Amendments to Regulations Governing Restrictive Foreign Shipping Practices, and New Regulations Governing Controlled Carriers

FEDERAL MARITIME COMMISSION

46 CFR Parts 550, 551, 555, 560, 565, 585, 586, 587, and 588

[Docket No. 98-25]

Amendments to Regulations Governing Restrictive Foreign Shipping

Practices, and New Regulations Governing Controlled Carriers

AGENCY: Federal Maritime Commission.

ACTION: Final rule.

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SUMMARY: The Federal Maritime Commission is revising and redesignating

its regulations relating to section 19 of the Merchant Marine Act,

1920, section 13(b)(5) of the Shipping Act of 1984, and the Foreign

Shipping Practices Act of 1988, and adding new regulations relating to

section 9 of the Shipping Act of 1984, in order to incorporate certain

amendments made by the Ocean Shipping Reform Act of 1998 as well as to

clarify and reorganize existing regulations.

DATES: This rule is effective May 1, 1999.

FOR FURTHER INFORMATION CONTACT: Thomas Panebianco, General Counsel,

Federal Maritime Commission, 800 North Capitol Street N.W., Washington,

D.C. 20573-0001, (202) 523-5740.

SUPPLEMENTARY INFORMATION: On December 4, 1998, the Federal Maritime

Commission (``Commission'') published a proposed rule to revise its

regulations on restrictive foreign shipping practices and controlled

carriers. 63 FR 67030. The proposed rule implemented changes made by

the Ocean Shipping Reform Act of 1998, Pub. L. 105-258, 112 Stat. 1902

(``OSRA''), and also clarified existing regulations. Interested parties

were given the opportunity to submit comments on the proposed rule. The

Commission received four comments from industry groups and regulated

entities.

The first comment received by the Commission is from the Council of

European and Japanese National Shipowners' Associations (``CENSA''),

which has three specific comments to the proposed rule. CENSA first

addresses Secs. 550.102 and 550.301, which explicate the regulatory

action that may be taken by the Commission in the event it finds

foreign shipping practices to create conditions unfavorable to

shipping. The proposed regulations indicate that the Commission may

take action when it finds that ``competitive methods, pricing practices

or other practices'' have created conditions unfavorable to shipping.

This language tracks verbatim OSRA's changes to section 19(a)(2)

(formerly section 19(1)(b)) of the Merchant Marine Act, 1920. CENSA

fears that this provision expands the Commission's power over

privately-operated shipping companies with respect to their commercial

pricing practices. CENSA states that Organisation for Economic

Cooperation and Development (``OECD'') member nations have agreed to

reach a uniform consensus as to the appropriate measures to be taken to

address unfair or non-commercial practices. CENSA believes that such

issues must be taken up in inter-governmental fora rather than by the

Commission. CENSA requests that the Commission state that it will not

pursue any matter under section 19 of the Merchant Marine Act, 1920

regarding the pricing practices of owners or operators of vessels of a

foreign country unless those practices have been shown to be otherwise

in violation of the Shipping Act of 1984 (``1984 Act'').

CENSA's comment would have the Commission affirmatively abdicate

its statutory responsibility to combat conditions unfavorable to

shipping vested in it by Congress for the purpose of permitting other

bodies, like the OECD, to establish uniform rules. By including in OSRA

references to ``pricing practices,'' Congress has bestowed upon the

Commission the specific responsibility to review and retaliate against

such practices where they create conditions unfavorable to shipping in

the U.S. foreign trade. The Commission cannot disregard this duty;

should Congress determine through legislation to defer to the OECD or

some other such forum, then the Commission would change its approach

accordingly. We note, moreover, that the addition of ``pricing

practices'' to the statute is a clarification of existing law and

authority, rather than an expansion of such. The Commission has long

interpreted ``pricing practices'' to be included within the meaning of

``practices'' generally, and has on numerous occasions acted

accordingly. The Commission has therefore determined not to incorporate

CENSA's comment into the final rule.

CENSA then addresses Sec. 560.2(c), in which the Commission

proposed to eliminate the term ``fighting ships'' from its regulation,

and substitute in its place language forbidding ``below market pricing

designed to exclude competition.'' CENSA states that the Commission's

determination to eliminate the term ``fighting ships'' must be taken in

concert with what CENSA views as the survival of the fighting ship

concept, though not the term, in OSRA. CENSA argues that Congress did

not intend to eliminate the concept of fighting ships, but instead

meant to recognize current conditions in which predatory practices

would often be undertaken by multiple ship combinations rather than by

a single ``fighting ship.'' CENSA points to section 10(b)(6) of the

1984 Act as amended by OSRA as evidence of the survival of the fighting

ship concept. That section indicates that ``(n)o common carrier, either

alone or in conjunction with any other person, directly or indirectly,

may use a vessel or vessels in a particular trade for the purpose of

excluding, preventing, or reducing competition, by driving another

ocean common carrier out of that trade.'' Prior to the enactment of

OSRA, the section (previously designated as section 10(b)(7)) indicated

that ``(n)o common carrier, either alone or in conjunction with any

other person, directly or indirectly, may employ a fighting ship.''

CENSA argues that the replacement of the term ``fighting ship''

reflects a refinement of the concept. CENSA fears that the proposed

regulation proffered by the Commission is too vague and could lead to

an overly broad interpretation to the detriment of competitive pricing

mechanisms. For this reason, CENSA proposes that the Commission include

the language from section 10(b)(6) in place of the term ``fighting

ship'' in 46 CFR 560.2(c).

The deletion of the term ``fighting ship'' from Sec. 560.2(c) was

undertaken to reflect the deletion of that term from the 1984 Act.

However, the definition of ``predatory practices'' in Sec. 560.2(c), as

CENSA has made clear, should continue to include the concept of a

reduction in competition through the use of pricing mechanisms designed

to push a common carrier out of a particular trade.

[[Page 8008]]

The section as proposed indicated that predatory practices may be but

are not limited to below cost pricing and the use of closed conferences

employing deferred rebates. Other actions or practices may very well

fall into the definition of ``predatory practices,'' as the list is not

exhaustive. However, CENSA's comment in this regard does serve to

clarify and refine the concept the Commission attempted to propose in

section 560.2(c); accordingly, the Commission has determined to amend

Sec. 560.2(c) to read as follows:

(c) Use of predatory practices, possibly including but not

limited to the use of a vessel or vessels in a particular trade for

the purpose of excluding, preventing, or reducing competition by

driving another ocean common carrier out of that trade, and closed

conferences employing deferred rebates, which unduly impair access

of a U.S. flag vessel to the trade.

Finally, CENSA addresses Sec. 560.7(b)(3)(i), in which the

Commission proposed to include the suspension of service contracts as a

possible remedy to address restrictive foreign shipping practices under

section 13(b)(6) of the 1984 Act. CENSA argues that OSRA did not amend

section 13(b)(6) of the 1984 Act to include the suspension of service

contracts, although it did amend other sections of the Act to reflect

this penalty.

CENSA is mistaken. The Foreign Shipping Practices Act of 1988

(``FSPA'') as amended by OSRA indicates that ``the actions against

foreign carriers authorized in subsections (e) and (f) * * * may be

used in the administration and enforcement of section 13(b)(6) of the

Shipping Act of 1984.'' See subsection 11a(h). The actions in

subsections (e) and (f) include, at subsection (e)(1)(B), ``suspension,

in whole or in part, of any or all tariffs and service contracts.'' The

suspension of service contracts is authorized by OSRA's modification to

the FSPA, and is correctly included in Sec. 560.7(b)(3)(i).

The second comment is from the National Industrial Transportation

League (``NITL''), a shipper organization. The comment examines

redesignated part 560, which implements section 13(b)(6) of the

Shipping Act of 1984, as revised (and renumbered--it was formerly

section 13(b)(5)) by OSRA. The comment specifically addresses

Sec. 560.2(c), in which the Commission proposed to amend its

regulations relating to ``predatory practices'' by including in the

description of such practices the definition ``possibly including but

not limited to below market pricing designed to exclude competition.''

NITL states that this amendment is not necessitated by OSRA, is vague,

and is not supported by well-developed law. NITL states that it is

concerned that the precedent established by this proposed rule, if

implemented, could be used in other contexts, like claims under section

10 of the 1984 Act, and that such usage would be inappropriate.

NITL argues that case law indicates that the term ``predatory

practices'' is taken to mean pricing activity below costs, not below

market pricing, citing inter alia Brooke Group, Ltd. v. Brown and

Williamson Tobacco Corp., 509 U.S. 209 (1993). NITL concludes that the

reference to ``below market pricing designed to exclude competition''

should be eliminated.

As explained above, in response to CENSA's comment, Sec. 560.2(c)

has been amended to remove the reference to ``below market pricing.''

For this reason, NITL's concerns with the use of the ``below market''

language appear to have been mooted. Accordingly, no further change in

the amended rule is necessitated.

The third comment received by the Commission is from the China

Ocean Shipping Company (``COSCO''). COSCO notes that OSRA has

eliminated several exceptions to the Commission's controlled carrier

program, which elimination will have the effect of imposing on COSCO

controlled carrier regulations in the trade between the U.S. and China

from which it was previously exempt. COSCO further states that it

should not be considered a controlled carrier, as it allegedly does not

receive any allocations or subsidies from the Chinese government.

COSCO's comments are in the nature of a policy-based objection to

the scope of the controlled carrier provisions, and Congress's deletion

of certain exceptions. Therefore, no changes to the rule are warranted

by COSCO's comments.

The final comment received by the Commission is from Fruit Shippers

Ltd. This comment, captioned as a response to Docket No. 98-25, in fact

addresses issues as to the definition of ``common carrier'' in

Secs. 514.2 and 572.104(f), which were raised in Docket No. 98-29, 63

FR 70368. Because the comment relates only to those sections, and does

not address any of the issues in this docket, the Commission will

consider the comment in the context of that proceeding.

In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601 et

seq., the Chairman of the Federal Maritime Commission has certified to

the Chief Counsel for Advocacy, Small Business Administration, that the

rule will not have a significant impact on a substantial number of

small entities. In its Notice of Proposed Rulemaking, the Commission

stated its intention to certify this rulemaking because the proposed

changes affect vessel-operating common carriers, entities that are not

considered to be small. The comments received did not dispute the

Commission's intention to certify; therefore, the certification is

continued.

This regulatory action is not a ``major'' rule under 5 U.S.C.

804(2).

List of Subjects

46 CFR Parts 550 and 585

Administrative practice and procedure, Maritime carriers.

46 CFR Part 551 and 586

Japan, Maritime carriers.

46 CFR Parts 560 and 587

Administrative practice and procedure, Maritime carriers.

46 CFR Parts 555 and 588

Administrative practice and procedure, Investigations, Maritime

carriers.

46 CFR Part 565

Administrative practice and procedure, Maritime carriers, Reporting

and recordkeeping requirements.

For the reasons set out in the preamble, the Commission amends 46

CFR parts 550, 551, 555, 560, 585, 586, 587, and 588, and adds new part

565, as set forth below:

1. Revise the heading of subchapter C to read:

SUBCHAPTER C--REGULATIONS AND ACTIONS TO ADDRESS RESTRICTIVE FOREIGN

MARITIME PRACTICES

PART 585--REGULATIONS TO ADJUST OR MEET CONDITIONS UNFAVORABLE TO

SHIPPING IN THE FOREIGN TRADE OF THE UNITED STATES [REDESIGNATED AS

PART 550]

1. Redesignate part 585 as part 550, and transfer newly designated

part 550 to subchapter C.

2. The authority citation for redesignated part 550 is revised to

read as set forth below:

Authority: 5 U.S.C. 553; sec. 19 (a)(2), (e), (f), (g), (h),

(i), (j), (k) and (l) of the Merchant Marine Act, 1920, 46 U.S.C.

app. 876 (a)(2), (e), (f), (g), (h), (i), (j), (k) and (l), as

amended by Pub. L. 105-258; Reorganization Plan No. 7 of 1961, 75

Stat 840; and sec. 10002 of the Foreign Shipping Practices Act of

1988, 46 U.S.C. app. 1710a.

2A. Add a note to newly designated Part 550 to read as follows:

[[Page 8009]]

Note to Part 550: In accordance with 44 U.S.C. 3518(c)(1)(B),

and except for investigations undertaken with reference to a

category of individuals or entities (e.g., an entire industry), any

information requests or requirements in this part 550 are not

subject to the requirements of section 3507 of the Paperwork

Reduction Act because such collections of information are pursuant

to a civil, administrative action or investigation by an agency of

the United States against specific individuals or entities.

3. Revise redesignated Sec. 550.102 to read as follows:

Sec. 550.102 Scope.

Regulatory actions may be taken when the Commission finds, on its

own motion or upon petition, that a foreign government has promulgated

and enforced or intends to enforce laws, decrees, regulations or the

like, or has engaged in or intends to engage in practices which

presently have or prospectively could create conditions unfavorable to

shipping in the foreign trade of the United States, or when owners,

operators, agents or masters of foreign vessels engage in or intend to

engage in competitive methods, pricing practices or other practices

which have created or could create such conditions.

4. Revise redesignated Sec. 550.103(a) and (b) to read as follows:

Sec. 550.103 Definitions.

* * * * *

(a) Act means the Merchant Marine Act, 1920, as amended by Pub. L.

101-595 and as amended by Pub. L. 105-258.

(b) Person means individuals, corporations, partnerships and

associations existing under or authorized by the laws of the United

States or of a foreign country, and includes any common carrier, tramp

operator, bulk operator, shipper, shippers' association, importer,

exporter, consignee, ocean transportation intermediary, marine terminal

operator, or any component of the Government of the United States.

* * * * *

5. Revise redesignated Sec. 550.201(a) to read as follows:

Sec. 550.201 Information orders.

* * * * *

(a) The Commission may, by order, require any person (including any

common carrier, tramp operator, bulk operator, shipper, shippers'

association, ocean transportation intermediary, or marine terminal

operator, or any officer, receiver, trustee, lessee, agent, or employee

thereof), to file with the Commission a report, answers to questions,

documentary material, or other information which the Commission

considers necessary or appropriate;

* * * * *

6. Revise redesignated Sec. 550.202(b) introductory text, and

(b)(3) to read as follows:

Sec. 550.202 Type of information

* * * * *

(b) Shipper, shippers' association, or ocean transportation

intermediary in the affected trade to furnish any or all of the

following information:

* * * * *

(3) Amount of brokerage, ocean transportation intermediary

compensation or other charges collected or paid in connection with

shipments in the affected trade; and

* * * * *

7. Revise the introductory text and paragraph (d) of redesignated

Sec. 550.301 to read as follows:

Sec. 550.301 Findings.

For the purposes of this part, conditions created by foreign

governmental action or competitive methods, pricing practices or other

practices of owners, operators, agents or masters of foreign vessels

are found unfavorable to shipping in the foreign trade of the United

States, if such conditions:

* * * * *

(d) Restrict or burden a carrier's intermodal movements or shore-

based maritime activities, including terminal operations and cargo

solicitation; agency services; ocean transportation intermediary

services and operations; or other activities and services integral to

transportation systems; or

* * * * *

8. Revise redesignated Sec. 550.601(c) to read as follows:

Sec. 550.601 Actions to correct unfavorable conditions.

* * * * *

(c) Suspend, in whole or in part, tariffs and service contracts for

carriage to or from United States ports, including a common carrier's

right to use tariffs of conferences and service contracts of agreements

in United States trades of which it is a member for any period the

Commission specifies;

* * * * *

9. Revise redesignated Sec. 550.602 to read as follows:

Sec. 550.602 Penalty.

A common carrier that accepts or handles cargo for carriage under a

tariff or service contract that has been suspended under Sec. 550.505

or Sec. 550.601 of this part, or after its right to use another tariff

or service contract has been suspended under those sections, is subject

to a civil penalty of not more than $50,000 for each day that it is

found to be operating under a suspended tariff or service contract.

PART 586--ACTIONS TO ADJUST OR MEET CONDITIONS UNFAVORABLE TO

SHIPPING IN THE U.S. FOREIGN TRADE [REDESIGNATED AS PART 551]

1. Redesignate part 586 as part 551, and transfer newly designated

part 551 to subchapter C.

2. The authority citation for redesignated part 551 is revised to

read as follows:

Authority: 46 U.S.C. app. 876(1)(b); 46 U.S.C. app. 876 (5)

through (12); 46 CFR part 550; Reorganization Plan No. 7 of 1961, 26

FR 7315 (August 12, 1961).

2A. Add a note to newly designated Part 551 to read as follows:

Note to Part 551: In accordance with 44 U.S.C. 3518(c)(1)(B),

and except for investigations undertaken with reference to a

category of individuals or entities (e.g., an entire industry), any

information requests or requirements in this part 551 are not

subject to the requirements of section 3507 of the Paperwork

Reduction Act because such collections of information are pursuant

to a civil, administrative action or investigation by an agency of

the United States against specific individuals or entities.

Sec. 551.3 [Removed]

3. Redesignated Sec. 551.3 is removed.

PART 587--ACTIONS TO ADDRESS CONDITIONS UNDULY IMPAIRING ACCESS OF

U.S.-FLAG VESSELS TO OCEAN TRADE BETWEEN FOREIGN PORTS

[REDESIGNATED AS PART 560]

1. Redesignate part 587 as part 560, and transfer newly designated

part 560 to subchapter C.

2. The authority citation for redesignated part 560 is revised to

read as follows:

Authority: 5 U.S.C. 553; secs. 13(b)(6), 15 and 17 of the

Shipping Act of 1984, 46 U.S.C. app. 1712(b)(6), 1714, and 1716, as

amended by Pub. L. 105-258; sec. 10002 of the Foreign Shipping

Practices Act of 1988 (46 U.S.C. app. 1710a), as amended by Pub. L.

105-258.

3. Revise redesignated Sec. 560.1(a) to read as follows:

Sec. 560.1 Purpose; general provisions.

(a)(1) It is the purpose of this part to enumerate certain

conditions resulting from the action of a common carrier, acting alone

or in concert with any person, or a foreign government, which unduly

impair the access of a vessel

[[Page 8010]]

documented under the laws of the United States whether liner, bulk,

tramp or other vessel, (hereinafter ``U.S. flag vessel'') to ocean

trade between foreign ports, which includes intermodal movements, and

to establish procedures by which the owner or operator of a U.S. flag

vessel (hereinafter ``U.S. flag carrier'') may petition the Federal

Maritime Commission for relief under the authority of section

13(b)(6)of the Shipping Act of 1984 (``the Act'') (46 U.S.C. app.

1712(b)(6)).

(2) It is the further purpose of this part to indicate the general

circumstances under which the authority granted to the Commission under

section 13(b)(6)may be invoked, and the nature of the subsequent

actions contemplated by the Commission.

(3) This part also furthers the goals of the Act with respect to

encouraging the development of an economically sound and efficient U.S.

flag liner fleet as stated in section 2 of the Act (46 U.S.C. app.

1701).

* * * * *

4. Revise redesignated Sec. 560.2(c) to read as follows:

Sec. 560.2 Factors indicating conditions unduly impairing access.

* * * * *

(c) Use of predatory practices, possibly including but not limited

to the use of a vessel or vessels in a particular trade for the purpose

of excluding, preventing, or reducing competition by driving another

ocean common carrier out of that trade, and closed conferences

employing deferred rebates, which unduly impair access of a U.S. flag

vessel to the trade.

* * * * *

5. Revise the first sentence of the introductory text of

redesignated Sec. 560.5(a) to read as follows:

Sec. 560.5 Receipt of relevant information.

(a) In making its decision on matters arising under section

13(b)(6)of the Act, the Commission may receive and consider relevant

information from any owner, operator, or conference in an affected

trade, or from any foreign government, either directly or through the

Department of State or from any other reliable source. * * *

6. Revise redesignated Sec. 560.7(b)(3)(i) to read as follows:

Sec. 560.7 Decision; sanctions; effective date.

* * * * *

(b) * * *

(3)(i) Suspension, in whole or in part, of any or all tariffs or

service contracts for carriage to or from United States ports for any

period the Commission specifies, or until such time as unimpaired

access is secured for U.S. flag carriers in the affected trade.

* * * * *

PART 588--ACTIONS TO ADDRESS ADVERSE CONDITIONS AFFECTING U.S. FLAG

CARRIERS THAT DO NOT EXIST FOR FOREIGN CARRIERS IN THE UNITED

STATES [REDESIGNATED AS PART 555]

1. Redesignate part 588 as part 555, and transfer newly designated

part 555 to subchapter C.

2. The authority citation for redesignated part 555 is revised to

read as follows:

Authority: 5 U.S.C. 553; sec. 10002 of the Foreign Shipping

Practices Act of 1988 (46 U.S.C. app. 1710a), as amended by Pub. L.

105-258.

2A. Add a note to newly designated part 555 to read as follows:

Note to Part 555: In accordance with 44 U.S.C. 3518(c)(1)(B),

and except for investigations undertaken with reference to a

category of individuals or entities (e.g., an entire industry), any

information requests or requirements in this part 555 are not

subject to the requirements of section 3507 of the Paperwork

Reduction Act because such collections of information are pursuant

to a civil, administrative action or investigation by an agency of

the United States against specific individuals or entities.

3. Revise redesignated Sec. 555.1 to read as follows:

Sec. 555.1 Purpose.

It is the purpose of the regulations of this part to establish

procedures to implement the Foreign Shipping Practices Act of 1988, as

amended by the Ocean Shipping Reform Act of 1998, which authorizes the

Commission to take action against foreign carriers, whose practices or

whose government's practices result in adverse conditions affecting the

operations of United States carriers, which adverse conditions do not

exist for those foreign carriers in the United States. The regulations

of this part provide procedures for investigating such practices and

for obtaining information relevant to the investigations, and also

afford notice of the types of actions included among those that the

Commission is authorized to take.

4. Revise redesignated Sec. 555.2(a), (c), and (d) to read as

follows:

Sec. 555.2 Definitions.

* * * * *

(a) Common carrier, marine terminal operator, ocean transportation

intermediary, ocean common carrier, person, shipper, shippers'

association, and United States have the meanings given each such term,

respectively, in section 3 of the Shipping Act of 1984 (46 U.S.C. app.

1702);

* * * * *

(c) Maritime services means port-to-port carriage of cargo by the

vessels operated by ocean common carriers;

(d) Maritime-related services means intermodal operations, terminal

operations, cargo solicitation, agency services, ocean transportation

intermediary services and operations, and all other activities and

services integral to total transportation systems of ocean common

carriers and their foreign domiciled affiliates on their own and

others' behalf;

* * * * *

5. Revise redesignated Sec. 555.4(a) and (c) to read as follows:

Sec. 555.4 Petitions.

(a) A petition for investigation to determine the existence of

adverse conditions as described in Sec. 555.3 may be submitted by any

person, including any common carrier, shipper, shippers' association,

ocean transportation intermediary, or marine terminal operator, or any

branch, department, agency, or other component of the Government of the

United States. Petitions for relief under this part shall be in

writing, and filed in the form of an original and fifteen copies with

the Secretary, Federal Maritime Commission, Washington, DC 20573.

* * * * *

(c) A petition which the Commission determines fails to comply

substantially with the requirements of paragraph (b) of this section

shall be rejected promptly and the person filing the petition shall be

notified of the reasons for such rejection. Rejection is without

prejudice to the filing of an amended petition.

6. Revise redesignated Sec. 555.8 (a)(2) to read as follows:

Sec. 555.8 Action against foreign carriers.

(a) * * *

(2) Suspension, in whole or in part, of any or all tariffs or

service contracts, including the right of an ocean common carrier to

use any or all tariffs or service contracts of conferences in United

States trades of which it is a member for such period as the Commission

specifies;

* * * * *

1. Add part 565 to subchapter C to read as follows:

PART 565--CONTROLLED CARRIERS

Sec.

565.1 Purpose and scope.

565.2 Definitions.

[[Page 8011]]

565.3 Classification as controlled carrier.

565.4 Notification to Commission of change in control.

565.5 Exceptions.

565.6 Level of rates and charges generally.

565.7 Effective dates.

565.8 Special permission.

565.9 Commission review, suspension and prohibition of rates,

charges, classifications, rules or regulations.

565.10 Suspension procedures, period and replacement rates.

565.11 Presidential review.

565.12 Stay, postponement, discontinuance or suspension of action.

565.13 OMB control number assigned pursuant to the Paperwork

Reduction Act

Authority: 46 U.S.C. App. 1708, as amended by Pub. L. 105-258.

Sec. 565.1 Purpose and Scope.

(a) Purpose. The regulations of this part are intended to carry out

the Commission's mandate under section 9 of the Shipping Act of 1984,

as amended by the Ocean Shipping Reform Act of 1998, to monitor the

practices of controlled carriers and ensure that they do not:

(1) Maintain rates or charges in their tariffs and service

contracts that are below a level that is just and reasonable; nor

(2) Establish, maintain or enforce unjust or unreasonable

classifications, rules or regulations in those tariffs or service

contracts which result or are likely to result in the carriage or

handling of cargo at rates or charges that are below a just and

reasonable level.

(b) Scope. The regulations contained in this part set forth the

special procedures whereby controlled carriers' tariffs and service

contracts become effective and are reviewed by the Commission. These

regulations in no way exempt controlled carriers from other Commission

regulations or statutory authority to which they may otherwise be

subject as ocean common carriers. These regulations apply to all

controlled carriers operating in the foreign commerce of the United

States unless excepted under section 9(f) of the Shipping Act of 1984,

as reflected by Sec. 565.5.

Sec. 565.2 Definitions.

(a) Controlled carrier means an ocean common carrier that is, or

whose operating assets are, directly or indirectly owned or controlled

by a government. Ownership or control by a government shall be deemed

to exist with respect to any ocean common carrier if:

(1) A majority portion of the interest in the carrier is owned or

controlled in any manner by that government, by any agency thereof, or

by any public or private person controlled by that government; or

(2) That government has the right to appoint or disapprove the

appointment of a majority of the directors, the chief operating officer

or the chief executive officer of the carrier.

(b) Effective date has the same meaning it has in 46 CFR part 520.

Sec. 565.3 Classification as controlled carrier.

(a) Notification. The Commission will periodically review the ocean

common carriers operating in the foreign commerce of the United States

and will notify any ocean common carrier of any change in its

classification as a controlled carrier.

(b) Rebuttal of classification. (1) Any ocean common carrier

contesting such a classification may, within 30 days after the date of

the Commission's notice, submit a rebuttal statement.

(2) The Commission shall review the rebuttal and notify the ocean

common carrier of its final decision.

Sec. 565.4 Notification to Commission of change in control.

Whenever the operation, control or ownership of an ocean common

carrier is transferred resulting in a majority portion of the interest

of that ocean common carrier being owned or controlled in any manner by

a government, the ocean common carrier shall immediately send written

notification of the details of the change to the Secretary of the

Commission. If a carrier is newly commencing ocean common carrier

operations in a United States trade, and if a majority portion of the

carrier is owned or controlled by a government, or if a government may

approve or disapprove the majority of directors or the chief executive

or operating officer of the carrier, the carrier shall immediately send

written notification to the Secretary of the details of such ownership

or control.

Sec. 565.5 Exceptions.

All controlled carriers shall be subject to provisions of this part

and section 9 of the Shipping Act of 1984 except those which meet the

following exceptions:

(a) When the vessels of the controlling state are entitled by a

treaty of the United States to receive national or most-favored-nation

treatment; or

(b) When the controlled carrier operates in a trade served

exclusively by controlled carriers.

Sec. 565.6 Level of rates and charges generally.

No controlled carrier may maintain or enforce rates or charges in

its tariffs or service contracts that are below a level that is just

and reasonable. No controlled carrier may establish or maintain unjust

or unreasonable classifications, rules, or regulations in its tariffs

or service contracts. An unjust or unreasonable classification, rule or

regulation means one that results or is likely to result in the

carriage or handling of cargo at rates or charges that are below a just

and reasonable level. See Sec. 565.9(a)(2) (Rate standards).

Sec. 565.7 Effective dates.

(a) Generally. Except for service contracts, the rates, charges,

classifications, rules or regulations of controlled carriers may not,

unless the Commission has granted special permission, become effective

sooner than the 30th day after the date of publication.

(b) Open rates--(1) Generally. Controlled carriers that are members

of conference agreements publishing rates for commodities designated as

open by the conference are subject to the 30-day controlled carrier

notice requirement, except when special permission is granted by the

Commission under Sec. 565.8.

(2) Conference publication of reduced open rates. Notwithstanding

paragraph (b)(1) of this section, a conference may, on less than 30

days' notice, publish reduced rates on behalf of controlled carrier

members for open-rated commodities:

(i) At or above the minimum level set by the conference; or

(ii) At or above the level set by a member of the conference that

has not been determined by the Commission to be a controlled carrier

subject to section 9 of the Shipping Act of 1984.

(c) Independent action rates of controlled carriers. Conferences

may publish on behalf of their controlled carrier members lower

independent action rates on less than 30 days' notice, subject to the

requirements of their basic agreements and subject to such rates being

published at or above the level set by a member of the conference that

has not been determined by the Commission to be a controlled carrier

subject to section 9 of the Shipping Act of 1984.

Sec. 565.8 Special permission.

Section 8(d) of the Shipping Act of 1984 authorizes the Commission,

in its discretion and for good cause shown, to permit increases or

decreases in rates, or the issuance of new or initial rates, on less

than statutory notice under Sec. 565.7. Section 9(c) of the Shipping

Act of 1984 authorizes the Commission to permit a controlled carrier's

rates, charges, classifications, rules or regulations to become

effective on less than 30 days' notice. The Commission may also in its

[[Page 8012]]

discretion and for good cause shown, permit departures from the

requirements of this part. The Commission will consider such requests

for special permission by controlled carriers pursuant to its

procedures set forth at 46 CFR part 520.

Sec. 565.9 Commission review, suspension and prohibition of rates,

charges, classifications, rules or regulations.

(a) (1) Request for justification. Within 20 days of a request

(with respect to its existing or proposed rates, charges,

classifications, rules or regulations) from the Commission, each

controlled carrier shall file a statement of justification that

sufficiently details the controlled carrier's need and purpose for such

rates, charges, classifications, rules or regulations upon which the

Commission may reasonably base its determination of the lawfulness

thereof.

(2) Rate standards. (i) In determining whether rates, charges,

classifications, rules or regulations by a controlled carrier are just

and reasonable, the Commission shall take into account whether the

rates or charges which have been published or assessed or which would

result from the pertinent rates, charges, classifications, rules or

regulations are below a level which is fully compensatory to the

controlled carrier based upon that carrier's actual or constructive

costs.

(ii) For the purposes of paragraph (a)(2)(i) of this section,

constructive costs means the costs of another carrier, other than a

controlled carrier, operating similar vessels and equipment in the same

or a similar trade.

(iii) The Commission may also take into account other appropriate

factors, including, but not limited to, whether:

(A) The rates, charges, classifications, rules or regulations are

the same as or similar to those published or assessed by other carriers

in the same trade;

(B) The rates, charges, classifications, rules or regulations are

required to assure movement of particular cargo in the trade; or

(C) The rates, charges, classifications, rules or regulations are

required to maintain acceptable continuity, level or quality of common

carrier service to or from affected ports.

(3) Time for determination. The Commission shall determine within

120 days of the receipt of information requested by the Commission

under this section, whether the rates, charges, classifications, rules

or regulations of a controlled carrier may be unjust and unreasonable.

Whenever the Commission is of the opinion that the rates, charges,

classifications, rules or regulations published or assessed by a

controlled carrier may be unjust and unreasonable, the Commission shall

issue an order to the controlled carrier to show cause why those rates,

charges, classifications, rules or regulations should not be

prohibited.

(b) Suspension. Pending a decision on whether to prohibit the

rates, charges, classifications, rules or regulations of a controlled

carrier, the Commission may suspend the rates, charges,

classifications, rules or regulations. See Sec. 565.10.

(c) Prohibition. The Commission shall prohibit the use of any

rates, charges, classifications, rules or regulations that the

controlled carrier has failed to demonstrate to be just and reasonable.

In a proceeding under this paragraph, the burden of proof is on the

controlled carrier to demonstrate that its rates, charges,

classifications, rules or regulations are just and reasonable. The use

of rates, charges, classifications, rules or regulations published or

assessed by a controlled carrier that have been suspended or prohibited

by the Commission is unlawful.

(d) Publication. All final orders of prohibition shall be published

in the Federal Register.

Sec. 565.10 Suspension procedures period and replacement rates.

(a)(1) Suspension prior to effective date. Pending a determination

as to their lawfulness in a prohibition proceeding as described in

Sec. 565.9, the Commission may suspend the rates, charges,

classifications, rules or regulations at any time before their

effective date.

(2) Suspension after effective date. In the case of rates, charges,

classifications, rules or regulations that have already become

effective, the Commission may, upon the issuance of an order to show

cause, suspend those rates, charges, classifications, rules or

regulations on not less than 30 days' notice to the controlled carrier.

(b) Period of suspension. In any case, no period of suspension may

be greater than 180 days.

(c) Implementation. (1) Upon issuance of an order suspending a

rate, charge, classification, rule or regulation in whole or in part,

the Commission shall direct the controlled carrier to remove the

suspended material from its tariff publication; or

(2) if the matter subject to the suspension order is not covered by

paragraph (c)(1) of this section, the Commission shall set forth

procedures in the order for implementing the suspension.

(3) Publication. All orders of suspension shall be published in the

Federal Register.

(d) Replacement rates. Controlled carriers may publish in tariffs

or file in service contracts rates, charges, classifications, rules or

regulations in lieu of the suspended matter (``replacement rates'').

(1) Effective date. In the case of replacement rates which are

published in tariffs and which are scheduled to become effective during

a suspension period, may become effective immediately upon either their

publication in tariffs or upon the effective date of the suspension,

whichever is later.

(2) Rejection of replacement rates. The Commission may reject the

replacement rates, charges, classifications, rules or regulations

published in tariffs or filed in service contracts to take effect

during the suspension period if they are unjust and unreasonable. In

determining whether to reject replacement rates, charges,

classifications, rules or regulations, the Commission will consider

whether they would result in total charges (i.e, rate plus applicable

surcharges) that are lower than the lowest comparable charges effective

for a common carrier, other than a controlled carrier, serving the same

trade.

(3) At the same time it announces replacement rates, the controlled

carrier shall submit to the Secretary of the Commission, a letter

identifying the specific competing common carrier's rates, charges,

classification or rules resulting in total charges which are equal to

or lower than its own.

Sec. 565.11 Presidential review.

The Commission shall transmit all orders of suspension or final

orders of prohibition to the President of the United States

concurrently with the submission of such orders to the Federal Register

pursuant to Sec. 565.9(d) or Sec. 565.10(c)(3). The President may,

within 10 days of either the receipt or effective date of the order,

request in writing that the Commission stay the effect of the order for

reasons of national defense or foreign policy.

Sec. 565.12 Stay, postponement, discontinuance or suspension of

action.

The Commission may, on its own motion or upon petition, postpone,

discontinue, or suspend any and all actions taken by it under the

provisions of this part. The Commission shall immediately stay the

effect of any order issued under this part as requested by the

President pursuant to Sec. 565.11.

[[Page 8013]]

Sec. 565.13 OMB control number assigned pursuant to the Paperwork

Reduction Act

The Commission has received OMB approval for this collection of

information pursuant to the Paperwork Reduction Act of 1995, as

amended. In accordance with that Act, agencies are required to display

a currently valid control number. The valid control number for this

collection of information is 3072-0060.

By the Commission.

Bryant L. VanBrakle,

Secretary.

[FR Doc. 99-3757 Filed 2-17-99; 8:45 am]

BILLING CODE 6730-01-P