APL/MOL/OOCL/HMM Reciprocal Slot Exchange Agreement (Agreement No. 203/011588) and APL/MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-011596; Order to Show Cause and Motion To Dismiss Denied

FEDERAL MARITIME COMMISSION

[Docket No. 97-18]

APL/MOL/OOCL/HMM Reciprocal Slot Exchange Agreement (Agreement

No. 203/011588) and APL/MOL/HMM Reciprocal Slot Exchange Agreement,

Agreement No. 203-011596; Order to Show Cause and Motion To Dismiss

Denied

Introduction

The APL/MOL/OOCL/HMM Reciprocal Slot Exchange Agreement, Agreement

No. 203-011588 (``the Four Party Agreement'') is an agreement for the

reciprocal chartering of space aboard vessels operated in the U.S.

foreign trades by agreement members.\1\ The Four Party Agreement became

effective on October 17, 1997. Agreement No. 203-011596, the APL/MOL/

HMM Reciprocal Slot Exchange Agreement (``the New Agreement''), is a

space charter agreement which is intended to replace the Four Party

Agreement.\2\

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\1\ The Agreement members are Hyundai Merchant Marine, Ltd.

(``Hyundai'' or ``HMM''), American President Lines, Ltd. (``APL''),

Mitsui O.S.K. Line, Ltd. (``MOL''), and Orient Overseas Container

Line, Inc. (``OOCL'').

\2\ The members of the agreement are Hyundai, APL and MOL.

Although the New Agreement is intended to replace the Four Party

Agreement, the latter will remain in effect until canceled by the

parties according to its terms, to permit an orderly transition in

the parties' operations.

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Under section 10(c)(6) of the Shipping Act of 1984 (``1984 Act''),

46 U.S.C. app. 1709(c)(6), it is unlawful for any conference or group

of two or more common carriers to:

[[Page 3116]]

Allocate shippers among specific carriers that are parties to

the agreement or prohibit a carrier that is a party to the agreement

from soliciting cargo from a particular shipper, except as otherwise

required by the law of the United States or the importing or

exporting country * * *.

The New Agreement contains terms, also present in the Four Party

Agreement, by which carriage of cargo subject to U.S. cargo preference

laws is restricted to the U.S.-flag carrier participant, APL. In its

Order to Show Cause served on October 17, 1997, Docket No. 97-18, 62 FR

55260 (October 23, 1997), 27 S.R.R. 1304 (1997) (``Show Cause Order''),

the Commission stated that the Four Party Agreement appeared on its

face to present a violation of section 10(c)(6). For reasons similar to

those stated in the Show Cause Order, it appears that the New Agreement

on its face also presents a violation of section 10(c)(6). Therefore,

pursuant to section 11 of the 1984 Act, the parties to the New

Agreement are ordered to show cause why the New Agreement should not be

found to be in violation of the 1984 Act and should not be disapproved,

canceled or modified accordingly.

APL filed a Motion to Dismiss Docket No. 97-18, on the grounds,

inter alia, that ``changed circumstances'' have mooted this proceeding,

and requested, in the event that the Commission determined not to

dismiss the proceeding, that the time for filing Respondents' opening

submissions, then due on December 2, 1997, be extended to 30 days after

the Court of Appeals takes final action in Sea-Land Service, Inc. v.

FMC, D.C. Circuit No. 97-1083.\3\ Motion of APL to Dismiss the

Proceeding (``Motion'') at 1.\4\ The Commission's Bureau of Enforcement

(``BOE'') filed a reply to the Motion. OOCL filed a Response to the

Order to Show Cause. We address both the New Agreement and the Motion

and Response in this Order.

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\3\ That case is consolidated with Military Sealift Command and

United States v. FMC, No. 97-1084 and American President Lines v.

FMC, No. 97-1085 which are, like No. 97-1083, petitions for review

of the Commission's order in Military Sealift Command v. Sea-Land

Service, Inc., F.M.C. , 27 S.R.R. 874 (1996) (``MSC'').

\4\ The procedural schedule in Docket No. 97-18 was postponed by

the Secretary on December 1, 1997 until further Commission notice or

action on the Motion.

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Background

This proceeding was instituted pursuant to sections 10(c)(6) and

11, 46 U.S.C. app. 1710, to determine whether the Four Party Agreement

should be found to be in violation of the 1984 Act, and be disapproved,

canceled or modified accordingly. Citing the Commission's holding in

MSC, the Commission ordered the parties to the Four Party Agreement to

show cause why the Agreement should not be found to violate section

10(c)(6) inasmuch as Article 5.1 of the Four Party Agreement appears to

effectively allocate U.S. government shippers of cargo via agreement

members, subject to U.S. cargo preference laws, to APL, the sole U.S.

carrier member of the Agreement.\5\

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\5\ In MSC, the Commission determined that a provision whose

effect appears to be identical to that of Article 5.1 of the Four

Party Agreement and Article 5.1 of the New Agreement constituted an

allocation of shippers prohibited under section 10(c)(6). Upon

complaint filed by the Military Sealift Command, Department of the

Navy (``MSC''), a shipper of U.S. preference cargo, the Commission

determined that the provision constituted an allocation of shippers

prohibited by the first clause of section 10(c)(6). However, the

Commission further determined that the provision was not unlawful

because it was required by an order of the Maritime Administration,

Department of Transportation (``MarAd'') which constituted ``law of

the United States'' within the meaning of the ``except'' clause of

section 10(c)(6).

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A. The New Agreement

The New Agreement was filed with the Commission on November 18,

1997, pursuant to section 5 of the 1984 Act, 46 U.S.C. app. section

1704,\6\ and became effective on January 2, 1998.\7\ The New Agreement

authorizes the parties to charter space on each other's vessels on a

reciprocal basis in the trades between ports and points in the U.S.

served via U.S. Pacific Coast ports and ports and points in the Far

East. The Agreement provides for the reciprocal sale, exchange or use

of up to an annualized average of 6,000 TEUs of space per week by

Hyundai on vessels operated by APL and MOL, and for use by APL and MOL

of 7,000 TEUs of space per week on Hyundai vessels operating in the

trade. The parties may also agree on feeder operations, sailing

schedules, service frequency, port calls, addition or withdrawal of

capacity, and the number, type and size of vessels they will use in the

trade. No party may charter or sub-charter space aboard another party's

vessel to a third-party carrier without the consent of the party

operating the vessel.

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\6\ Section 5 provides, in relevant part, that ``(a) true copy

of every agreement (with respect to activities subject to the Act as

described in section 4) * * * shall be filed with the Commission * *

*.'' Notice of the filing of the Agreement was published in the

Federal Register on December 2, 1997, 62 FR 63716 (December 2,

1997).

\7\ Section 6(c), 46 U.S.C. app. section 1705, provides, inter

alia, that ``(u)nless rejected by the Commission * * *, agreements .

. . shall become effective * * * on the 45th day after filing, or on

the 30th day after notice of the filing is published in the Federal

Register, whichever day is later * * *.''

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Article 5.1 of the New Agreement, ``Limited Grant,'' provides:

Nor shall anything in this Agreement be construed as granting a

right on the part of any party to carry aboard the vessel of any

other party any cargoes subject to cargo preference laws of the

country of registry of such other party's vessel or the country of

citizenship of its owner.\8\

\8\ The language quoted above is also used in Article 5.1 of the

Four Party Agreement, ``Limited Grant,'' but it is preceded there by

the provision that: (n)othing in this Agreement shall be construed

as granting a right on the part of any other party to carry aboard

the vessels of American President Lines, Ltd. cargoes shipped from

or to the U.S. Department of Defense or Agriculture, or any

subsidiary agencies thereof, or any other agency of the U.S.

Government whose shipments are subject to cargo preference laws of

the United States to the extent requiring and reserved for

transportation aboard U.S.-flag vessels.

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Article 5.1 further provides:

If the (preceding) sentence * * * shall be determined to violate

U.S. law with respect to U.S. preference cargoes by a court or

agency of competent jurisdiction and any stay upon the order of such

court or agency giving effect to such determination arising by

reason of an appeal of such order shall have ceased to be effective,

then the [preceding] sentence * * * shall be deemed severed with

respect to U.S. preference cargoes,* * *.\9\

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\9\ The similar provision for severance of the cargo preference

provision upon a final finding of unlawfulness in the Four Party

Agreement is more limited.

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B. APL's Motion to Dismiss Docket No. 97-18

1. The Motion

APL repeatedly points out that the Show Cause Order ``focused'' on

the second sentence of Article 5.1 of the Four Party Agreement, i.e.,

the language quoted above at note 6. Motion at 2, 4. APL describes

various ``intervening events'' which purportedly render the Order to

Show Cause moot. APL states that, with respect to APL's participation,

the Four Party Agreement has never been implemented and will never be

implemented because APL intends to withdraw from that Agreement upon

effectiveness of the New Agreement. APL also indicates that, in

connection with the acquisition of APL by Neptune Orient Lines and the

transfer of APL's ODS Agreements and Maritime Security Program

(``MSP'') contracts with MarAd to an independent vessel-operating

company bareboat chartering the vessels, MarAd withdrew the letter of

March 11, 1997 from the MarAd Secretary to APL Vice President Michael

Murphy, granting APL a waiver under section 804(b) of the Merchant

Marine Act, 1936 (``1936 Act''), 46 U.S.C. app. 1222(b), for APL's use

of foreign-flag capacity.\10\ Motion at 4-5. In addition,

[[Page 3117]]

APL suggests that, as a consequence of the joint Department of Defense

(``DOD'')-MarAd Voluntary Intermodal Sealift Agreement (``VISA'')

program, ``DOD itself now reserves its peacetime cargoes to U.S.-flag

vessel operators that are participants in VISA, thus by regulation

mandating the same result as the reservation provisions in the

commercial agreements * * *.'' Motion at 5. Finally, APL submits that

it would be appropriate to await the possibly ``definitive guidance''

of the D.C. Circuit on the issues raised in MSC, which ``are relevant

to the Show Cause order.'' Id. at 6.

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\10\ MarAd's waiver, for the remaining term of APL's ODS

contract through December 1997 and for the full term of each of

APL's nine operating agreements under the Maritime Security Program

(``MSP''), included as ``condition D'' that:

No space on APL's U.S.-flag vessels that are subject to space

sharing agreements with any foreign operator shall be utilized for

the carriage of cargo reserved for U.S.-flag vessels under any

statute, resolution or regulation unless such cargo is carried

pursuant to bills of lading or contracts of carriage issued to, or

entered into with, the shipper of such cargo by or for a citizen of

the United States.

Thus, MarAd was alleged to have required the provision of the

Agreement allocating U.S. preference cargo to APL.

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APL's request that the proceeding be dismissed focuss on the

parties' intention, stated by APL, that the agreement which was the

subject of the Show Cause Order will be supplanted by the New Agreement

and the narrow scope of the Commission's focus in that order, i.e., the

second sentence of Article 5.1, ``which will then have no possible

future significance.'' Id. at 7. APL recognizes, however, that the New

Agreement retains the more general cargo reservation language, but

contends that this provision was not identified as a basis of potential

violation of section 10(c)(6) in the Show Cause Order. Thus, says APL,

if the Commission should consider this provision to raise section

10(c)(6) issues that require Commission consideration, the

appropriate context in which to evaluate those issues--which are

necessarily broader than and different from those identified in the

Commission's October 22, 1997 Order--would be with respect to an

agreement in which that provision has continued effect.

Id. In the event the Commission elects not to dismiss the proceeding,

or to institute a new proceeding relating to the New Agreements, APL

requests that the time for filing of Respondents' opening submissions

be extended to a date 30 days after final court action in MSC.

2. BOE's Reply to the Motion

BOE opposes the Motion on the ground that the issues in Docket No.

97-18 are not moot, and the proceeding should not be dismissed, until

APL actually withdraws from the Four Party Agreement. BOE does not,

however, oppose APL's request that the time for Respondents' initial

filing be extended until 30 days after final action by the D.C. Circuit

in MSC. Although BOE noted that the New Agreement was being considered

by the staff, it did not further comment on the validity of the

substantive representations of fact or law in the Motion.

C. OOCL's Response to Order to Show Cause

OOCL filed a Response to the Order to Show Cause, stating that it

has given notice on December 1, 1997 of its intention to withdraw from

the APAC Agreement and ``hence will no longer be a party to (the Four

Party) Agreement * * *.'' Response To Order To Show Cause

(``Response'') at 1. In its Response, OOCL moves that it be dismissed

as a party to this proceeding. In the alternative, OOCL adopts the

position of APL that the proceeding should be dismissed, or, in the

alternative, if the proceeding is directed to a new agreement, that the

time for Respondents' opening submissions be extended to 30 days after

issuance of the D.C. Circuit's mandate in MSC.

OOCL suggests that the Commission take administrative notice of the

filing of a successor agreement to the Four Party Agreement, of which

OOCL is not a member. OOCL also joins in APL's representations that

subsequent events have rendered the current proceeding moot.

D. The Maritime Administrator's Letter

It is not the FMC's role to decide on the validity of a MarAd

order. MSC, 27 S.R.R. at 888. In initiating this proceeding, we noted

that the Commission did not undertake to review the actions of the

Maritime Administrator under his statutory authority, but to determine

whether an agreement filed pursuant to the 1984 Act required action by

MarAd under a statute which authorizes that agency to command carrier

obedience to orders cognizable as ``law of the United States,'' and

whether it had so required the action specifically taken by the parties

in this instance. We also directed the Commission's Secretary to invite

the Acting Administrator to participate amicus curiae in this

proceeding, which the Secretary did by letter of October 24, 1997.

The Acting Administrator advised the Commission on December 16,

1997, that APL ceased to be a party to an ODS contract as of November

12, 1997, and therefore is no longer subject to section 804 or the

waiver and conditions imposed in MarAd's March 11, 1997 letter. The

Acting Administrator further advised the Commission that,

notwithstanding APL's request that MarAd impose a similar condition on

APL's new charter arrangements, MarAd

Did not * * * consider whether such a condition should be

imposed under the various statutes MarAd administers as a result of

an October 19, 1993 opinion by the Office of Legal Counsel (OLC) of

the Department of Justice. That opinion * * * concluded that even

though conditions contained in charter orders approved by MarAd

impose legal obligations on the chartering parties, those

obligations are not ``otherwise required by law'' for purposes of

the second prong of section 10(c)(6), and that MarAd lacks authority

to impose such conditions since, in OLC's view, they would violate

the first prong of section 10(c)(6). The OLC opinion remains the

unified position of the United States. Given this, MarAd does not

believe that it should participate at this time as an amicus in the

pending FMC proceeding.

Finally, the Acting Administrator, noting the filing of the New

Agreement and APL's announced intention to withdraw from the Four Party

Agreement, suggested that questions relating to the lawfulness of the

Four Party Agreement are now moot and that, in the event the FMC

decides nevertheless to continue the proceeding, the matter should be

held in abeyance pending the decision of the D.C. Circuit on review of

MSC.

Discussion

A. The New Agreement

The language of Article 5.1 of the New Agreement does not contain

the language in the Four Party Agreement which was specifically cited

by the Commission in its Show Cause Order. However, it does contain the

following more general language which is also in the Four Party

Agreement:

Nor shall anything in this Agreement be construed as granting a

right on the part of any party to carry aboard the vessel of any

other party any cargoes subject to cargo preference laws of the

country of registry of such other party's vessel or the country of

citizenship of its owner.

While this language does not refer specifically to U.S.-government

agency shippers, its general reference to ``cargo preference laws''

would certainly include those U.S. cargo preference laws which by their

terms effectively allocate the Department of Defense, the Department of

Agriculture, and other U.S. government departments and agencies to

U.S.-flag vessels for all or a major portion of their shipments. Thus

it would have the same effect as the more specific language of the Four

Party

[[Page 3118]]

Agreement: U.S. government entities which ship cargo via agreement

members are allocated to APL.

As we noted in our Show Cause Order concerning the Four Party

Agreement, the New Agreement presents issues similar to those decided

by the Commission in MSC.\11\ The VSAs involved in MSC required the

approval of the Secretary of Transportation for the charter or transfer

of a U.S.-flag vessel to a non-citizen under section 9 of the Shipping

Act, 1916 (``1916 Act''), 46 U.S.C. app. 808, subject to the broad

power to prescribe conditions--violations of which are crimes

punishable by fines, imprisonment and vessel forfeiture--given the

Secretary in section 41.\12\ MarAd's approval of the charters of the

U.S.-flag vessels and vessel space to foreign-flag carrier members of

the VSAs were conditioned on the exclusion of the foreign-flag

participants from use of the vessels to carry U.S. preference

cargo.\13\ The Commission specifically found that the conditional

charter orders issued by MarAd pursuant to sections 9 and 41 of the

1916 Act had the force and effect of law because they were compulsory

and the statute provided criminal penalties for noncompliance. MSC, 27

S.R.R. at 889.

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\11\ The vessel sharing agreements (``VSAs'') involved in MSC

provided for the use of twelve U.S.-flag vessels owned by a U.S.

carrier to be operated on behalf of all of the parties to the

agreements, and to replace all U.S.-flag and foreign-flag vessels

previously operated by the parties in the covered trade. By

chartering space on a U.S.-flag vessel, the foreign carriers gained

eligibility to submit bids for military and other government

preference cargoes reserved to U.S.-flag vessels. However, the

foreign carriers agreed that they would not use any vessels or space

chartered from the U.S. carrier for carriage of government

preference cargo.

\12\ Section 9(c) provides that, with certain exceptions not

relevant here, ``a person may not, without the approval of the

Secretary of Transportation--

(1) sell, mortgage, lease, charter, deliver, or in any manner

transfer, or agree to sell, mortgage, lease, charter, deliver, or in

any manner transfer, to a person not a citizen of the United States,

any interest in or control of a documented vessel * * * owned by a

citizen of the United States * * *.''

46 U.S.C. app. 808(c). The Secretary has delegated to the

Maritime Administrator authority to carry out sections 9 and 41 of

the 1916 Act. 49 CFR 166(a).

\13\ MarAd acted under section 9 on each individual charter of a

U.S.-flag vessel and incorporated conditions requiring restriction

of U.S. preference cargo to the U.S.-flag carrier member of the

agreements in each of the ``charter orders'' approving the

arrangement, as required by section 41. MarAd has apparently

dispensed with individualized approvals of charters of U.S.-flag

vessels like those at issue in MSC. See 46 CFR 221.13(a)(1) (except

as limited by provisions not relevant here, MarAd ``hereby grants

the approval required by [section 9(c) of the 1916 Act] for the * *

* Charter * * * to a Noncitizen of an interest in or control of a

Documented Vessel owned by a Citizen of the United States * * *.'').

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The Commission's inquiry in MSC included the threshold conclusion

that MarAd action under the 1916 Act was a prerequisite for the

existence of the agreement at issue: the U.S.-flag vessels could not be

chartered to the foreign carrier agreement parties without approval.

Id. at 876. Here, as we noted in the Show Cause Order with respect to

the Four Party Agreement, no similar nexus between the New Agreement

and the statutory authority of the Maritime Administrator is evident.

This case apparently does not involve the 1916 Act authority exercised

by MarAd with respect to the space charter agreements at issue in MSC.

Until the November 12, 1997 consummation of its acquisition by

Neptune Orient Line (``NOL''), APL operated U.S.-flag vessels under

operating-differential subsidy contracts with MarAd pursuant to Title

VI and sections 801 and 804 of the 1936 Act, 46 U.S.C. app. 1171 et

seq. and 1211 and 1222.\14\ MarAd's March 11, 1997 letter granted APL's

request for a waiver under section 804(b) of 1936 Act for APL to own,

operate or charter up to 18 foreign-flag vessels in line haul service

between U.S. and foreign ports for the remaining term of APL's

Operating Differential Subsidy Agreement (``ODSA''), Contract MA/MSB-

417, through December 31, 1997 and for the full term of each of APL's

nine operating agreements under the MSP, Contract Nos. MA/MSP-1 through

MA/MSP-9, subject to the conditions imposed.\15\ During FMC review of

the Four Party Agreement, APL suggested that the March 11, 1997 MarAd

letter should be considered ``law of the United States'' within the

meaning of the ``except clause'' of section 10(c)(6). This argument was

dealt with a length in the Show Cause Order. 62 FR 55262-55263, 27

S.R.R. 1306-1308.\16\

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\14\ Section 603, 46 U.S.C. app. 1173(a), provides that, upon

approval of an application for ODS under section 601, the Secretary

of Transportation may enter into a contract with the applicant

``subject to such reasonable terms and conditions * * * as the

Secretary * * * shall require to effectuate the purposes and policy

* * *'' of the Act. Section 804(a) provides that it is ``unlawful

for any contractor receiving an operating-differential subsidy under

title VI * * * to own, charter, * * * or operate any foreign-flag

vessel which competes with any American-flag service'' on a route

deemed essential by the Secretary, except as provided in section

804(b). Section 804(b), 46 U.S.C. app. 1222(b), authorizes the

Secretary to waive the prohibition for a specific period of time

``(u)nder special circumstances and for good cause shown * * *.''

The March 11, 1997 MarAd letter states that the Administrator has

found ``special circumstances'' and ``good cause'' for granting the

waiver and that the waiver granted ``is subject to the * * *

conditions and will terminate in the event any of the conditions are

not fulfilled * * *.''

\15\ The Agreement parties do not represent that APL sought

MarAd approval pursuant to section 9 for use of its U.S.-flag

vessels in operations under the Agreement. The March 11, 1997 MarAd

letter grants authority to APL only under section 804(b) of the 1936

Act, and does not refer to sections 9 and 41 of the 1916 Act of

MarAd authority under those provisions.

\16\ In any event, as we noted in the Show Cause Order, the

Military Security Act of 1996, Pub. L. 104-239, 110 Stat. 3118,

substantially amended the 1936 Act, creating the Military Security

Fleet Program, 46 U.S.C. app. 1187, et seq. It is a condition for

including any vessel in the Fleet that the owner or operator of the

vessel enter into an operating agreement governed by the section's

provisions with the Secretary of Transportation, which will be one-

year, renewable contracts. Subsection (c) provides that ``[a]

contractor of a vessel included in an operating agreement under this

part may operate the vessel in the foreign commerce of the United

States without restriction, and shall not be subject to any

requirement under'' certain sections of the 1936 Act dealing with

record keeping, equitable distribution of contracts among U.S.

ports, and discrimination. 46 U.S.C. app. 1187a(c). Section 804 was

substantially amended as well: a new subsection 804(f) provides that

nothing in section 804(a) will preclude a contractor receiving ODS

or MSP assistance from ``entering into time or space charter or

other cooperative agreements with respect to foreign-flag vessels *

* *.'' 46 U.S.C. app. 1221(f)(5). The new section 804(f) was made

effective as to carriers with existing ODS contracts on the date on

which such a contractor entered into an MSP contract with MarAd. 46

U.S.C.A. app. 1222, Historical and Statutory Notes. APL entered into

operating agreements with MarAd for nine vessels for January 21,

1997.

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Moreover, as MarAd noted in promulgating its final regulations for

the MSP, ``[u]nlike the operating differential subsidy * * * program,

the MSP has few restrictions on vessels operating in the U.S.-foreign

commerce * * *.'' 62 FR 37733 (July 15, 1997). Under the provisions of

the 1936 Act, as amended by the Maritime Security Act of 1996, no

recourse to the Maritime Administration appears to be required for

APL's participation in the Four Party Agreement or the New

Agreement.\17\

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\17\ It thus does not appear to be necessary for a U.S.-flag

carrier with an MSP operating agreement to seek a waiver under

section 804(b) in order to participate in a space charter or vessel

sharing agreement. Nevertheless, on January 17, 1997, APL filed a

request with MarAd for a waiver under section 804(b) of the 1936 Act

for operation of up to 18 foreign-flag vessels. Notice of its filing

was published January 29, 1997. 62 FR 4377 (January 29, 1997). The

March 11, 1997 MarAd letter granted APL's request. The waiver

provides that APL may ``own, operate or charter'' up to 18 foreign-

flag vessels.

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MarAd's withdrawal of the March 11, 1997 section 804 waiver, which

occurred after issuance of our Show Cause Order, would suggest that

this argument no longer may be said to apply to APL's operations under

the Four Party Agreement or the New Agreement. No colorable argument

that the effective allocation of U.S. government shippers of cargo

subject to the U.S. cargo preference laws by

[[Page 3119]]

Article 5.1 of the New Agreement is ``required by the law of the United

States'' as a result of the March 11, 1997 MarAd letter or other MarAd

action under the 1936 Act appears to exist.

In discussion with the staff concerning Article 5.1 of the New

Agreement, and in its Motion, however, APL advanced the view that the

allocation issue was essentially moot as a result of various actions of

MarAd and DOD, including significant policy changes by DOD relating

particularly to the VISA program. Thus, in the Motion and in

discussions concerning the New Agreement, APL has argued that the

effect of the VISA program is to authorize or require the allocation

provision of the New Agreement. As it noted in MSC, the Commission

must, ``[u]nder ordinary circumstances, * * * consider the text and any

relevant analyses of the proffered law [said to create an exception to

the prohibition of section 10(c)(6)], and render a conclusion as to

whether the law commanded the actions that otherwise might fall within

section 10(c)(6)'s prohibition clause.'' MSC, 27 S.R.R. at 888.

MarAd administers the VISA program under authority of section 708

of the Defense Production Act of 1950, as amended, 50 U.S.C. app. 2158.

The VISA program provides for agreements entered into between MarAd and

the operators of U.S.-flag vessels and establishes a ``prioritized

order for utilization of commercial sealift capacity to meet DOD

peacetime and contingency requirements * * *.'' 62 FR 6840 (February

13, 1997). The program emphasizes use of U.S.-flag vessel capacity

operated by VISA participants or available to VISA participants under

VSAs for the carriage of DOD peacetime cargo and assures the

availability of U.S.-flag capacity for DOD contingency use. Although

the program establishes priorities under which DOD will call upon the

operators of U.S-flag vessels to provide capacity, by awarding

contracts and booking cargo, neither the MarAd rules for the VISA

program itself nor any DOD policy or contract provision thus far called

to our attention appears to reserve aggregate DOD peacetime cargo to

VISA participants. No prohibition against the use of the vessel

capacity of a VISA participant made available to a non-U.S. carrier

member of a VSA for carriage of DOD cargo is contained in the

regulations promulgated by MarAd. Moreover, those regulations and the

VISA program itself relate only to cargo shipped by DOD. Other U.S.

government departments and agencies, which are also subject to the U.S.

cargo preference laws, are unaffected by the VISA program. These

shippers would be allocated to APL by the terms of Article 5.1 of the

New Agreement. No requirement for the exclusion of agreement parties

other than APL from bidding on DOD or other government-shipped cargo

arises from the VISA regulations or other U.S. law, or the DOD

contracts under VISA.

The parties apparently recognize that the allocation issues raised

by the New Agreement would most appropriately be addressed in a formal

proceeding: both APL's Motion and OOCL's Response suggest such a course

of action. In view of the possibility that Agreement No. 203-011596 may

be merely an interim measure to see the parties through the

restructuring of their various alliances, and may be replaced by yet

another version of the parties' space sharing arrangement, we find it

most appropriate to address these issues in the context of the existing

proceeding, Docket No. 97-18, rather than to initiate a new proceeding.

Therefore, the parties to the New Agreement are ordered to show

cause why it does not violate section 10(c)(6) for the same reasons

which prompted us to institute a proceeding against the Four Party

Agreement: A prima facie case appears to exist that the provision is

unlawful and is not otherwise required by the law of the United States.

The parties to the New Agreement are ordered to show cause why Article

5.1 of the New Agreement should not be disapproved, canceled or

modified, as part of this proceeding.

B. The Motion and Response

We agree with BOE that dismissal of the Show Cause proceeding with

respect to the Four Party Agreement is premature. Termination of this

proceeding with respect to the Four Party Agreement may be proper when

and if the Four Party Agreement itself is terminated. However, it does

not appear at this time that either APL's or OOCL's cessation of

operations under the Four Party Agreement will occur simultaneously

with the effectiveness of the New Agreement. We may act to modify the

proceeding at any time it appears appropriate, with or without further

request of the parties.

APL's further suggestion that the Commission delay action on this

issue until 30 days after the D.C. Circuit has acted in MSC is without

merit. This would effectively stay the Commission's determination that

the allocation of preference cargo in an agreement permitting the

charter of space on U.S.-flag vessels by foreign lines constitutes a

violation of section 10(c)(6). The Commission's determination of this

legal issue remains in effect, no stay having been entered by the

Commission or any court of competent jurisdiction.\18\ As we noted in

MSC, an order by an administrative agency is presumed to be valid until

such time as it is overturned by a court of competent jurisdiction.

See, e.g., Citizens to Preserve Overton Park, Inc. versus Volpe, 401

U.S. 402, 415-16 (1971); Motor Vehicle Manufacturers Association of the

United States, Inc. versus Ruckelshaus, 719 F.2d 1159, 1164 (D.C. Cir.

1983).

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\18\ No stay was requested or suggested as necessary by any

party in the context of the MSC proceeding.

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Accordingly, the appeal of the MSC decision provides no basis to

permit the effectiveness, without investigation, of allocation language

based on U.S. cargo preference laws having the same or similar effects

to that found in MSC to constitute a violation of section 10(c)(6).

Therefore, the Motion is denied with respect to delay of the filing of

initial submissions until 30 days after issuance of the decision in MSC

by the D.C. Circuit. A new procedural schedule for the conduct of this

proceeding is established below.

As a result of MarAd's withdrawal of the March 11, 1997 section 804

waiver, no question remains as to whether that letter constitutes ``law

of the United States,'' within the meaning of section 10(c)(6),

requiring the cargo preference reservation in either of the Agreements.

It would therefore appear that no basis exists as a matter of law or of

fact at this time for dismissal of the existing proceeding with respect

to the Four Party Agreement.

Now therefore, it is ordered, that pursuant to section 11 of the

Shipping Act of 1984, American President Lines, Ltd., Mitsui O.S.K.

Line, Ltd., and Hyundai Merchant Marine, Ltd. show cause why they

should not be found to have violated section 10(c)(6) of the Shipping

Act of 1984 by prohibiting specific carriers that are parties to the

APL/MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-

011596, from soliciting cargo from a particular shipper or shippers;

It is further ordered, that American President Lines, Ltd., Mitsui

O.S.K. Line, Ltd., and Hyundai Merchant Marine, Ltd. show cause why an

order should not be issued disapproving, canceling or modifying the

APL/MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-

011596;

It is further ordered, that the Motion to Dismiss Docket No. 97-18

of American President Lines, Ltd. is denied;

[[Page 3120]]

It is further ordered, that the Motion of Orient Overseas Container

Lines, Inc. to be dismissed as a party to Docket No. 97-18 is denied;

It is further ordered, that any person having an interest and

desiring to intervene in this proceeding in connection with the APL/

MOL/HMM Reciprocal Slot Exchange Agreement, Agreement No. 203-011596,

shall file a petition for leave to intervene in accordance with Rule 72

of the Commission's rules of practice and procedure, 46 CFR 502.72.

Such petition shall be accompanied by the petitioner's memorandum of

law and affidavits of fact, if any, and shall be filed no later than

the day fixed below;

It is further ordered, that affidavits of fact and memoranda of law

addressing issues with respect to both the Four Party Agreement and the

New Agreement shall be filed by Respondents and any intervenors in

support of Respondents no later than February 20, 1998;

It is further ordered, that reply affidavits and memoranda of law

addressing issues with respect to both the Four Party Agreement and the

New Agreement shall be filed by the Bureau of Enforcement and any

intervenors in opposition to Respondent no later than March 20, 1998;

It is further ordered, that rebuttal affidavits and memoranda of

law addressing issues with respect to both the Four Party Agreement and

the New Agreement shall be filed by Respondents and intervenors in

support no later than April 3, 1998;

It is further ordered, that, should any party believe that an oral

argument is required, that party must submit a request specifying the

reasons therefore and why argument by memorandum is inadequate to

present the party's case. Any request for oral argument shall be filed

no later than April 3, 1998;

It is further ordered, that notice of this Order to Show Cause be

published in the Federal Register, and that a copy thereof be served

upon Respondents;

It is further ordered, that all documents submitted by any party of

record in this proceeding shall be filed in accordance with Rule 118 of

the Commission's rules of practice and procedure, 46 CFR 502.118, as

well as being mailed directly to all parties of record;

Finally, it is ordered, that pursuant to the terms of Rule 61 of

the Commission's rules of practice and procedure, 46 CFR 502.61, the

Order to Show Cause served October 17, 1997 in this proceeding is

amended to require that the final decision of the Commission in this

proceeding shall be issued by July 3, 1998.

By the Commission.

Joseph C. Polking,

Secretary.

[FR Doc. 98-1291 Filed 1-20-98; 8:45 am]

BILLING CODE 6730-01-M