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prepared in contemplation of possible legislation in the very terms proposed here. Thus, the agreement states:

9. In the event of changes of law or other circumstances at any time during the term of this agreement, which Sea-Land believes warrant modification or mitigation of any of the requirements imposed on Sea-Land by this agreement, the Commission agrees, as an inherent part of this agreement, to Sea-Land's right to petition the Commission to this end.

I believe that Sea-Land's settlement was quite favorable to it. Any further mitigation would be wholly unwarranted.

I remain of the firm conviction that there is no quid pro quo or valid consideration of any nature for the amnesty provision. Either we had a law which all lines, including Sea-Land, were required to live by, or we did not. I do not believe that there was any doubt as to the terms of the law during the last 60 years. To tell us now that we did not have to live by it is wholly unacceptable.

Mr. Hiltzheimer, at page 11 of his testimony states:

The bill contemplates that such penalties will be compromised and reflected in settlement agreements between the FMC and the carriers or users. The result will be more civil penalty assessments and compromises after passage of the bill then (sic) are likely to be achieved if amnesty is not provided.

This is the ultimate travesty. Assessments and compromises without collection are a waste of time and money by the FMC and an affront to the lines who complied with the law.

I want to particularly take exception to the statement expressed by Mr. Hiltzheimer of Sea-Land that he is convinced

*** that every carrier, forwarder, shipper and consignee, whether silently or vocally in opposition, really desires, and would welcome adoption of the provisions for amnesty.

This is an arrogant and insulting statement which is susceptible of being interpreted that somehow all have been as guilty as Sea-Land. I resent this inference, and I am confident that other carriers and our good customers will feel a similar reaction. Not once have I heard any other carrier, forwarder, shipper or consignee endorse this amnesty proposal-only Sea-Land.

The proposal by Sea-Land that all conferences be required to permit independent action by conference members is not one designed in any manner to eliminate rebates. The essence of a rebate is that selected shippers or consignees are given something extra in the form of a discount below their competitors. Whether the rate is a conference rate, a rate of the carrier under independent action taken within the conference, or the rate of a carrier operating independently outside of the conference, makes no difference. It is still subject to being rebated where the carrier desires, in times of overtonnaging, to obtain the additional advantage permitted by the rebate.

Another factor which I think must be taken into consideration is that rebates need not be paid to the corporate entity which is the shipper or consignee, but can be under-the-table payments to traffic managers, freight forwarders of other persons within the shipperconsignee organization who have the ability to influence the selection of the ocean carrier. As Mr. Hiltzheimer testified, there are a "lot of gimmicks" to rebating.

A particular problem with the use of the right of independent action lies in the area of possible, and even probable, prior compro

mises made between carriers and shippers. In effect, a predatory carrier bent on monopolizing a trade could thus obtain prior commitments from favored large shippers before revealing the intend to exercise the right of independent action to other conference carriers. The results could be disastrous to the conference system.

The plain fact is simply this, the independent action suggestion will not inhibit, in any manner, rebating. It probably would destroy the conference system which has already been substantially weakened as a stabilizing instrument in our ocean commerce.

This, of course, could be a most useful tool for Sea-Land which has already identified itself in these hearings as being first in size and profit among U.S. carriers. With this economic strength and the right of the independent action, Sea-Land could effectively control any of the conferences of which it was a member. When this is coupled with its other suggestion that all carriers in any trade be required to be members of the conference in that trade, it takes little imagination to see that Sea-Land is reaching here for the ultimate control of all of our ocean carriage.

Reference has been made to the one occasion on which the Commission has been able to demonstrate actual malpractices in the form of rebates in our foreign commerce. This, of course, was in the Brazilian trades and dealt with a problem in which Delta was vitally involved.

Delta became aware that there were obvious rebates being paid to our very substantial detriment in this most important trade. However, we did not revert to countering the rebates of the other lines with rebates of our own, in the manner which has been suggested as being the only basis on which a U.S.-flag carrier can meet rebating. The problem was referred to the Federal Maritime Commissioner, the fact of rebating was determined by the Commission and all malpractices have been apparently eliminated through subsequent pooling agreements entered into between the parties engaged in that trade. The law was effectuated, not violated, to correct the problem, but required 3 years of patient effort, at considerable cost to the honest carriers.

The Guatemalan Government instituted actions which precluded Delta from participating in the trade to that country which we brought to the attention of the special representative for trade negotiations under the Trade Act of 1974. Protest was made by Delta by letter of July 1, 1975, to the special representative and hearings were held on September 25 and 26, 1975.

While the matter remained pending, the Guatemalan earthquake occurred, and Delta participated generously in the relief effort. Subsequently, Delta reached an agreement with the Guatemalan national carrier, which provided for equitable participation in the trade by all interested carriers.

When this occurred, the proceedings became moot and Delta so advised the Special Trade Representative and FMC. Unfortunately, Sea-Land intervened with unacceptable demands and the Guatemalan Government reimposed its restrictions.

I am attaching hereto, as exhibit "B," pages 1 through 6 of the notice of proposed rulemaking which ultimately was issued by the Federal Martime Commission during June, 1977.

[The following was received for the record:]

EXHIBIT "B" TO THE SUPPLEMENTAL TESTIMONY OF CAPTAIN J. W. CLARK

FEDERAL MARITIME COMMISSION

[46 CFR 507; Docket No. 77-22]

ACTIONS TO ADJUST OR MEET CONDITIONS UNFAVORABLE

TO SHIPPING IN THE FOREIGN TRADE OF THE UNITED STATES

Notice of Proposed Rulemaking

Agency: Federal Maritime Commission.

Action: Proposed Rule.

Summary: The Federal Maritime Commission proposes to enact rules and regulations pursuant to section 19(1)(b) of the Merchant Marine Act of 1920 (46 U.S.C. §876(1)(b)) in order to adjust or meet conditions unfavorable to shipping in the foreign trade of the United States which result from discriminatory laws of the Government of Guatemala. These rules propose to require Guatemalan-flag carriers and their associates to pay an Equalization Fee designed to eliminate the discriminatory diversion of cargo to those carriers caused by the Guatemalan laws. These rules also propose to require such carriers to file Summary Reports of Cargo Carryings in the U.S. to Guatemala Trade and file an Equalization Fee Payment Guarantee with the Federal Maritime Commission.

Dates: Comments on or before: July 29, 1977.

Addresses: Comments to: Secretary, Federal Maritime Commission, Room 11101, 1100 L Street NW., Washington, D.C. 20573. For further information contact: Joseph C. Polking, Acting Secretary, Room 11101, 1100 L Street NW., Washington, D.C. 20573 (202) 523-5725.

Supplemental information: Pursuant to the authority of section 19(1)(b), Merchant Marine Act. 1920 (46 U.S.C. 876), as implemented in Commission General Order No. 33 (46 CFR, Part 506), the Federal Maritime Commission, hereinafter referred to as the Commission, is authorized and directed to make rules and regulations affecting shipping in the foreign trade of the United States in order to adjust or meet general or special conditions unfavorable to shipping in the foreign trade of the United States and which arise out of, or result from, foreign laws, rules or regulations, or from competitive methods or practices employed by owners, operators, agents or masters of vessels of a foreign country.

The types of conditions which the Commission has found to be unfavorable to shipping in the foreign trade of the United States are generally set forth in 46 CFR § 506.3. Among these are conditions which preclude or tend to preclude vessels in the foreign trade of the United States from competing in the trade on the same basis as any other vessel, and those which are discriminatory or unfair as between carriers. (46 CFR § 506.3 (a) and (d)).

Republic of Guatemala Decree No. 41-71 established a penalty of 50 percent of the freight charges paid on any goods imported into Guatemala which are duty free under the Guatemalan Industrial Development Laws or the Central American Agreement on Tax Incentives for Industrial Development and which are not carried on "Guatemalan carriers." More than 600 importing industries, accounting for the vast preponderance of Guatemalan imports from the United States, qualify for such duty free status for their imports under the Guatemalan Industrial Development Law or the Central American Agreement on Tax Incentives for Industrial Development.

Decree No. 41-71 defines the term "Guatemalan carriers" as those carriers owned by the State (Guatemala), or in which the State has a majority interest, or those private enterprises of which the capital is at least 75 percent Guatemalan and their vessels are of Guatemalan registry and have a capacity of no less than 2,000 tons. Guatemalan carriers may contract for the services of foreign carriers (known as "associated carriers"), in which case, duty free goods may be transported by the associated carriers to Guatemala without being subject to the aforementioned 50 percent penalty.

Despite repeated representations to the Guatemalan authorities by the United States Government and carriers serving the U.S. to Guatemala trade, urging rescission of Decree No. 41-71 insofar as it is applicable to goods transported in those trades, to date, this Decree remains applicable to the foreign trades

of the United States. As a practical matter, the preponderance of goods transported from the United States to Guatemala may not be transported on U.S. carriers or third flag carriers which have not entered into certain agreements with Guatemalan carriers, without incurring the 50 percent penalty provided for under Decree No. 41-71. This penalty has unfairly discriminated against U.S. carriers and third flag carriers presently engaged in the U.S. to Guatemala trade, as well as discouraged potential new entrants in these trades. In view of the limited cargo capabilities of Guatemalan carriers, Decree No. 41-71 may also have caused delays in the ocean transportation of goods in these trades.

By way of background. on July 1, 1975, Delta (Delta Steamship Lines, Inc.) filed a petition with the Commission seeking relief under Section 19, Merchant Marine Act, 1920, from the effects of Decree No. 41-71.

On July 25, 1975, the Commission served fact finding Orders under Section 21 of the Shipping Act, 1916 (46 U.S.C. 820), on all carriers serving in the trade between the U.S. Atlantic and Gulf Coasts and Guatemala. Based upon the information obtained from these carriers, the Commission found that Guatemalan Decree No. 41-71 created conditions unfavorable to the foreign trade of the United States.

By letter dated December 4, 1975, the Chairman of the Commission notified the Secretary of State of the Commission's findings in this matter. The Chairman's letter asked the Department of State to seek a diplomatic resolution of the problem, and advised that, absent such resolution by February 14, 1976, the Commission would have no recourse but to promulgate a final regulation that would impose countervailing fees on Guatemalan carriers and associated carriers transporting goods from the United States which are to be imported dutyfree into Guatemala.

On Fegruary 4, an earthquake devastated Guatemala and the Commission agreed, at the request of the Department of State, to postpone the implementation of this regulation.

In light of the lack of progress in the diplomatic negotiations with the Government of Guatemala, on August 16, 1976, the Chairman of the Commission notified the Secretary of State that the Commission had decided to issue forthwith a proposed rule pursuant to the authority of Section 19(1)(b) of the Merchant Marine Act, 1920.

Issuance of this rule was postponed on the basis of assurances by representatives of the Guatemalan flag lines of a satisfactory resolution of the problem. This contemplated resolution having failed to materialize and negotiations having reached an impasse, the proposed rule is now issued.

This rule proposes the imposition of an Equalization Fee on all Guatemalan vessels and the vessels of their associated carriers transporting goods from the United States to Guatemala which may be imported into Guatemala duty free under the Guatemalan Industrial Development Laws or the Central American Agreement on Tax Incentives for Industrial Development. This Equalization Fee, amounting to 50 percent of the freight charges, is calculated to offset the penalty imposed under Decree No. 41-71 for the transportation of such goods on carriers other than Guatemalan carriers or associated carriers. Thus, the Equalization Fee is designed to eliminate the discriminatory diversion of cargo to certain carriers in the U.S. to Guatemala trade resulting from Decree No. 41-71, and to place all carriers in those trades on an equal competitive footing. Under the proposed rule, Guatemalan carriers and associated carriers which are authorized under Decree No. 41-71 to transport duty free goods from the United States to Guatemala will be designated as "favored carriers."

A "favored carrier" must file an Equalization Fee Guarantee with the Commission to ensure that all Equalization Fees will be paid. The Equalization Fee Guarantee will be in an amount equal to one-sixth of the total freight charges earned by the favored carrier on cargo which it loaded in the United States for unloading in Guatemala during the preceding twelve months, or equal to $75,000, whichever is greater. It is believed that this amount would be adequate to cover the total Equalization Fees which any favored carrier might accrue and not pay in a timely fashion.

The proposed rule would establish a procedure for the favored carrier to report data pertaining to each voyage from the United States to Guatemala by each vessel of the favored carrier, including the freight charges on which Equalization Fees must be paid. Such reports would have to be filed with the

Commission within four calendar days following departure of each vessel from the United States and be accompanied by the Equalization Fee arising from that particlular voyage. Failure to comply with the requirements of this rule could result in the detention of a vessel of any "favored carrier" which has loaded in the United States any cargo ultimately destined to be imported into Guatemala..

Interested persons may participate in this rulemaking by submitting written data, views or arguments to the Secretary, Federal Maritime Commission, Room 11101, 1100 L Street NW., Washington. D.C. 20573, on or before July 29, 1977.

Captain CLARK. This proceeding, Docket 77-22, outlines what had occurred to that date. We can only add that the proceeding is still pending, no rules have been implemented and Delta suffers substantial discrimination in this trade.

We believe that it will be appreciated, from this submission, why we do not consider that the primary protection of our trades can come from unenforced threats by the Federal Maritime Commission or diplomatic negotiations by the Department of State, while our Government authorities are required to do "all things for all people," including third-flag lines.

On the contrary, we urge to the committee that the carriers be given greater freedom to effectively negotiate commercial solutions, with the ability to put their agreements into effect on a prompt and realistic basis. We do acknowledge the good intentions and assistance of FMC and Department of State officials, and consider the use of Title III, Trade Act of 1974, a particularly effective means of countering discrimination in developing nations which enjoy GSP.

We do not believe that either neutral bodies or an increase of staff investigators for the FMC will have any effect upon the rebating problem.

Both neutral bodies and staff investigators have been around for a long time; neither of them have been effective in exposing sophisticated rebating practices. At most, they can be expected to bring to light instances such as where a carrier's clerk, through error or inadvertence, charges the wrong rate, or the carrier or shipper question a cargo measurement as to accuracy; these are not the problems with which this committee is dealing.

The Sea-Land disclosures of "off-book" payment of rebates, apparent use of Swiss bank accounts, et cetera, is not something which is likely to be discovered by the use of these investigative bodies; all that would be needed would be for the dedicated rebater to refine the devices by which payments were made. The neutral body-increased FMC investigative staff considerations, accordingly, are blind alleys. They are resources which have been used without developing desired results and cannot be looked upon as being effective devices here.

The solution to the rebating problem we have created, through legislation, impediments to the commercial operations of our carriers. The weakening of the conferences have made those bodies debating societies which are of little value in meeting competition from a carrier engaged in rebating.

The evermore difficult and time-consuming problem of obtaining approval by the FMC of section 15 agreements negotiated between carriers has effectively precluded the flexibility needed to permit us to

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