# Appendix — Independent U. S. Tanker Owners Committee v. Skinner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1017%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1990 - **Citation:** 495 U.S. 904 ## 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. 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- gued that no jobs will be lost due to CDS repayment. MARAD predicted in the draft RIA that 600 seamen’s jobs could be lost due to CDS repayment. The lost jobs related to the 12 Jones Act tankers (employing approxi- mately 600 seamen) then laid up. For reasons explained in the final RIA MARAD believes only possibly six tank- ers might be displaced. (However, this possible loss would 87a be offset by employment of the four VLCCs.) The possi- ble displacement of six tankers would result in the po- tential loss of 300, with a net loss of approximately 106 jobs if the four VLCCs were laid up (and a net loss of 225 jobs considering possible section 506 waivers to the four VLCCs.) However, MARAD believes that this rule is only one of many factors contributing to the tanker lay ups. MARAD believes that the direct effects of the rule will further other important objectives of the Act, and counterbalance any possible indirect negative effects on employment. 2. Employment Prospects for the Four VLCCs in the Domestic Trade Several commenters disagreed with MARAD’s predic- tions for domestic employment prospects for the four VLCCs. ARCO argued that employment prospects apeared positive. Employment prospects for the four VLCCs in the ANS trade appear to be positive at least for the near future. It is with this near future in mind that these vessels re- paid their CDS. Domestic trading restrictions for CDS- built vessels are lifted at the end of their statutory life (i.e., 20 years)..* The ARCO INDEPENDENCE and ARCO SPIRIT were built in 1977, the BROOKLYN in 1973, and the BAY RIDGE in 1979." Since no new tankers are on order, and prospects for newbuildings seem unlikely, these four VLCCs are among the most suit- able vessels for the Alaska-Panama trade. If the four VLCCs remain in the domestic trade, there will be an adequate supply of suitable tonnage to carry oil in that 14 See Senate Report No. 28 (79th Cong., Ist Sess. July 9, 1965). 15 Even without the present rulemaking, these vessels would be allowed to enter the domestic trade at the end of their 20 year useful life. Thus, the effects of this rulemaking would expire in the mid to late 1990s. 88a trade even if other older tankers are scrapped and if no new tankers are built. If the four VLCCs were removed from the domestic trade, a shortage of the most suitable tonnage in the Alaska-Panama trade would occur, necessitating the en- trance of smaller, less suitable tankers in that trade, and would also likely result in those VLCCs being laid up, since they are unable to compete in the foreign trade. In conclusion, as far as can reliably be foreseen, the continued employment in the Alaskan oil trade for the four VLCCs that repaid CDS would benefit the U.S. domestic waterborne commerce by providing vessels that are most suitable for the Alaska-Panama oil trade and by providing an employed, well-balanced merchant marine. 3. Environmental Impacts a. Qil Spill Risk (i) Several commenters stated their concern that the four VCCLs would “bump” safer, smaller vessels that serve the West Coast trade and introduce and allow the increased operation of VLCCs between Alaska and Cali- fornia, resulting in more vessel traffic, reduced fishing vessel safety and increased risk of a large oil spill. Adoption of the rule is not expected to introduce CDS- built VLCCs to the West Coast trade. The only instance of one of the VLCCs calling at the West Coast is the BAY RIDGE, which called at Los Angeles light-loaded in May 1987. The VLCCs that repaid and that are op- erating pursuant to that repayment operated regularly, before issuance of the 1985 rule, in the Valdez to Panama trade under the six month waiver process. Tanker routes between Valdez and Panama have not changed since the preparation of the 1985 EA (Environmental Assessment) that accompanied the 1985 CDS rule."* 16 MARAD is aware that Exxon took delivery of two non-CDS 209,000 DWT tankers in November 1986 and April 1987 and they 89a The proposed rule and the draft RLA predicted that smaller vessels in the Valdez-to Panama trade would be “bumped” to shorter haul trips for the West Coast. They would not be bumped from West Coast trade or replaced in that trade by CDS-built VLCCs. However, MARAD believes that the distribution of tonnage employed in the domestic trade will not change substantially if the four VLCCs are allowed to remain in the trade. In addition, the CDS VLCCs are safe as they are equipped with a variety of safety and environmental fea- tures which meet or exceed Coast Guard and MARPOL 73/78 safety and oil pollution standards for vessels of this type (see EA). The CDS-built VLCCs will operate far offshort pri- marily in the long-haul Valdez to Panama trade with smaller vessels plying the shorter haul Valdez to West Coast trade. The risk of oil spill is greater in port than at sea. The total number of trips and port calls would decrease due to the larger carrying capacity of the VLCCs, thus reducing the overall risk of any accidental oil spill. (ii) Several commenters argued that despite contrary predictions in the NPRM and the EA that fewer VLCCs would make fewer voyages, there remains the danger of a VLCC collision that would create a larger oil spill than that made by smaller tankers. If the four VLCCs are removed from the ANS trade, a larger number of smaller tankers will operate making more voyages with more risk of collision than the VCCLs which are fewer in number and make fewer voyages and port calls. While the largest potential spill in the ANS trade would be from the collision of a VCLL transport- ing crude oil from Valdez, the maximum credible oil spill are designed to call at Los Angeles fully loaded; however, their operations are unrelated to this rule. 90a would result from a rupturing of the vessel’s wing tanks containing 10-13 percent of the cargo according to a Coast Guard Final Environmental Impact Statement (U.S. Coast Guard Final Environmental Impact State- ment, Texas Offshore Port). Such a maximum credible oil spill would remain the same even if the four VLCCs were not permanently in the domestic trade since foreign- flag VLCCs will continue to operate in the ANS trade (Valdez to Virgin Islands), as would the STUYVESANT and any CDS VLCCs allowed under six-month permis- sions. b. Coastal Zone Management Act and Endangered Spe- cies Act Several commenters contended that the consultation requirements of the Coastal Zone Management and En- dangered Species Acts have not been complied with by MARAD and that the rule would result in the endanger- ment of certain species of animals (e.g., sea otters and whales) and “habitat deregulation.” As for compliance with the Endangered Species Act (16 U.S.C. 15386(a)(2)), MARAD continues to believe that this regulatory action is not likely to affect any species listed under the Endangered Species Act and re- sult in the destruction or modification of critical habitat. However, MARAD has requested informed consulation with both the National Marine Fisheries Service and the Fish and Wildlife Service on the impact of the rule. The DOT sent a letter dated June 17, 1987 to the National Marine Fisheries Service (Department of Com- merce) again requesting concurrence in its determination that the rule is not likely to affect a species or modify a species habitat under the Endangered Species Act. This letter follows a previous letter dated May 21, 1987 from the MARAD Administrator also requesting concurrence. The Fish and Wildlife Service (Department of Interior) concurred by letted dated June 16, 1987. leaner 9la The Coastal Zone Management Act (16 U.S.C. 1462 ei seq.) requires that “when conducting or supporting ac- tivities directly affecting the coastal zone,” an agency should strive to the ‘maximize extent practicable” to act in consistency with state coastal management programs. Certain commenters argued that, under this Act, MARAD should consult with the California Coastal Commission. Again, MARAD does not believe, as it stated in the EA, that there will be a direct effect on the coastal zone of any state as the result of promulgation of this rule. The rule will not result in physical alteration of the coastal zone or initiate a chain of events that would lead to al- teration of the coastal zone. Hence, MARAD does not believe that any consultation is necessary. The four VLCCs at issue have historically served the Alaska-Pan- ama trade, not the coastal trades and are expected to continue that pattern. The rule is not likely to increase traffic by VLCCs over 200,000 DWT in the coastal zones. Moreover, the rule is likely to result in an overall re- duced risk of oil spill. ec. Environmental Impact Statement Some commenters argued that an Environmental Im- pact Statement (EIS) should have been prepared rather than an EA. MARAD did not violate the National Environmental Protection Act (NEPA) by issuing a Finding of No Sig- nificant Impact (FONSI) on the basis of the EA, rather than preparing an EIS, DOT Order 5610.1C, 45 FR 2244 (1980) (as amended) and the Council on Environmental Quality (CEQ) regulations, 49 CFR 1581.4 provide that an EA may be prepared to determine if an EIS should be prepared or if a FONSI may be made. If the EA demonstrates that a “major” action will have a signifi- cant impact on the environment, then an EIS must be prepared, if not then the agency may issue a FONSI. The EA for this rule contains a detailed analysis of the potential environmental effects of the rule which ad- Se 92a dresses all the environmental issues raised by the com- menters, e.g., risk of oil spills, air quality, fuel consump- tion, et cetera. It concluded that the potential impact upon the environment will not be significant. Moreover, the full time participation by these vessels in the ANS- Panama trade is consistent with experience in trade prior to the 1985 rule, in light of the former level of six month permissions. Thus, there will be little if any change in environmental impacts as a result of this rule. In sum, MARAD’s determination to issue a FONSI is reasonable and within its agency‘s discretion. Catine} Mountains Wilderness v. Peterson, 685 F.2d 678, 681 (D.C. Cir. 1982), Sierra Club v. Department of Ti ans- portation, 753 F.2d 120, 126-27 (D.C. Cir. 1985). d. Coast Guard EIS on Puget Sound Some commenters noted that the EIS that the Coast Guard prepared for its Puget Sound rulemaking pre- dicted increase spills with supertanker use. These com- menters see this as contradictory to predictions in the EA. However, the issue for decision in the Puget Sound rulemaking (47 FR 17968; 1982) concerned the admis- sion of 200,000 DWT tankers into an area where the previous maximum was 125,000 DWT. The Coast Guard was concerned that the volume of the maximum credib'e spill from a 200,000 DWT tanker would potentially be considerably greater than that from a tanker of 125,000 DWT and, therefore, increase the potential damage from a major oil spill. Thus, the rule maintained the 125,000 DWT limit. The four VLCCs, along with all vessels over 125,000 DWT, are precluded from entering the Puget Sound under the Coast Guard rule. This CDS repayment rule will not result in the introduction of tankers larger or in greater numbers than those already in use in any location, so there would be no increase in the size of the maximum credible spill. 93a e. Oil Spill Clean-Up Some commenters stated that several factors (dense fogs, rough seas, inadequate and defective equipment) negatively affect the ability of so-called “state of the art” oil spill containment and clean-up equipment to function effectively if there were an oil spill. As for the commenters’ contention that the oil pollution clean-up equipment is inadequate or defective, MARAD reiterates that it does not believe the risk of an oil spiil has been increased by this final rule (the computed overall frequency of predicted oil spill is reduced, and the size of the maximum credible spill is the same). If a spill did occur, the present stock of oil pollution equipment is the only means of spill control and clean-up available. This rule cannot set requirements for efficiency or adequacy for pollution clean-up equipment. Nor would it be appropriate or possible to bar safe vessels from operating in the domestic trade until more effective equip- ment becomes available. f. Lightering Some commenters argued that environmental risks will be increased due to increased lightering. As noted above, it is possible that small Jones Act VLCCs, between 160,000 and 200,000 DWT, may be bumped from the Alaska-Panama trade as a result of this rule. These vessels have drafts which exceed the port and terminal depth limits of some West Coast ports when fully loaded. Sometimes vessels are light-loaded at Valdez when necessary to meet West Coast draft re- strictions. (It should be noted the BAY RIDGE called at Los Angeles light-loaded in May 1987.) Minimal light- ering may have been necessary on the West Coast for vessels with drafte exceeding port depths, particularly at San Francisco. 94a The amount of the increase in lightering on the Gulf Coast does not appear to be significant, as the two 120,000 DWT tankers which are now employed in the Panama-Gulf Coast trade are able to offload at the deep water Louisiana Offshore Oil Port (LOOP). g. Relative Safety of the VLCCs A few comments argued that the four VLCCs are not safer than smaller tankers. ARCO argued that its ves- sels are safer. Allowing the four VLCCs to remain in the domestic trade will further the goal of section 101 of the Act to encourage the development of a fleet composed of the “safest” vessels, As is shown in the EA prepared for this rule, these VLCCs are equipped with a number of safety and pollution control features. The change in oil spill risks for the ANS fleet is expected to continue to improve as more VLCCs and other large tankers replace, where permitted by navigation channel depths. If the four VLCCs were not allowed to remain in the domestic trade, a tonnage shortfall could cause a greater oil spill risk if additional small vessels such as barges were to be employed to compensate for the shortfall. 4. Transportation Savings Some commenters disputed the figures in the NPRM regarding transportation savings. Others believed that large transportation savings would result from the rule. The State of Alaska commented it had done an analysis in 1985 which showed that CDS tankers save 45 percent on average shipping costs over non-CDS tankers. MARAD estimates that the transportation savings re- sulting from CDS repayment will be approximately $386 to $542 million (present value). Appendix III of the RIA shows the transportation savings for the years 1985 through 1989 by trade. The numbers have been revised 95a from the NPRM to reflect transportation savings only for the short-term charters and do not include proprietary or long-term charter rate changes. Appendix V of the RIA shows the rates used to estimate the transportation savings by trade and vessel size. These rates reflect market rates and also include fuel costs. Appendices II and VI of the RIA show West Coast crude supply/ disposition and estimated distributions of ANS crude oil. These numbers reflect the increase in ANS production, a decrease in West Coast production, and a one percent increase in West Coast crude oil demand from the actual 1986 figure, based on comments. 5. Title XI Defaults Several commenters believed that the Title XI defaults resulting from the impact of CDS repayment would be greater than MARAD predicted in the NPRM and draft RIA. Others believed the defaults would be less than predicted. The possibility of five Title XI defaults of $88 million has been revised to one of $16 million based upon the May 12, 1987 lay-up list. Nine of those 23 tankers had Title XI outstanding, but four of them have oil company charters, and three have paid down their Title XI loans to such a small amount that it is unlikely that they will default. MARAD estimates that of the two remaining there is a remote chance that one may default before 1989 and has thus revised Tables VI-3 and VI-4 in the RIA. 6. Promotion of Efficiency and Competition A number of commenters claimed that MARAD’s argu- ments in the preamble of the NPRM regarding efficiency and competition were in opposition to the Court of Ap- peal’s decision vacating the 1985 CDS rule. Other com- menters supported MARAD’s arguments as being within the clear ambit of the Act and that decision, 96a The basis for this present rulemaking is section 101 of the Act. As explained above, MARAD believes that this rulemaking will further the purposes and policies of the Act by providing vessels suitable for the domestic trade, and will encourage a well-balanced domestic fleet. MARAD included a discussion of efficiency and competi- tion in its NPRM in order to show that these reasons, while not the basis for the present rulemaking, do sup- port it, and are justifiable reasons in light of other pro- visions of the Act. While section 101 of the Act establishes the general ob- jectives of the Act, other parts of the Act give more specific guidance on interpretation and implementation of these goals. The Act explicitly and implicitly establishes other policy goals in furtherance of the maintenance and development of the U.S. merchant marine fleet. Among these goals, mentioned in the prior CDS final rule (50 FR 19170), are efficiency and competition. Each of these goals has been recognized by the courts as valid policies for promoting the U.S. merchant marine fleet. A. Efficiency. The goal of efficiency of the fleet is mentioned throughout the Act. Among the express goals of section 101 is that the merchant marine shall be composed of “suitable” vessels manned by “efficient” crews. Certainly, the idea of “suitable” vessels encom- passes efficiency as a principal component. The goal of efficiency is reflected in the legislation establishing the CDS program, which is designed to pro- duce vessels of “high transport capability and produc- tivity.” Merchant Marine Act, 1936, as amended, sec. 501 (46 U.S.C. App. 1151. Other provisions in the Act are intended to promote fleet modernization. Under sec- tion 213, the Secretary is required to report to Congress annually on the scrapping of old vessels, and the relative cost of ship construction and reconditioning in U.S. ship- yards. The Secretary’s authority to acquire obsolete ves- sels for an allowance of credit under section 510(b) is 97a intended “to promote construction of new, safe, and effi- cient vessels to carry the domestic and foreign water- borne commerce of the United States... .” In addition, the Department of Transportation author- ization statute further declares it to be an overriding purpose that national transportation policies and pro- grams be “conducive to the provision of fast, safe, effi- cient, and convenient transportation at the lowest cost consistent therewith... .” 40 U.S.C. 1101. Any am- biguity in the Merchant Marine Act regarding the goal of promotion of efficiency is resolved in favor of that goal through the purposes and policies established in the De- partment’s statute. Jd. In addition to these explicit statutory provisions pro- moting efficiency of the U.S. merchant marine fleet, sev- eral recent court decisions have affirmed that one objec- tive of the Act is to encourage modernization and effi- ciency. For example, the Supreme Court’s decision con- firming the Secretary’s statutory authority to grant permanent release to vessels under CDS restrictions found that a basic goal of the Act was to encourage the main- tenance of an “effective merchant marine” with a “fleet [that] was to be modern and efficient.” Seatrain Ship- building Corp. v. Shell Oil Co., 444 U.S. 572, 584 (1980). Further, the D.C. Circuit recently described the first goal of the Act as promoting “a well-equipped and efficient merchant fleet.” American Trading Transportation Co. v. United States, 791 F.2d 942, 944 (D.C. Cir. 1986) ; see also Sea-Land vy. Dole, 723 F.2d 975, 976 (D.C. Cir. 1983). The above statutory provisions and judicial interpre- tations strongly support the goal of promoting efficiency and modernization of the U.S. merchant marine fleet. These goals will be furthered by this rulemaking, which will allow the four VLCCs, which are among the most efficient U.S. tankers in the fleet, to remain active. 98a B. Competition. While the Act does not explicitly list competition as one of its goals, the promotion of competi- tion in the foreign and domestic trades is implicit in the Act. The Act’s ODS and CDS programs are intended to give the U.S. merchant marine fleet certain financial resources to cempete with lower-cost foreign fleets while not guaranteeing any profit. In particular, Congress made this objective clear in enacting the Merchant Marine Act of 1970, which extended those programs to the unregulated bulk trades. See Merchant Marine Act, 1936, 663(b), 40 U.S.C. 1773(b); H. Rep. No. 1073, 91st Cong., lst Sess., 36 (1969). Nor is the Jones Act trade immunized from competi- tion within that trade. That is, the Act restricts competi- tion in the Jones Act trade only to the extent necessary to protect unsubsidized U.S. operators from unfair com- petition from vessels that receive financial assistance (such as ODS and CDS). In the domestic trade, the Secretary has a duty “to minimize interference with the free market forces normally at work. .. .” ITOC Vv. Lewis, supra, 690 F.2d at 917. In its seminal case on the relation between the foreign and domestic trades, the D.C. Circuit stated that “com- petition is not ‘unfair’ within the meaning of the Act when it does not involve diversion of money to unsub- sidized domestic operations from subsidized foreign op- erations, to the disadvantage of an unsubsidized oper- ator. Congress plainly did not intend to prevent that sort of competition.” Pacific Far East Line, Inc. v. Federal Maritime Board, 275 F.2d 184, 186 (D.C. Cir. 1960). Other courts have likewise recognized the overriding pub- lie policy in favor of competition in the domestic trade and in national transportation policy. See e.g., Matson Navigation Co. v. Connor, 259 F. Supp. 144, 158 (N.D. Cal. 1966), aff'd per curiam, 394 F.2d 514 (9th Cir. 1968): Bowman Transportation Inc. v. Arkansas-Best Freight System, Inc., 419 U.S, 281, 198-99 (1974). 99a Finally, the Supreme Court made clear its preference for fair competition (as opposed to regulated entry under six month permission) in its decision confirming the Sec- retary’s authority to accept permanent repayment in Sea- train Shipbuilding Corp. v. Shell Oil Co., U.S. 572, 589- 99 (1986) : Section 506 ... permit[s] a vessel that enjoys the benefits of CDS to operate outside the foreign market only in narrow circumstances, generally upon a highly discretionary administrative decision, and no more than six months a year. And we have no doubt that it would be flatly inconsistent with one congressional intent were the Secretary or this court to conclude that a temporary release not meeting these conditions was proper. But a permanent re- lease upon full repayment is quite different. It irre- vocably locates the vessel in the unsubsidized fleet and, thus, poses no danger of a supercompetitor skimming the cream from each market. It creates no longer-term instability. And it confers no windfall. On the contrary, at least where repayment of the CDS includes some amount reflecting capital costs which would have been incurred had no subsidy been available, such a transaction merely permits a once subsidized vessel to enter the domestic trade on a footing equal to that of vessels already in that trade. It was not the purpose of the Act to prohibit such entry. ... Thus, to the extent that the capacity allowed to enter the domestic trade under CDS repayment would have been allowed to participate in the trade under six month permissions, allowing total CDS repayment would neces- sarily be consistent with the “purpose of the Act.” Jd. ?. Alternatives to the Final Rule Some commenters thought MARAD should reconsider its alternatives discussed in the proposed rule. Several 100a proposed a number of alternatives not considered in the NPRM, such as exclusion of the BAY RIDGE from the rulemaking, and then allowing only one or two of the VLCCs to remain in the domestic trade. Others found MARAD’s rejection of alternatives convincing, and sup- ported its analysis of the alternatives. MARAD considered three alternatives in the NPRM. The first is to maintain the status quo, 7.e., to allow the four VLCCs to remain in the domestic trade. The costs and benefits of this alternative have been discussed at length in this statement, and in the Regulatory Impact Analysis (see RIA, p. 30). Further costs, evaluated in the Regulatory Impact Analysis, include the recent Title XI defaults of three VLCCs that previously participated in the domestic trade under six-month waivers, and par- tial defaults of two other CDS-built VLCCs (STUY- VESANT and BAY RIDGE). These costs were not neces- sarily attributable to CDS repayment and in any event are irreversibly expended at this time (i.e., removing the four VLCCs from the domestic trade would not recover this money). The total default cost to the government has been $137.5 million. Another relevant consideration is the effect on the existing Jones Act fleet. As of May 12, 1987, 23 Jones Act tankers were inactive (totaling approximately 1,152,600 DWT). On the other side of the ledger, if CDS repayment is not allowed for the four VLCCs, they are likely to be laid up (approximately 705,000 DWT). MARAD believes that the suitability of the four VLCCs for the Alaska-Panama trade outweighs any pos- sible disadvantages of the rule. The average age of the 23 idle tankers is 20 years old. These smaller tankers could serve in the ANS trade, although at a much higher cost per ton than VLCCs currently operating in that trade (see RIA). For example, the cost of operating a 50,000 DWT tanker in the Valdez-Panama trade is ap- 10la proximately, $25.00 per ton of cargo, compared to $9.19 per ton for a 265,000 DWT VLCC operating in the same trade. Further, as noted above, larger tankers are more suitable than smaller tankers from an environmental standpoint because they make fewer voyages and port calls than smaller tankers to carry the same amount of oil, thus reducing the risk of collisions and oil spills (see Environmental Assessment). A second alternative considered is for MARAD to do nothing, i.e., to allow the rule to be vacated, as of July 16, 1987, and for the three VLCCs to leave the domestic trade. Under this scenario MARAD assumes that the BAY RIDGE would also leave the domestic trade at the same time. The costs of doing nothing would be a short- age of suitable tonnage for the Valdez-Panama trade and the likely lay-up of the four VLCCs that repaid CDS under the 1985 rule. There would not be enough ships to meet seasonal peak demands in the domestic petroleum trade. Section 506 waivers would be necessary. Other costs of this alternative would be the loss to the govern- ment of CDS repayments of $142 million from those four VLCCs, the reduction of Alaska state revenues due to higher transportation costs in later years, and the loss of transportation savings to the shipping public. The benefits of this alternative could be reduced gov- ernment loan exposure risk on existing Jones Act tankers and the possibility of some of the laid up domestic tank- ers operating in the ANS trade. However, due to the age and small size of most of those tankers, they would be unsuitable for the Valdez-Panama trade. Further, only 4.5 percent of the domestic tanker fleet less than 20 years of age was inactive. There is a need for a reasonable reserve for covering temporary losses from the active fleet due to casualties (three in 1986), surveys and re pairs, as well as seasonal increases on the upcoast petro- leum movements. 102a Under this second alternative, shipbuilding demand for new crude tankers would still be minimal, if any, due to the high cost of U.S. shipbuilding, the unlikely availability of future CDS funds due to budget con- straints, and the predicted future decline in the volume of crude carried in the Alaska-Panama trade. The third alternative considered would allow an oppor- tunity for other U.S.-flag tanker owners to repay CDS in return for unrestricted domestic trading privileges. Under this approach, those vessel owners with the best prospects for employment would likely choose to repay. Unrestricted repayment would reduce the need for fed- eral issuance of temporary permissions to enter the ANS trade. Fiscal benefits could also be the greatest under this alternative. However, it is unlikely that any more vessels would repay under this alternative, since only three repaid when the window was open for one year and two EXXON 209,000 DWT Jones Act tankers have recently been delivered. This alternative would cause the most disruption to the Jones Act trade as there would be uncertainty in the market. Shipyard demand for new crude tankers would remain at a minimal or non-exsitent level. In response to the comments, MARAD has considered a fourth alternative to the rule, i.e, allowing only two of the four VLCCs to remain in the domestic trade. This option assumes that one 265,000 DWT and one 225,000 DWT vessel remain in the trade with a total CDS repay- ment of $63 million. The costs and benefits of this alter- native are analyzed in the RIA. However, MARAD believes it would be difficult to choose which of the four VLCCs should remain in the trade. Such a decision likewise would be difficult if MARAD were to choose only one, or three, of the four VLCCs to remain in the trade. Such a decision would have an element of arbitrariness to it, since it either would favor one or more of the VLCCs that repaid on an 103a equal footing with all other CDS-built VLCCs through the 1985 CDS rule, or, in the case of the BAY RIDGE, repaid under fairly similar criteria in reliance on con- tinued operations in the domestic trade. MARAD estimates that the transportation savings on this option would range from $137-$166 million. If only two VLCCs are allowed to remain in the domestic trade, there would be a shortfall of approximately 338,400 DWT on a full-time equivalent basis, unless tonnage were brought out of lay-up or section 506 waivers were granted. Fiscal benefits would be fewer than under the rulemaking option since there would only be $63 million in CDS repayment from two VLCCs and Alaska state revenues would be reduced by higher transportation costs. Demand for newbuilding of crude tankers would continue to be minimal. MARAD continues to believe that the best option in light of the purposes and policies of the Act is to allow the four VLCCs, all of which are particularly suitable for the Alaska-Panama trade, to remain in the domestic trade. Further, allowing them to remain in the trade will promote the domestic commerce in furtherance of the goals of the Act by eliminating the current uncer- tainty regarding the operation and use of the VLCCs in the Alaskan oil trade, facilitating planning for oil com- panies and tanker owners. E.O. 12291, Statutory and DOT Requirements The Maritime Administrator has determined that this rule is major under the criteria of Executive Order 12291. Pursuant to the Department of Transportation’s Regulatory Policies and Procedures, DOT Order 2100.5 (49 FR 11034, February 26. 1979), this rule is also considered to be “significant” ‘because it concerns a mat- ter on which there is substantia! public interest. The Maritime Administrator certifies that the rule will have no significant economic impact on a substantial 104a number of small entities pursuant to the Regulatory Fexibility Act of 1980 (5 U.S.C. 601 et seg.) The com- panies owning and chartering the four VLCCs at issue, and companies owning or chartering tankers possibly affected by the rulemaking in the foreign and domestic trades, are either large oil companies or large independ- ent shipping companies. A Regulatory Impact Analysis has been prepared and is available for public review and copying in the Docket (R-110) in the Office of the Secretary. Maritime Admin- istration (room 7300). It discusses the important eco- nomic aspects of this proposed rule, and is incorporated by reference into this rule. An Environmental Assessment of the rule has also been prepared, and may be inspected at the Office of the Secre- tary, Maritime Administration, room 7300. The Environ- mental Assessment concludes that the effect of the rule will be that greater quantities of ANS oil would be transported in VLCCs than in smaller vessels, fewer total trips would be made by a smaller number of vessels, the risk of accidental oil spill would be reduced as the number of trips decreases. In addition, the tankers which have repaid CDS are equipped with safety and environ- mental features required by statute. Overall, the risk to the environment will be reduced with the rule as com- pared to without it. On the basis of this environmental assessment, the Maritime Administration has concluded that the rule will not result in a significant environ- mental impact. The rule contains no paperwork requirements under the Paperwork Reduction Act. This final ruie is effective upon publication. MARAD for good cause finds that the 30 day period between pub- lication and the effective date must be waived. 5 U.S.C. 553(d) (3). The rule must be made effective prior to the judicially imposed deadline of July 16, 1987 in order to 105a avoid disruptions in the domestic trade. MARAD believes that it has acted in good faith in conducting an informal rulemaking with notice and opportunity for comment and issuance of this final rule responding to comments within a relatively short period. The courts have found that a judicially imposed deadline may constitute good cause for making a rule effective immediately. American Fed- eration of Government Employees v. Block, 655 F.2d 1153 (D.C. Cir. 1981). The D.C. Circuit has stated that “". . the requirement of 553(d) that publication of a rule be made at least thirty days prior to its effective date serve{s}] the laudable purpose of informing affected par- ties and affording them a reasonable time to adjust to the new regulation.” Jd. at 1157. Since this final rule effectively continues the participa- tion of VLCCs that have operated in the Alaskan oil trade for at least a year, the public does not need time to pre- pare for this final rule. See Ellen R. Jordan. “The Ad- ministrative Procedure Act’s ‘Good Cause’ Exemption.” 36 Administrative Law Review, 1138, 119, 141 (Spring 1984). List of Subjects in 46 CFR Part 276 Maritime Carriers. PART 276—[{[AMENDED] 46 CFR Part 276 is amended as follows: 1. The authority citation for Part 276 continues to read as follows: Authority: Sees. 204(b), 207, 506, and 714, Merchant Marine Act, 1936, as amended (46 U.S.C. 1114(b), 1117, 1156 and 1204) Pub. L. 86-518 (74 Stat. 216); Reor- ganization Plans No. 21 of 1980 (64 Stat. 1273) and No. 7 of 1981 (75 Stat. 840), as amended by Pub. L 91-469 (84 Stat. 1036); and Dept. of Commerce Organi- 106a zation Order 10-8 (36 FR 19707); July 23, 1973), unless otherwise noted. 2. Section 276.3 is revised to read as follows: $ 276.3 Total repayment. (a) The Maritime Administration reaffirms the allow- ance of the irreversible total repayment of unamortized construction-differential subsidy (CDS), with interest and rescission permanently of the domestic trading restric- tions related to the grant of CDS for tankers of any dead- weight tonnage for applications approved between June 6, 1985 and June 5, 1986, in accordance with the terms and conditions of paragraph (b) of this section. The ap- proved applications were for the ARCO INDEPEND- ENCE, ARCO SPIKIT and BROOKLYN. (b) Repayment terms. The full repayment amount consists of the unamortized CDS, as determined by the Maritime Administration, with compounded interest on that amount. The interest rate is the same as the long- term interest rate the owner obtained, or would have obtained if long-term debt financing had been used, in financing the owner’s portion of the tanker. Unless the Maritime Administrator determined that using interest rates other than long-term bond rates was justified, such rates are used. If more than one long-term bond was issued to finance the owner’s portion of a specific tanker, or if one or more of such bonds has more than one rate (such as a serial bond) an average interest rate is com- puted weighted by the proportion of each bond par value to the total par value of all long-term bonds issued to finance the owner’s tanker. The interest payable on the unamortized CDS is computed by continuous compounding of the interest until the day of repayment. For purposes of this paragraph, “long-term bond rates” are either actual Title XI bond rates on a specific owner’s tanker or the Title Xi long-term bond rate at the time the tanker’s statutory life began. 107a ‘e) The Maritime Administration reaffirms the allow- ance of the irreversible total payment of unamortized construction-differential subsidy with interest and rescis- sion permanently of the domestic trading restrictions re- lating to the grant of CDS for the BAY RIDGE, which repaid on November 1980. By Order of the Maritime Administrator, James E. Saari, Secretary, Maritime Administration. (FR Doc. 87-14268 Filed 6-19-87; 8:52 am) --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1017%3A2. Public record. Not legal advice.