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than $50,000, for each such violation. The penalty provided 2

in this paragraph shall be in addition to the penalty provided 3

in paragraph (2)... 4

“(4) Within eighteen months after the effective date of 5

this subsection, the Commission shall report to the Congress

the results of the disclosures made under paragraph..(1), 6 7 together with its recommendations for corrective action. 8

" (5) Nothing in this subsection shall be construed as 9 abrogating or reseinding any civil penalties under any agree10ments now signed with the United States. under section 3 of 11

the Act of August 29, 1972 (making amendments to the 12 Shipping Act, 1916)." 13 ::

· SBC, 4. The provisions of this Act, including the amend14 ments made by this Act, shall become effective immediately 15 upon its date of enactment and, together with any rules and 16 regulations promulgated to implement the amendments made 17 by this Act, shall expire three years after such date of enact18 ment unless otherwise extended by Act of Congress.


Washington, D.C., November 30, 1977.
Chairman, Committee on Merchant Marine and Fisheries,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: During the recent hearings before the Merchant Marine Subcommittee on H.R. 9518, and rebating in general, it was asserted that the Department of Commerce had the obligation under 8 212(g) of the Merchant Marine Act, 1936 (46 USC 1122), to recommend legislative solutions to the rebating problem.

After a review of the legislative history of the 1936 Act and Reorganization Plans No. 21 and No. 7, I have concluded that the Secretary of Commerce has neither the responsibility nor the authority under $ 212(g) to recommend legislation on regulatory matters. This conclusion is based principally upon the purposes and policies underlying the enactment of the 1936 Act and the adoption of the two Reorganization Plans.

When Congress enacted the 1936 Act, in addition to the responsibility for the new promotional programs, it also vested in the U.S. Maritime Commission the responsibility for the enforcement and administration of the various regulatory acts, including the Shipping Act, 1916. Implicit in the regulatory functions transferred by assignment of these regulatory acts to the U.S. Maritime Commission was the authority to recommend legislation on regulatory matters. Accordingly, independent authority from $ 212(g) was unnecessary.

Furthermore, the “purpose and policy" of the 1936 Act, to which § 212(g) is restricted, does not contemplate regulatory matters. As clearly expressed in $ 101, Congress intended by the 1936 Act "to foster the development and encourage the maintenance" of a United States merchant marine. The purpose of the Shipping Act, on the other hand, is to regulate U.S. and foreign shipping engaged in the U.S. foreign commerce for the benefit of the general public. The two laws arose out of different circumstances and, according seek to accomplish vastly different objectives.

In recognition of the intended scope of the 1936 Act, Congress itself removed all references to regulation from § 101 and relegated to a single subsection the provision for the transfer of the regulatory functions, which had originally been accorded a separate title. With respect to $ 101 in particular, the House of Representatives sent a bill to the Senate stating, in pertinent part, that the U.S. should have a merchant marine

"* * * (c) owned and operated under the United States-flag by citizens of the United States and so regulated by the Government as to secure to the shipper and receiver of products in the domestic and foreign water-borne commerce of the United States adequate service and equitable rates, *

Ths latter statement regar ng re tion was ultimately stricken from 8 101 in order to be consistent with the intended scope of the Act.

The question of the Secretary's authority under $ 212(g) must also be viewed in the context of Reorganization Plan No. 7 of 1961 and Reorganization Plan No. 21 of 1950. The clear and unequivocal intent behind both reorganizations, on the part of each President involved and the Congress, was to separate into two distinct and independent entities the regulatory activities under the various regulatory acts and the promotional activities under the 1936 Act.

These two functions were recognized by many members of Congress as inherently inconsistent. For example, during the floor debate related to the disapproval resolution, the Honorable Emanuel Celler, whose Antitrust Subcommittee's three-year investigation provided much of the impetus for the 1961 reorganization, stated that the dismal record of the Federal Maritime Board (the predecessor to the FMC) was largely due to the Board's “two completely different and basically conflicting responsibilities." 107 Cong. Rec. 13087–8 (1961). Furthermore, during hearings before the Merchant Marine and Fisheries Committee on the 1961 plan, Mr. Thomas Stakem, Maritime Administrator and Chairman of the Federal Maritme Board, stated in response to a question raising the issue of overlapping responsibilities between the two agencies that, “No; there will be no overlapping.” Hearings of Reorganization Plan No. 7 of 1961 Before the House Comm. on Merchant Marine and Fisheries, 87th Cong., 1st Sess., at p. 32 (1961).

It is evident, therefore, that the purpose of Reorganization Plan No. 7 was to vest complete authority over regulatory matters in the FMC, including the authority to make legislative recommendations. Consequently, assuming for the sake of argument that the Secretary of Commerce at some time had the authority under $ 212(g) to recommend legislation on regulatory matters, such authority could no longer exist in view of Reorganization Plan No. 7. However, as I have demonstrated, 8 212(g) was, in fact, never intended to encompass regulatory matters.

I must stress that this conclusion does not mean that the Maritime Administration or the Department of Commerce has no interest in regulatory matters. Let me assure you not only that we do have such an interest, but that we also intend to cooperate to the fullest extent with your Committee and with the other concerned agencies in an effort to resolve the rebating problem.

In addition, as I agreed to do during the hearings, I will undertake to develop some possible legislative solutions to the rebating problem. However, two things should be understood. First, the Maritime Administration, in general, has no expertise in the regulatory area. Second, any such recommendations must be reviewed by the other concerned government agencies prior to submission to your Committee.

With these limitations in mind, I will endeavor to provide your Committee with our recommendations. If I may be of further assistance in this matter, please contact me. Sincerely,

ROBERT J. BLACKWELL, Assistant Secretary for Maritime Affairs.


Washington, D.C., December 12, 1977. Hon. JOHN M. MURPHY, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN : This is in response to your request for the views of the Department of Justice on H.R. 9518, the "Shipping Act Amendments of 1977.".

H.R. 9518 would amend the Shipping Act of 1916, 46 U.S.C. $ 801 et seq., in two important respects. Section 2 of the bill amends § 22 of the Shipping Act, 46 U.S.C. & 821, to add a new subsection (c) which would require the Federal Maritime Commission to respond to complaints alleging rebate violations of Section 16 of the Shipping Act, 46 U.S.C. $ 815 (other than paragraphs First and Third), or Section 18(b), 46 U.S.C. $ 817 (b), within 30 days after receipt of such complaints, by ordering an investigation and hearing or denying the complaint with written explanation. Within 180 days after an order of investigation and hearing, the Commission would be required to issue a final order, or an interim order stating in full why it could not issue a final order.

New subsection (c) further provides that the failure of any respondent in such a Commission investigation to comply with discovery would have the following effects: (1) tolling the time within which the Commission must issue a final order; (2) immediate suspension, without hearing, of all tariffs filed by the respondent, as well as denial of entry to the vessels operated by the respondent into any United States port until compliance is achieved ; and (3) creation of a rebuttable presumption that the facts alleged in the complaint or in the Commission's Order are established for purposes of the proceeding.

Section 3 of the bill would amend Section 32 of the Shipping Act, 46 U.S.C. $ 831, by inserting a new subsection (d) (1). The new subsection provides that no penalty will be imposed on any person for violation of Section 16 (other than paragraphs First and Third) or Section 18 (b) if the violation occurred before the date of enactment of the subsection, and within one year after the date of enactment the violation is disclosed to the Commission. No criminal prosecution for violation of any U.S. law would be undertaken for any violation if the disclosure occurs before the person has actual notice that he is the subject of an investigation by any government agency.

In essence, the proposed amendments to the Shipping Act of 1917 present a "carrot and stick” approach in an attempt to eliminate rebating in the foreign maritime trade. The “carrot" aspect of the bill is a general amnesty provision which will allow a carrier who prior to the enactment of this legislation engaged in rebating practices and who discloses information concerning such rebating to the Federal Maritime Commission to escape criminal sanctions. The Department does not favor criminal immunity in these cases. However, if an immunity or amnesty provision is to be enacted, we strongly object to the language of this bill, which is so general as to grant immunity from any criminal prosecution. A blanket amnesty, in the Depart ent's judgment, is unnecessary to accomplish the aim of this legislation. We would therefore favor and urge a more limited form of immunity, i.e., one confined to the criminal prosecution of Shipping Act violations.

Accordingly, we would suggest that proposed new subsection (d) (1) of Section 32 of the Shipping Act be amended to read as follows:

“(d) (1) Subject to the provisions of paragraph (2), no penalty shall be imposed under section 16 for any act in foreign commerce which constitutes a rebate or refund by any unjust or unfair device or means in violation of the initial paragraph or paragraph Second of section 16, or under section 18(b) for any act which constitutes a rebate or refund in violation of subsection 18(b) (3), or for conspiracy under Title 18, United States Code, Section 371, to rebate or refund in violation of the aforesaid provisions of this Act if

(A) such act occurred before the date of enactment of this subsection; and

(B) during the period beginning on the date of enactment and ending one year thereafter, the person who committed such act has made a good faith disclosure to the Commission without knowledge that it was the subject of an investigation relating to such act by any agency of the Federal Government.

We note that the Federal Maritime Commission has expressed the view that any immunity or amnesty should be limited to rebating violations of the Shipping Act. Should the Maritime Commission propose language sufficient to so limit the amnesty, we would defer to its position as the agency charged with administering the Shipping Act.

As for the "stick," or deterrent provision of the amendment, the Department is not generally opposed to measures which are aimed at the more effective enforcement of existing law. We do, however, foresee several problems in attempting to improve enforcement by port interdiction and tariff suspension. A respondent carrier's entry to U.S. ports would be foreclosed and tariffs suspended for failure to cooperate with FMC investigations. Furthermore, these sanctions could be imposed without a hearing on the reasons for a respondent's failure to comply. It would seem that such a procedure, or lack thereof, is vulnerable to challenge for lack of due process. In addition, this legislation may conflict with treaty obligations and requirements imposed upon carriers by foreign governments. For example, a carrier may be unable to produce documents located in another country because of that nation's restrictive statutes. Such a situation would not only create a dilemma for the carrier, but also may strain diplomatic relations with those countries and if the rebating practices of foreign flag carriers could not be effectively prevented, U.S. carriers would likely suffer from the competitive disadvantage.

Given these problems, it might be fruitful to explore less drastic methods for obtaining improved compliance with the law. In this regard it should be noted that the practice of rebating is a consequence of the price uniformity imposed by the conference system. At present ocean carriers are allowed, pursuant to FMC authority, to combine in conferences and agree on uniform rates for an entire trade. Conference members are required by law to adhere to the conference tariff. Rebating is a secret departure from the conference tariff in response to competitive influences. The existence of rebating strongly suggests that conference rates exceed competitive levels. The Department believes that a right of independent action re irement for conference members would relieve some of the pressures that lead to rebating and would thus improve compliance with the law. Such a requirement would allow carriers to respond openly and speedily to competitive pressures rather than resorting to sub rosa measures.

Finally, the Department notes that the provisions of this bill apply to Section 18(b) of the Shipping Act in addition to portions of Section 16. Section 18(b)

1 See "Statement of the Honorable Richard J. Daschbach, Chairman, Federal Maritime Commission before the Merchant Marine Subcommittee, Science and Transportation," September 28, 1977, page 13.

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deals with tariffs generally, notice requirements for rate changes, rebates or refunds, and unreasonably high or low rates. Only Section 18(b) (3) specifically concerns rebating. We would, therefore, suggest that this amendment be narrowed so as to include only that conduct intended by the drafters.

The Department of Justice opposes enactment of this legislation as presently drafted.

The Office of Management and Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program. Sincerely,

PATRICIA M. WALD, Assistant Attorney General.


Washington, D.C.
Chairman, Committee on Merchant Marine and Fisheries,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN : Reference is made to your request for the views of this Department on H.R. 9518, “To amend the Shipping Act, 1916, to provide for a three-year period, to reach a permanent solution of the rebating practices in the United States foreign trade.”

On October 14, 1977, Mr. Gary C. Hufbauer, Deputy Assistant Secretary for International Trade and Investment Policy, was scheduled to testify before your Subcommittee on Merchant Marine on H.R. 9518. Since there was insufficient time for Mr. Hufbauer to deliver formally testimony on that date, he submitted a written statement to your subcommittee on H.R. 9518. In a letter dated October 19, 1977, addressed to your subcommittee, Mr. Godley requested that the statement be considered as our testimony. Since this statement represents the views of the Treasury Department on H.R. 9518, we have enclosed a copy for your convenience. Sincerely yours,


Deputy General Counsel. Enclosure.



Mr. Chairman, I am pleased to be here today to discuss with you the Treasury Department's views on the Shipping Act Amendments of 1977.

Before presenting the substance of my testimony, I would like to point out that the Treasury Department plays a limited role in formulating maritime policy: However, the Department is responsible for the broad dimensions of economic policy. The Treasury seeks to assure that general economic policies are properly considered in the design of measures aimed at the problems of a particular sector. This approach is carried over into our analysis of international trade and commercial issues.

In addition to this concern for general economic policy, the Treasury also plays a part in the enforcement of laws affecting international commerce through two of its operating arms, the U.S. Customs Service and the Internal Revenue Service. The Customs Service clears vessels and export cargo, supervises the unloading of imported merchandise, and collects duties. The Service also has enforcement responsibilities for the cabotage laws of the United States, contained in Section 27 of what is commonly known as the Jones Act (Merchant Marine Act of 1920). The Treasury, through the Internal Revenue Service, also administers the U.S. tax laws, whether those laws specifically affect the maritime industry or apply to industry and individuals in general.

Therefore, in evaluating the legislation before your Subcommittee, the Treasury has applied the twin touchstones of how the proposal coincides or conflicts with our general economic policy principles, and how the proposal would affect our statutory enforcement responsibilities. I would like to review the proposed

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