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Mr. McCloskEY. What about bribery?

Mr. HUFBAUER. I think there is a real distinction, Congressman, between bribery of a public official, and rebating between two private parties, where the price has been set by a conference arrangement which involves an exemption from our Antitrust Act.

Mr. McCloskey. You believe rebating should not be a crime?

Mr. HUFBAUER. I feel, and again, this is personal, I am uncomfortable with the position of criminal sanctions to go at essentially black market, economic crime, sort of behavior, and I think that if Government enforcement is required, the civil route is the preferable route.

Mr. MoCLOSKEY. I have no further questions.
Mr. BREAUX. Thank you, Mr. McCloskey.

The Chair would like counsel to ask one or two additional questions.

Mr. Kyros. Mr. Hufbauer, in discussing open conferences, and the position the Treasury Department takes on shipping policy, one question that came up is how long you have served at the Treasury Department ?

Mr. HUFBAUER. Since 1974, about 4 years.
Mr. Kyros. Have you studied shipping problems previously?

Mr. HUFBAUER. I have studied shipping problems in the tax framework of our treaty before.

Mr. Kyros. Do I understand you said that one of the views we should take is that opening conferences to greater competition, providing also the right of independent action, is a means of balancing out, as they use the words in the trade, rationalizing the trade, reducing over-capacity, and incidentally, rebating?

Mr. HUFBAUER. Could you restate the question? Mr. Kyros. You say that you favor opening the conferences up while providing rights of independent action, so there is a more competitive trade, which in your estimation would lead to over control, and perhaps rebating?

Mr. HUFBAUER. Over a period of time.

Mr. Kyros. That presupposes that there is some freemarket out there.

We had a briefing the other day that indicated the Soviet carriers are intruding in our trade. Their basic reason for entering is their desire to earn hard currencies, a desire that is not easily thwarted, because it is not a commercial desire. Therefore, the Soviets do not have to operate on a purely commercial basis, resulting in a trade penetration of 5 percent. Overall, they have gone into some amazing amounts in the various trades.

Would you not think that opening up the trades further would open the American trades and make them more vulnerable to the kinds of independent carriers we had not imagined when we were back in our school book studies about independence, and helping us with competition?

Mr. HUFBAUER. I have dealt with the same problem in other contexts, and it is frankly one of the most troublesome problems in international economy today. That is, Government-controlled industries which compete with our industries, and inexorably we are seeing responses on our part which leads us further down a general road of Government control.

Now, the Communist countries you mentioned are the hard edge of this, and there are other cases where the problem is there, not som perhaps so complete, and I do not want to leave the impression that I think an open system which has no remedial action for cases such as this, that is, the Communist controlled, or the other State controlled vessels which have essentially an open door to their Treasury, are not operating these principles and

Mr. KYROS. Since the open trade of the United States is the most lucrative in the world, just like our fishing banks were the dumping grounds for foreign fishing fleets, and since controled carrier nations provide greater flexibility for swinging their fleets around on the most lucrative trade routes, we really have no chance commercially against them, is that not a fact?

Mr. HUFBAUER. Well, I do not want to endorse that as a fact, but I wanted to register a concern, and perhaps that concern has to be expressed in limiting legislation regarding entry to United States ports by such vessels.

Mr. Kyros. The point I want to make is the antitrust reports that you referred to earlier, I think it was made outside the province of considering the realities of penetrating pricing by a carrier.

Mr. HUFBAUER. It may--that may be a basic flaw. I think there are a number of countries in the shipping trades for which this—in which extensive Government intervention is not true. That is, government intervention by a number of countries, is less than U.S. Government intervention, it is certainly less than the Soviet intervention, and with respect to those countries, we would hope that we could maintain an open competitive system.

Mr. Kyros. Thank you.
Thank you, Mr. Chairman.

Mr. BREAUX. Thank you, counsel, and thank you, gentlemen, for being so patient, and being with us all morning. You are excused.

There might be additional questions that the members would like to submit to you gentlemen individually, that we would like for you to respond to for the record.

With that, the committee is going to recess, after which we will come back into session at 2 p.m. this afternoon, and we will take at that time Mr. James Amoss as our first witness. The committee will be in recess.

Whereupon, at 12:25 p.m., the subcommittee recessed, to reconvene at 2 p.m., the same day.]

AFTERNOON SESSION

The CHAIRMAN. The Committee will come to order.

This afternoon we continue our hearings on the rebating bill, H.R. 9518, and we are privileged to have as our first witness this afternoon Mr. Jim Amoss, Chairman of the Liner Council of the American Institute of Merchant Shipping, and he is accompanied by Mr. Odell Kominers.

Jim?

STATEMENT OF W. JAMES AMOSS, CHAIRMAN, LINER COUNCIL,

AMERICAN INSTITUTE OF MERCHANT SHIPPING, ACCOMPANIED BY ODELL KOMINERS

Mr. Amoss. Thank you, Mr. Chairman.

I am going to brief my statement to the committee, since it contains some legislative language that is in the document that can best be put in the record, and not read, but I will explain that language, and thereby cut short the oral delivery, and be ready for such questioning as the Committee may desire.

[The following was received for the record :]

STATEMENT OF WALTER JAMES AMOSS, JR., CHAIRMAN, LINER COUNCIL OF THE

AMERICAN INSTITUTE OF MERCHANT SHIPPING Mr. Chairman, Congressmen, Committee Counsel, my name is Walter James Amoss, Jr. I am President of Lykes Brothers Steamship Co., Inc. of New Orleans, Louisiana. I also serve and am appearing today as Chairman of the Liner Council of the American Institute of Merchant Shipping (AIMS). The AIMS Liner Council is an industry association consisting of nine American-flag lines involved in shipping services on all major U.S. trade routes.

Liner Council members strongly support effective anti-rebating measures and commend the initiative of this Committee in devising a bill containing comprehensive changes in the Shipping Act which are designed to eliminate illegal rebating of ocean freight charges in the foreign commerce of the United States.

The AIMS Liner Council wishes to propose certain amendments to the present wording of H.R. 9518 which it believes would strengthen the effectiveness of this legislation. These changes will be set forth as three separate proposals, each dealing with specific aspects of the rebating and enforcement problem. We believe these proposals to be both necessary and practical.

In the matter of the amnesty portion of H.R. 9518, the Liner Council takes no position either in support of or in opposition thereto, leaving the way clear for Liner Council members to express their individual views should they so desire.

AMENDMENT 1

By its very nature rebating involves at least two parties. One who gives and one who receives an illegal inducement. The rebate itself is not necessarily in cash, indeed, it more commonly consists of the provision of service or other benefit contrary to the tariff and without charge to the shipper. Since these rebates are illegal they are frequently made through agents (or affiliates) of carriers and shippers so as to minimize involvement of the principals. Thus, in order to effectively eliminate as much rebating as possible, we believe that the language in S. 2008 must be broadened to include insofar as possible all persons who might be engaged in rebating.

Although the initial paragraph of Section 16 relating to shippers applies to both shippers and related interests, it is not clear that its counterpart in Section 16 Second, which is applicable to carriers, also applies to carrier agents and employees. Nor does Section 18(b) (3) so apply. Moreover, Section 16 - initial paragraph—which is the only section which might apply to shippers receiving rebates—is much narrower than Section 18(b) (3), and there therefore is a question whether mere receipt of rebates by shippers is prohibited even in situations in which payment by carriers clearly violates the Act. We believe Section 18(b) (3) should be broadened to include shippers and agents and employees of both carriers and shippers. Accordingly, we suggest the addition of a new section to H.R. 9518 as follows:

"Section Section 18(b) (3) of the Shipping Act, 1916 (46 U.S.C, 817) is amended by striking the portion thereof preceding the first proviso clause and inserting in lieu thereof As used in this sub-paragraph the term "common carrier" means a common carrier by water in foreign commerce, any contractor (or affiliate) acting for or on behalf of such carriers, and any officer, agent, or employee thereof, and the term "shipper" means a shipper, consignor, consignee, forwarder, broker, or other person, and any officer, agent or employee thereof. No common carrier shall charge, demand, collect or receive, and no shipper shall pay or remit, a greater or less or different compensation for the transportation of property or for any service in connection therewith than the rates and charges which are specified in the carrier's tariffs for such transportation or service on file with the Commission and duly publishe in effect at the time; nor shall any such carrier rebate, refund, or remit in any manner or by any device any portion of the rates or charges so specified, nor extend or deny to any person any privilege or facility, except in accordance with such tariffs; nor shall any such shipper collect, receive or accept in any manner or by any device any portion of the rates or charges so specified or collect, receive, or accept any privilege or facility, except in accordance with such tariffs or the further provisions of this subparagraph."

We recommend that the persons added to Section 18(b) (3) by the foregoing provision may be made respondents in a proceeding brought under the provisions of Section 2 of H.R. 9518.

AMENDMENT 2

Section 2(c) of H.R. 9518 does not require persons controlling, controlled by, or under common control with a respondent carrier to comply with reasonable and proper depositions, interrogatories, motions to produce or subpoenas. We believe that the records of such persons must be made available if the Federal Maritime Commission is to effectively police rebating. Similarly, shipper interests are not presently covered by Section 2(c), but they and agents and employees of carriers will be included as the result of the amendment to Section 18(b) (3) which we have proposed.

The enforcement provisions of the bill are deficient in that only the vessels of the respondent carrier are affected rather than all ships operated by the controlling, controlled or related companies.

Because of the severe impact of a finding of non-compliance with discovery, we have added a provision for expedited review of the compliance issue before the full Commission. Finally we believe a carrier should not be barred from service for refusal by its agent to comply with discovery procedure if it terminates the agency promptly upon notice of such noncompliance. Conversely, an agent, who may represent a number of carriers or himself be a carrier, should not have all tariffs, which he has on file for other principals or himself, suspended because of a refusal to comply by one carrier principal that he represents. The agent should be permitted to protect himself by terminating his relationship with the offending carrier. We suggest contracts with agents be written or amended to enable the carrier principal or the agent to terminate the agency in the event the carrier principal or the agent refuses to comply with discovery orders. The various perfecting changes we suggest in subparagraph (c) (2) beginning at page 3, line 3 of H.R. 9518 as follows: (deletions are shown in brackets and new material is underscored.)

“(2) Failure on the part of any person, respondent to a proceeding instituted pursuant to subsection (c) (1), or any other person directly or indirectly controlling, controlled by, or under common control with such respondent, to comply with reasonable and proper depositions, (written) interrogatories, (discovery procedure) motions to produce, or subpoenas (herein discovery procedure), regularly issued in relation to an investigation or hearing held under an order issued by the Commission under subsection (c) (1) shall :

“(A) Toll the time within which the Commission shall issue a final order as provided in subsection (c) (1). If such failure is on the part of a respondent carrier, or any other person directly or indirectly controlling, controlled by or under common control with such respondent, the Commission may [shall) immediately issue a notice directing the suspension on a date specified by the Commission of (suspend, with out hearing,) all tariffs filed pursuant to section 18 of this Act by, or on behalf of, [a] said respondent carrier (or) and any other carrier directly or indirectly owned, controlled, controlling, or under common control (or affiliated) with that respondent carrier, and upon certification of such suspension by the Commission to the Commissioner of Customs the vessels of that respondent carrier and any common or contract carrier directly or indirectly owned, controlled, controlling, or under common control with that respondent carrier shall be denied entry into any United States port until that respondent carrier or other person has fully (responded to] complied with the (deposition, written interrogatories,] discovery procedure for subpoena) involved, and the Commission has issued its order in the proceeding, provided however that vessels of (that respondent) any such carriers in voyage shall be nevertheless permitted to enter United States ports for the purpose of discharging cargo (not withstanding that the carriers tariff has been suspended] ; provided further, no tariff shall be suspended nor entry to United States ports be denied with respect to any vessel for non-compliance with such discovery procedure by a carrier's foreign agent if the agency is terminated promptly upon notice of such non-compliance by the Commission to the carrier principal. Any carrier receiving a notice of suspension of tariffs may demand a hearing beforc the full Commission pursuant to rules which the Commission shall establish, to determine whether there has been a failure of compliance with the discovery procedure, and if so whether the procedure was reasonable and proper and regularly issued. All incidents of such a hearing including decision thereon, shall be completed prior to the suspension date set forth in the notice. An order of suspension shall be considered a final order of the Commission for the purpose of the Administrative Procedure Act and appeals thereunder; provided however, that no interlocutory stay of the order of suspension shall be ordered by any court except upon a showing by a carrier seeking review of the order of suspension, that it is likely to succeed in establishing invalidity of the order. Any carrier whose tariffs have been suspended pursuant to this subparagraph or whose ships have been denied entry to United States ports, and who provides or offers to provide (common carrier by water) service in the foreign commerce of the United States, except for completing voyages in progress, shall be subject to a civil penalty of not less than $25,000 and not more than $50,000 for each day such service or offer continues."

AMENDMENT 3

Our third recommendation is that an entirely new section be added to HR 9518 to require that all common carriers and shippers be required to certify under oath that they are using diligence to insure that they are in compliance with the law. We believe that certification of compliance is an effective enforcement tool because responsible officials of carriers and shipper interests will not falsely certify under oath that they are in compliance.

Last July 26th, AIMS Liner Council members sent the Chairman of this Subcommittee and other members of Congress a draft anti-rebating bill that is quite similar to the anti-rebating provisions of HR 9518. Our draft included a section requiring certification of compliance with the law.

Since our July recommendation, the Senate and House Conference on the MARAD F.Y. 1978 Authorization Bill adopted an amendment requiring certification by carriers having Operating Differential Subsidy contracts. We believe that this amendment is inequitable and unfairly discriminates against ODS contractors because it does not apply anti-rebating sanctions to non-ODS U.S. flag, or any foreign flag carriers. We believe that the record is clear that the carriers in these latter two categories have been primarily responsible for rebating abuses. However, because of our conviction that anti-rebating legislation is necessary, members of the AIMS Liner Council have not opposed the limited certification amendment at any time since it was originally recommended by Representative McCloskey.

We believe that this limited certification amendment provides a sound basis for a certification requirement that applies to all common carriers engaged in the foreign trade of the United States and to all shippers utilizing those carriers.

We therefore urge the addition of the following new section to H.R. 9518:

“Sec. 5 Within 90 days of the enactment of the Shipping Act Amendments of 1977, the Commission shall promulgate final rules and regulations requiring (1) the chief executive of each common carrier by water in foreign commerce periodically to certify under oath to the Secretary of Commerce that he is using and will use reasonable diligence to insure that no company owner, employee, or agent will pay any rebates which are illegal under the Shipping Act of 1916 and will fully cooperate with the Federal Maritime Commission in its investigation of illegal rebating in the United States foreign and domestic trades, and in its efforts to end such illegal procedures; and (2) a responsible officer of the

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