000 DWT), was rebuilt in 1983.
Full-time operations of the three additional VLCCs
in the ANS trade following the 1985 rule did not signifi-
cantly affect the total capacity available. VLCC capacity
in the ANS trade following the three most recent pay-
backs is virtually the same as it was prior to the 1985
rule, when six VLCCs operated for several years in the
ANS trade on six-month waivers. In fact, the 1985 entry
stabilized domestic tanker markets because the propor-
tional payback required for waiver did not fully offset
capital cost advantages of CDS tankers, and any suitable
non-CDS tanker could block the granting of a waiver
even if its unemployment was due solely to the insistence
on unreasonable rates.
Removal of the repayment VLCCs from the domestic
trade would not increase construction of militarily use-
ful, handy-sized tanker in U.S. yards for the following
reasons. Because those smaller tankers are not suitable
for ANS-Panama trade, shertages of tanker tonnage in
74a
that trade (following removal of repayment VLCCs)
would probably be met by the granting of six-month
waivers for CDS-built VLCCs, and/or by activating laid
up tankers. However, it is unlikely that new VLCCs
would be built for this trade in any case. In addition to
the high cost of construction and the long lead time be-
fore delivery, the ANS-Panama trade is expected to de-
cline in the 1990s. It is unrealistic to expect any invest-
ment in new tankers for a market in which capital would
have to be amortized over a 5-10 year period. Thus,
allowing the four CDS-Built VLCCs to remain perma-
nently in the domestic Jones Act fleet will have little ef-
fect on the amount of domestic tanker construction.
(ii) The Shipbuilders Council of America asserted that
withdrawal of the rule would have a positive impact
on West Coast ship repair facilities, because smaller
and more numerous tankers presently in lay-up would
replace the VLCCs. These smaller tankers would be re-
paired in domestic yards.
MARAD acknowledges that a few smaller, less efficient
tankers might remain fully employed in the ANS trade
if the four VLCCs were not allowed to remain in the
domestic trade, with some additional repair opportunities
for shipyards. However, many of the laid up tankers
are nearing the end of their statutory useful life and
several are older. Thus, opportunities for ship repair
facilities would decline as these older tankers are
scrapped.
d. Impact on the Foreign Trade Fleet
(i) A number of commenters argued that removing
the four VLCCs from the foreign trade will reduce needed
tonnage in that trade. Other commenters insisted that
the four VLCCs cannot compete in the foreign trade.
One of the goals of the Act is to encourage the devel-
opment and maintenance of a merchant marine sufficient
75a
to carry “a substantial portion of the waterborne export
and import foreign commerce of the United States... .”
46 U.S.C. 1101(a). The Court of Appeals criticized the
previous CDS repayment rule for its “dubious proposition
that the fleet will remain able to carry out ‘a substantial
portion’ of foreign commerce .. . TOC v. Dole, 809 F.2d
at 853 (D.C. Cir. 1987). However, the Court also noted
in a footnote:
It may be, of course, that present conditions in the
world shipping market make it impossible for the Secre-
tary to find a way to meet all of the statutory objectives.
If this a problem, she should discuss it frankly and
directly when she considers which measures to adopt in
light of the objectives explicitly set out in the Act. 7d.
at 854, n.4.
While this rulemaking will provide a domestic tanker
fleet that is: (1) Sufficient to carry the domestic water-
borne commerce of the United States and (2) composed
of the “best equipped, safest, and most suitable types of
vessels,” MARAD acknowledges that it would not increase
or decrease the U.S.-flag share of the water-borne export
and import bulk foreign commerce of the United States.
The U.S.-flag foreign trade tanker fleet currently con-
sists of 26 CDS-built tankers totaling three million dead-
weight tons, including four VLCCs and two ULCCs.
(This excludes the four VLCCs that are the subject of
this rulemaking and three CDS§S-built integrated tub-
barges, but includes two CDS-built ore-bulk-oil carriers
built with CDS.) This tonnage is insufficient to carry a
substantial portion of the U.S. bulk foreign commerce.
The four CDS-built VLCCs and two ULCCs (ultra large
crude carriers) are currently laid up. Only one of the
CDS-built tankers under 100,000 DWT is laid up. Seven
of those tankers are employed in the foreign trade, while
the remaining 12 tankers are under charter to the Military
Sealift Command (6) or are employed in the preference
trades (6) carrying Strategic Petroleum Reserve oil.
76a
While the intent of MARAD’s CDS and ODS programs
was to provide a basis for a U.S.-flag fleet that is suffi-
cient to carry a substantial portion of our bulk import
and export trade, the assumptions of those programs
were not met for VLCC tankers and most of these tank-
ers built under the 1970 program are not competitive in
the international market. Moreover, even with the bene-
fits of CDS, the capital costs of CDS-built VLCCs exceed
those of comparable foreign-built tankers. In addition,
provision for full ODS, as some suggest, would be exor-
bitant, whether it included or excluded capital cost dif-
ferentials. Full subsidy would require approximately $5
million annually per ship. There would be no incentive
for efficient operation and the Government would become
the guarantor of profitable operation. Moreover, the
trade ramifications of such a massive open-ended sub-
sidy could prove totally counterproductive at a time when
the United States is seeking to remove other anticom-
petitive trade measures by our trading partners. The
United States is neither required to make such expendi-
tures nor would it be sound policy.
The United States currently imports approximately
6.0 million barrels per day of crude oil and refined prod-
uct, of which only three percent is carried on U.S.-flag
tankers. Further, a substantial portion of our crude oil
imports—approximately 45 percent—is received from
nearby sources including Canada, Mexico, Venezuela and
the Caribbean region. The CDS-built VLCCs are unsuit-
able for these nearby import trades. Approximately 32
percent of U.S. crude oil imports are received from the
distant Arabian Gulf and North Sea regions for which
VLCCs would be suitable. (However, as noted below,
U.S. ships cannot compete profitably in that trade.) In
contrast, ten years ago U.S. crude oil and refined product
imports averaged 8.8 million barrels per day. Only 14
percent of our crude oil imports were received from
nearby sources while over 40 percent of our oil imports
77a
were received from the Arabian Gulf and North Sea
regions.
During the last year, there has been an increase in
oil exports from the Arabian Gulf region and a corre-
sponding rise in demand for VLCCs in the international
trade. Despite this increase, it is unlikely that the U.S.-
flag share of U.S. oil imports would increase, due to an
oversupply of tonnage in the world tanker fleet and the
higher cost structure for U.S. tankers.
According to the Tanker Review in the May 1987
Lloyd’s Shipping Economist, “tanker owners’ hopes for a
more sustained period of improvement have quickly
evaporated. Once again they are suffering the conse
quences of a sharp but transitory upturn in the demand
for tankers. This had effectively halted the process of
overall fleet contraction during 1986 and actually caused
an increase in the size of the active oil carrying fleet
during the year, so that the subsequent downturn in oil
liftings left the market severely overtonnaged and, by
March 1987, charter rates for most vessel categories had
fallen back to the distressed levels witnessed during the
early 1980s.” The International Association of Independ-
ent Tanker Owners (Intertanko) warned in its 1986 an-
nual report that the severe imbalance in the world’s
tanker market could worsen over the next couple of
years unless the rate of scrapping accelerates. Inter-
tanko, whose members account for about 70 percent of
the world’s independent tanker fleet, notes that last
year’s newbuilding orders at 11.5 million DWT reached
the highest level since 1979 and that by the end of 1988,
the tonnage surplus is projected to rise to about 30 mil-
lion DWT if the rate of demolition does not increase.
The amount of idle capacity in the over 200,000 DWT
size class represents more than 26 percent of the avail-
able tonnage in that class. Therefore, given the relative
higher operating costs for U.S.-flag tankers and the
78a
amount of idle tonnage over 200,000 DWT in the world
fleet, it is very likely that the four VLCCs that are the
subject of this rulemaking would be laid up or scrapped
if they are required to leave the domestic trade.
In fact, of the nine VLCCs and two ULCCs built with
CDS under the 1970 program, none has had any sig-
nificant employment in the foreign commercial trades,
other than occasional shipments of oil to the Strategic
Petroleum Reserve, which are reserved to U.S.-flag car-
riage. The BAY RIDGE, which repaid its CDS in 1980,
has been operating actively in the domestic trade since
that time, as has the STUYVESANT. The other three
VLCCs operated in the domestic trade regularly under
six month waiveis under Part 250 (a total of 17 times
since 1978) and a full-time basis since they repaid CDS.
Thus, the deployment of these four VLCCs to the domes-
tic trade would have no impact on U.S.-flag tanker pres-
ence in foreign trades. If anything, by precluding their
scrapping, the rule enhances the possibility, concededly
remote, that the vessels could be used in the foreign trade
if market conditions change.
The D.C. Circuit criticized the statement in the pre-
amble to the 1985 rule that, while the rule would not en-
hance U.S. participation in the foreign trade, the repay-
ing vessels would be available if opportunities should
arise in that trade. The court was of the view that if
total U.S. tonnage decreased to the level required by the
domestic trade as a result of the rule, there would not
be capacity available to carry a “substantial portion” of
foreign oil. 809 F.2d at 853. However, it is not CDS
repayment that is causing or hastening the “natural
tendency” of the fleet to shrink to the level required to
serve the domestic demand, it is the dearth of profitable
opportunities in the foreign trade due to factors un-
related to CDS repayment.
(ii) Some commenters disagreed with MARAD’s as-
sessment that the four VLCCs could not compete in the
79a
foreign trade. These commenters argued that there were
opportunities for U.S.-flag VLCCs in foreign trade in
1986. The comments of American Trading Transporta-
tion Company, Inc., and others contended that the four
VLCCs could be competitive in the foreign trade by using
the refund of money they used to repay CDS to subsidize
their vessels in the foreign trade until international mar-
ket conditions improved. Further, a commenter stated
that ARCO and American Petrofina could use a portion
of these funds to re-engine their VLCCs from steam to
diesel, which would result in savings in fuel oil consump-
tion and manning costs, thus reducing the operating cost
differential between the ARCO and foreign-flag VLCCs.
The breakeven rate for the ARCO VLCCs in the
Persian Gulf-U.S. Gulf trade, the predominant market
for VLCCs in U.S. foreign trade, is $10.75/long ton or
WS 66 fully loaded, excluding capital costs; or $12.65/
long ton or WS 78, including capital costs.
The highest publicly reported voyage fixture for
200,000-300,000 long ton shipments in the Persian Gulf-
U.S. trade in 1986 was $7.70/long ton or WS 47.5
(Lloyd’s Maritime Data Network), well below the break-
even rate excluding capital cost for the ARCO VLCCs in
that trade. American Petrofina (which charters the
BROOKLYN) in its comments calculated that it would
incur annual operating losses of $6-6.7 million per ship
to engage in the foreign trade, in addition to $6 million
for charter hire which is payable even if the ship is not
employed. Since it would cost approximately $8 million
to lay up one of its ships, American Petrofina stated that
it would not be likely that its ships would enter the
foreign trade. Thus, it appears that the repayment
VLCCs would have generated substantial operating losses
if they had operated in U.S. foreign trades in 1986.
MARAD believes that, even if it refunded the CDS
payback money, it could not force those that repaid to
80a
use the money to re-engine their VLCCs. In repaying
their CDS, the VLCC owners made the business decision
that they could operate their tankers more profitably,
even in light of the cost of repayment, in the domestic
trade than in the foreign trade. Even if the VLCCs were
re-engined, their operating and capital costs would be
higher than that of comparable foreign-built VLCCs.”
The oversupply of VLCCs in the world market has re-
sulted in rates that could not possibly compensate the
four VLCCs for their costs. (American Petrofina pre-
dicted it would incur annual operating losses of $6 to
$6.7 million per ship to engage the foreign trade.) Fur-
ther, as American Petrofina noted, not one of the four
VLCCs has had a single commercial foreign trade voyage
in the last six years.
Hence, MARAD continues to believe that allowing the
four VLCCs to remain in the domestic trade is the best
option for their continued viable operation. To force the
four VLCCs out of that trade would not enhance U.S.
participation in the foreign trade and will not further
any of the other objectives of the Act.
(iii) A number of commenters believed that the rule
will hurt the existing foreign fleet, i.e., those non-pay-
ing CDS VLCCs, by eliminating their main source of em-
ployment in the domestic trade (through six-month
waivers).
Full-time employment of the repayment VLCCs may
have eliminated a source of employment, i.e., six-month
waivers, for non-repaying CDS VLCCs. However, under
Part 250 employment of the non-repaying CDS VLCCs
in the ANS trades may have otherwise been blocked by
an “unemployed” non-CDS tanker. Furthermore, under
13 If the vessels could have been operated profitably in the foreign
trade following re-engining. It is reasonable to presume that their
owners would have taken that step prior to the 1986 rule, rather
than allow the ships to remain idle at least six months each-year.
8la
the 1985 CDS repayment rule, all CDS-built tankers were
afforded the opportunity to permanently enter the do-
mestic trades in exchange for repayment of CDS plus
interest. Those non-repaying tanker owners have no basis
to now complain that they are adversely affected by their
failure to take that opportunity.
Moreover, as of April 10, 1987, three CDS-built VLCCs
originally owned by Seatrain (NEW YORK. MARY-
LAND, MASSACHUSETTS) were turned over by bank-
ruptcy court order to MARAD following MARAD’s hon-
oring of loan guarantees under Title XI of the Act fol-
lowing Seatrain’s defaults. Seatrain no longer has any
interest in operating those VLCCs. The only other CDS-
built VLCC that did not repay is the WILLIAMSBURG
operated by American Petrofina, which is not complaining.
e. Impact on the Domestic Fleet
Some commenters argued that CDS repayment has
caused overtonnaging in the domestic fleet. Other com-
menters supported MARAD’s assessment that the rule
would benefit the domestic fleet overall.
(i) Forecast of Alaskan Tanker Capacity. MARAD
believes that CDS repayment rule has not caused over-
tonnaging in the domestic trade, but has stabilized the
trade by allowing permanent entry of a limited number
of suitable tankers into the ANS trade instead of the un-
certainty of six-month waivers for an uncertain number
of VLCCs. Prior to the three post-1985 paybacks, six
VLCCs for several years operated in the ANS trade on
six-month waivers, representing the equivalent of three
full-time operating VLCCs. Moreover, the BAY RIDGE
has been operating in that trade since 1980.
In fact, despite a sharp decline in the upcoast pe-
troleum products trades from 1984 to 1985, laid up do-
mestic tanker tonnage has declined, in part due to high
levels of tanker scrappings in 1984-86 as a result of the
82a
Port and Tanker Safety Act (PTSA). The PRINCE
WILLIAM SOUND and the ASPEN are laid up as a
result of casualties, not because of lack of employment op-
portunities. Four of the inactive tankers, the NEW YORK
(an integrated tug/barge), JACKSONVILLE (integrated
tug/barge), FREDERICKSBURG and CHARLESTON
are under long term charter to Amerada Hess. The
Navy has announced it will purchase the SPIRIT OF
LIBERTY for the Reserve Fleet. The CHESAPEAKE
has been approved for foreign-flag transfer.
Of the remaining four tankers, all are more than 20
years old. The aggregate capacity of these four tankers
(156,000 DWT) would not be sufficient to cover the loss
of one VLCC in the event of a casualty. (A more com-
plete discussion of the “bumping” process that could im-
pact the domestic fleet is set out in the RIA at p. 31 and
in section 1.F. below.)
Further, as of May 1987, there were 50 U.S.-flag tank-
ers (with domestic trading privileges) over 20 years old.
The aggregate capacity of these ships was 1.8 million
DWT. This capacity is likely to be subject to greater
maintenance requirements, i.e., out of service time, in
the future. Some will likely be scrapped. Thus, the ca-
pacity of the domestic tanker fleet is expected to fall
sharply in the late 1980s.
A further relevant consideration is that the repayment
VLCCs have significantly lower cost per ton-mile than
smaller tankers in the Valdez-Panama trade. If the pay-
ment VLCCs were removed from the Valdez-Panama
trade, the total marine cost of transporting ANS crude
oil would rise by approximately $386-$542 million. With
resulting higher rates, cargo might be diverted from
tankers to pipelines, i.e., All American and Four Cor-
ners pipelines, thus reducing tanker employment in the
Valdez-Panama trade as well as the Panama-Gulf/ East
Coast trades.
83a
ii. Forecast of Alaska Crude Oil Production and Dis-
tribution. The demand for tankers in the ANS trade in
1987 is expected to be 6.1 to 6.2 million DWT of which
2.7 to 2.8 million DWT will be in the Valdez to Panama
trade. Production is expected to decline after 1989, thus
reducing tanker demand in all segments of the ANS
trade (RIA, Appendix VI).
As long as there is sufficient demand in the Alaska-
Panama trade, MARAD expects that the VLCCs will
continue to be employed in that trade. MARAD does not
expect that they will be employed in the West Coast seg-
ment of the ANS trade if demand in the Valdez-Panama
trade is insufficient to support all four VLCCs, given port
constraints and the higher costs of lightering or operat-
ing the ships light loaded. (Although MARAD is aware
that the BAY RIDGE did make one trip to Los Angeles
in May 1987 light loaded at 160,000 tons recently, that
was an unusual circumstance. )
While ANS tanker loadings have increased from 629
thousand barrels per day in 1977 to 1,788 thousand bar-
rels per day in 1986, loadings are expected to fall after
1989, due to a decline in ANS production (RIA Table
II-1).
The opening of the All American Pipeline in 1988 will
likely further dampen the demand for VLCCs in the
Valdez-Panama trades. The pipeline will have a capacity
to move 300,000 barrels per day of either California or
ANS crude oil from Southern California to the Texas
Gulf. To the extent that ANS crude oil is shipped
through the pipeline or more ANS crude oil is shipped
to California to replace California crude, less oil will be
shipped from Valdez to Panama.
Another factor which may reduce the demand for
U.S.-flag tankers in the ANS trades in the early 1990’s
is the potential construction of a 105,000 barrel per day
(rated capacity) refinery at Valdez by Alaskan Refining,
84a
Inc. Products from the refinery may be transported
abroad on foreign-flag tankers, thus reducing Valdez
loadings for U.S.-flag tankers. The only possible fore-
seeable offsetting trend is the development of new oil
fields, such as the Arctic Wildlife Reserve. Such de-
velopment is extremely speculative.
f. Effect on the Naval Auxiliary
Some commenters contended that this rule will cause
a displacement of handy-sized tankers, which are useful
for the naval auxiliary. Others argued that there was
no evidence that any tanker will be displaced by the four
VLCCs.
One of the objectives of the Act is to foster the de-
velopment of a merchant marine fleet “capable of serv-
ing as a naval and military auxiliary in tinie of war
or national emergency ....” 46 U.S.C. 1101(b).
MARAD has considered the effect on the naval aux-
iliary of allowing the four VLCCs to remain in the do-
mestic trade (see Regulatory Impact Analysis). MARAD
believes that up to six handy-sized militarily useful tank-
ers may possibly be displaced as a result of this rule.
Market conditions and statutory requirements have con-
tributed to a reduction in the number of U.S.-flag product
tankers, including a declining upcoast petroleum trade
(the principal market for U.S.-flag product tankers), the
opening of the Trans-Panama Pipeline in 1982, and the
anti-pollution standards of the PTSA.
As a result of these factors, 41 tankers, of the type
considered highly military useful, were scrapped over a
three year period from 1984 through 1986 (see RIA.
Appendix 1). All had exceeded their statutory life of 20
years (see RIA, Appendix 1). The average age of these
tankers was 34 years. Further, the 1978 PTSA set cer-
tain anti-pollution requirements for tankers entering
United States waters. By January 2, 1986, crude oil
85a
tankers between 20,000 and 40,000 DWT were required
to have segregated ballast tanks or a crude oil washing
system, and product tankers between 20,000 and 40,000
DWT were required to have segregated ballest tanks or
dedicated clean ballest tanks. To comply with the PTSA
requirements, tanker owners had the option of retrofit-
ting existing systems, reducing load lines (so as to carry
less than 20,000 DWT), using port reception facilities
under a specific trade exemption, scrapping, or changing
the tanker’s service. Due to the cost of retrofitting and
resulting loss of cargo capacity, and the inherent limita-
tions of reducing load lines or obtaining a specific trade
exemption to use port reception facilities, many tanker
owners scrapped their older, less efficient vessels. The
PTSA served to speed up the natural process of scrapping
that occurs when tankers exceed their useful life.
Of those 41 that were scrapped, 25 were scrapped in
1984, nine in 1985, and seven in 1986. The vast ma-
jority of those lacked some or all of the anti-pollution
features required by the PTSA. Of the seven scrapped
in 1986, four lacked PTSA features. The average age
of those tankers was 35 years.
These figures indicate that the scrapping that has oc-
curred in the past three years is not attributable to CDS
repayment but rather to the age of the vessels, their in-
ability to economically retrofit to satisfy PTSA require-
ments and poor market conditions. Since the effective date
of the PTSA requirements (January 2, 1986), the num-
ber of product tankers scrapped has declined. MARAD
believes that this decline in scrapping will continue, since
the oldest, least efficient tankers have already been
scrapped. In addition, since the enactment of the PTSA,
a number of new product tankers have been built.
Further, any effect that the four VLCCs would have
on the handy-sized tankers would be indirect, unlike the
above factors. VLCCs generally do not compete with
these smaller tankers in the same trades. As discussed
86a
above, VLCCs have historically served the Alaskan-Pan-
ama trade, and smaller tankers serve the Panama Gulf/
East Coast trades. While a mix of vessels served the
West Coast, the four VLCCs have not entered that trade.
The BAY RIDGE made one trip to Los Angeles in May
1987. Thus, any effect the VLCCs may have on the
smaller tankers would be through an indirect displace-
ment. That is, the VLCCs, being more cost-effective, may
“bump” other large tankers that could serve the Alaska-
Panama trade. In turn, these large tankers could op-
erate in the West Coast and Panama Gulf trade, picking
up oil that could have been carried by smaller tankers.
A trend in this direction is indicated by Table III-2 in
the Regulatory Impact Analysis. However, such “bump-
ing” effects are much more remote than the effects of
the PTSA, the Trans-Panama Pipeline, and declining
market conditions, over which MARAD has no control.
Moreover, the current goal of the Navy is to increase
the number of tankers in the Ready Reserve Force from
eight to twenty by the year 1992. This makes it more
likely that if militarily useful tankers became commer-
cially unattractive, the Navy will be able to purchase
these vessels for military support. In a letter dated June
10, 1987, the Department of the Navy stated its support
for the Department of Transportation’s position in its
rulemaking. That letter has been placed in the docket.
g. Impact on Employment of U.S. Seamen
Many seamen and others commented that from 600-
900 jobs will be lost due to CDS repayment. Others ar-
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.