THE OMNIBUS MARITIME BILL REDRAFT

MONDAY, MARCH 3, 1980

HOUSE OF REPRESENTATIVES,

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D.C.

The committee met, pursuant to call, at 2 p.m., in room 1334, Longworth House Office Building, Hon. John M. Murphy (chairman) presiding.

Present: Representatives Murphy, Bonior, Wyatt, Snyder, Pritchard, Trible, and M. Evans.

The CHAIRMAN. The committee will come to order. Today we commence the final 2 days of hearings on the omnibus maritime bill. This will conclude the initial phase of consideration and will permit us to reintroduce a clean bill which we intend to mark up and report to the floor prior to the Easter recess.

We have already pointed out in 25 hearings so far the critical state that the American-flag merchant marine is in. We have gone, I think, to extraordinary measures to bring business, labor, and government together to hammer out a piece of legislation to stop the decline of this industry and to design a program together for the future.

[The following was received for the record:]

STATEMENT OF HON. JOHN M. MURPHY, CHAIRMAN, COMMITTEE ON MERCHANT MARINE AND FISHERIES

Today we commence the final two days of hearings on the so-called omnibus maritime bill. This will conclude the initial phase of consideration and will permit us to reintroduce a clean bill which we intend to markup and report to the floor prior to the easter recess.

Nearly a year ago, Congressmen McCloskey, Snyder, and I agreed to work together in an effort to produce legislation that would halt the ongoing decline of the United States as a maritime power.

After several months of drafting, we introduced H.R. 4769, the omnibus maritime bill, which was the subject of twenty-five days of hearings. Then on February 11, 1980, a staff redraft of the original bill was made available for public comment. The redraft reflected the findings of those hearings, our desire to persist with a bipartisan proposal and our acknowledgement that while more Federal expenditures may be needed, our resources are necessarily finite. Since February eleventh, we have received considerable comment from private interests, foreign government, public interest groups, trade associations, constitutents and private citizens. Based on those submissions and the hearings today and tomorrow, we will prepare a final bill for introduction. Markup will follow.

The state of maritime industry mandates that present trends be altered. In recent years, we have witnessed a severe erosion in Nation's maritime strength. Despite substantial Federal assistance, one major shipyard recently closed, and more than half of the remaining major yards face possible closure by the mid-1980's. U.S.-flag ship operators are faring no better. U.S.-flag ships now carry less than five percent of our Nation's foreign commerce. Two of our major liner operators have gone bankrupt since 1978 and others are facing that prospect. This continual erosion

creates balance of payments problems, reduces maritime employment and dramatically affects our national security posture.

Our bill has provided a forum for the first comprehensive debate on national maritime policy since 1936. Only a broad reform of the sort we propose can arrest our decline as a seagoing power and adequately protect the national interest. At the same time, we are mindful of the realities of the world in which we live. With the prospect of an annual rate of inflation of eighteen percent and a significant Federal deficit, we must work in concert with the administration to write a cost effective program. We are confident that the job can be done.

The bill makes major changes in Government maritime policy. It unifies governmental maritime agencies, dramatically reduces regulatory restrictions, loosens restrictive procurement practices, and opens Federal support programs to a new range of potential ship operators and builders.

We are intent upon proceeding with an omnibus approach. The danger is clear and present and demands an immediate, thorough and broad-based attack of the problem.

Originally we had not intended to resume public hearings, and some would prefer that we move immediately to markup. We believe, however, that this debate is of such importance that before we limit consideration to the members of the Congress at large we must reach out to guarantee that every conceivable interest or interest group has had an opportunity to speak to the issues raised by our legislation. Now, let me welcome our first witness, Mr. Richard Daschbach, Chairman of the Federal Maritime Commission. Good afternoon.

STATEMENT OF HON. RICHARD DASCHBACH, CHAIRMAN, FEDERAL MARITIME COMMISSION, ACCOMPANIED BY BRIEN KEHOE, GENERAL COUNSEL

The CHAIRMAN. And I am happy that our first witness in the final 2 days of hearings is Chairman Richard Daschbach, Chairman of the Federal Maritime Commission.

If you would proceed.

[The following was received for the record:]

STATEMENT OF RICHARD J. DASCHBACH, CHAIRMAN, FEDERAL Maritime

COMMISSION

Good afternoon, Mr. Chairman. I am pleased to be here today to testify on the staff revision of H.R. 4769, “The Omnibus Maritime Regulatory Reform, Revitalization, and Reorganization Act of 1980."

I am accompanied today by our General Counsel, Brien Kehoe.

The Federal Maritime Commission continues to support the basic policy objectives of H.R. 4769, and we believe that the events of recent months have given new importance to these goals.

The danger of our reliance on foreign governments with uncertain loyalties for both the production and transportation of essential goods has underscored the need to develop a U.S.-flag merchant marine capable of meeting our nation's basic economic and defense requirements.

The continued severity of our foreign trade imbalance requires us to institute new policies designed to assure ocean transportation rates for U.S. exporters and importers that are internationally competitive.

As government influence in the world marketplace increases and growing numbers of maritime nations adopt measures to reserve portions of their trade for their own merchant fleets, it becomes imperative for us to harmonize our shipping practices with those of our major trading partners and to seek comity through mutually beneficial initiatives such as the implementation of intergovernmental maritime agreements.

We welcome reform of our regulatory mandate which would allow us to help achieve these objectives.

However, the ability of the Commission to use regulation to achieve the goals comtemplated by H.R. 4769 is precluded by the reorganization embodied in section 301, which amends Title I, sections 103 (a), (b) and (c) of the Merchant Marine Act of 1936 by requiring the President to establish a new position of Undersecretary of Commerce for Maritime Policy who would absorb the Federal Maritime Commission's functions in establishing policy with respect to the U.S. foreign commerce, would exercise policy direction over the FMC's regulation of foreign commerce, and

would be assigned all Commission functions relating to rules, regulations, or standards for the evaluation of agreements as set forth in Title II of the Omnibus Bill. Title III would also provide for review of most Commission decisions by the new Undersecretary of Commerce for Maritime Policy.

We concur with both the Committee and the President that the Department of Commerce should clearly be designated the lead agency in the development of U.S. maritime policy. It is not necessary to dilute the effectiveness of U.S. maritime regulation to achieve this purpose, however, and we believe that revised Title III of H.R. 4769 retains the same basic flaws inherent in the proposal to shift the Federal Maritime Commission's functions to the Office of the Special Trade Representative. The provisions of Title III would rekindle the controversy settled by the establishment of the Federal Maritime Commission as an independent regulatory agency nineteen years ago. We support the call for a single voice in U.S. maritime policymaking, but this call for a single voice must not be interpreted as literally mandating a single spokesperson for all maritime activities.

The delineation between regulatory and promotional functions is a valid one. The Maritime Administration has a statutory mandate to promote U.S.-flag shipping as its principal policy objective. Although the Federal Maritime Commission must take cognizance of the competitive well-being of U.S.-flag shipping as one of its policy objectives, we have a judicial mandate as well.

We are empowered with quasi-judicial authority to act as a court, receiving evidence, weighing various legal arguments and rendering decision. In this capacity, we must impartially resolve disputes between various parties subject to the Shipping Act, often involving the competing interests of U.S. and foreign-flag carriers. We cannot effectively discharge these duties if we are susceptible to charges of undue influence and bias, and it would be impossible to avoid the appearance of bias if regulatory and promotional functions were again combined within a single entity. The Congress has recognized this problem by re-affirming the importance of maintaining independent regulatory supervision over ocean shipping every time the issue has come before it.

The problem of merging regulatory and promotional functions would prove especially troublesome in areas such as penalty assessment under the provisions of the anti-rebating law and adjudication of proceedings under the controlled carrier stat

ute.

At a time when the United States is attempting to ensure that the carriers of all nations adhere equally to the provisions of U.S. law, it would be foolish to suddenly take steps to ensure that the provisions of U.S. law do not equally apply to them. Disparate treatment for U.S. and foreign-flag carriers would almost inevitably result from a merger of U.S. regulatory and promotional activities, and this consolidation is unnecessary.

The President's letter to the Congress of July 20, 1979 clearly designates the Maritime Administration to serve as the Administration's spokesman on maritime affairs and imbues the Federal Maritime Commission with final authority in maritime regulatory matters. We again urge the committee to incorporate this recommendation into any legislation it reports.

By relocating the FMC's major policymaking functions within the executive branch, Title III creates other serious problems that should concern this committee. In considering the implications of Title III, the Congress must address the fundamental question of whether it is willing to delegate away its authority over ocean shipping.

The transfer of powers contemplated in Title III would not yield the benefits that might be expected from the creation of a single voice for maritime affairs, but rather, by relocating all maritime policy functions within the executive branch, would subject these functions to the divergent and competing parochial interests of the various executive departments.

We are both aware, Mr. Chairman, of the role played by many of these departments and the Office of Management and Budget regarding your legislative initiatives of the past two years.

Given the attitudes prevalent among most cabinet departments, would it have been possible for any executive agency to have pushed not only for passage of the controlled carrier and anti-rebating bills, but for the authority to administer them? I do not think so. It was the FMC alone among government agencies which supported enactment of the anti-rebating and controlled carrier legislation.

Although there is clearly merit to the concept of having a maritime spokesman at the Cabinet level, the independence of the FMC gives us a necessary degree of insulation from the competing policy interests within the executive branch. As an independent agency, it is far easier for us to advocate the passage and seek the responsibility for administering legislative proposals that may be controversial

within Administration circles than it would be for any executive department whose positions are subject to the prior approval and clearance of OMB.

The issue of responsiveness to the legislative branch cannot be overemphasized. The FMC is currently an arm of the Congress, and our responsiveness to the Congress has been exemplified by our successful cooperation on the major maritime laws enacted during the past two years.

The conflicts inherent in shifting maritime regulatory functions to the executive branch are compounded by the problems created by the introduction of a new layer of bureaucratic review. The addition of this layer of supervision inevitably raises the specter of adjudicatory delay, which we all condemn.

The Federal Maritime Commission has eliminated its backlog of docketed proceedings and has revised its Rules of Practice and Procedure to minimize regulatory delay. The serious impact of government inaction on the ocean shipping industry and the consumer has been a mutual source of concern, Mr. Chairman.

At a time when the FMC is getting its house in order, it would be unfortunate to subject regulatory policy-making to a lengthy review process and unnecessary layers of supervision that would erode our progress in this area. The potential for delay created by the review process contemplated in section 301 of H.R. 4769 would be exacerbated by placing the final authority for regulatory policy within the executive branch, thus subjecting it to a battleground of competing interests, even within the Department of Commerce, that would not only slow the pace of decision-making but dilute the clarity of decisions ultimately reached.

We have serious doubts regarding whether the proposed review process would work.

It is unclear how the provisions of Title III purport to delineate between routine adjudications that would presumably be handled by the FMC and major policy issues that would be decided by the Undersecretary of Commerce. Since Commission policy reflects the cumulative effect of daily adjudicatory decisions, policy-making and the routine deliberative process are intertwined, and any effort to separate them would be artificial and difficult.

Major rulemaking proceeding would present a particularly thorny jurisdictional problem, and the effort to separate the Commission's evaluation of agreements from the Undersecretary of Commerce's exercise of all functions "with respect to the establishment of rules, regulation, or standards for the evaluation of agreements" could consume most of the new office's time and energy.

The confusing fragmentation of authority is epitomized by proposed new subsection 103(c)(2)(d) of the Merchant Marine Act, 1936, entitled "Foreign Unfair Practices: Retaliation," contained in section 301 of H.R. 4769. This subsection, which apparently replaces the provisions of section 19 of the Merchant Marine Act, 1920, vests in the Undersecretary of Commerce the authority to initiate an investigation into alleged unfavorable conditions in the U.S. foreign trade, presumably make his own finding based upon information elicited by his staff, and then direct the Federal Maritime Commission to act based on those findings.

The continuity which currently characterizes the Commission's section 19 rulemaking proceedings, in which a single agency retains authority for investigation, adjudication, and implementation of corrective action, is lost.

The new proposal raises many questions.

Who is responsible and maintains the necessary staff for continuous monitoring of trade conditions to determine when unfavorable conditions have arisen and when they have ceased to exist-the FMC or the Department of Commerce?

To whom should petitions for redress by foreign parties claiming to be harmed be directed-the FMC or the Department of Commerce?

Under the strictures of due process, can a quasi-judicial agency such as the FMC be directed to take adjudicatory action to suspend a tariff without developing or reviewing the record on which that action is based?

Under the constraints of equity, can the Department of Commerce, with it concurrent promotional responsibilities, make as even-handed a decision as the FMC whether U.S.-flag vessels have been denied equal privileges?

Finally, H.R. 4769's new section contemplates retaliation initiated only after a specific complaint has been lodged, a substantial reduction of the government's current authority to launch an investigation into foreign unfair practices on its own motion.

The quandary posed by the foreign practices provision reflects but a single example of how the attempt to unravel the interstitial relationship between adjudication and policy-making will create confusion and delay, especially if it is conducted on an ad hoc basis. The problem of delay is further compounded by new subsection 103(c)(2) of the Merchant Marine Act, 1936 contained in Title III, which establishes