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I quite agree with that, but how do we hold the agent in San Francisco responsible for the accuracy of an affidavit by a shipping agent say in Hong Kong or Tokyo that purports to be an accurate record ?

If I accept your testimony, it seems to me I am confronted with the fact that I have no practical way to obtain the results you seek.

Captain CLARK. Well, Mr. McCloskey, of course, there is no truth serum to be applied, but at least you have production of documents. Once you have the documents, trained investigators, financial analysts and others should be able to analyze and determine in a reasonable measure whether or not they are effective and in compliance. I think that is the only way you are going to get any documents, if you are dependent on getting documents.

Mr. MCCLOSKEY. Well, I have forgotten the name of the individual who testified before the Senate Committee, but we have not yet had his testimony here. He explained the wide variety of rebate practices and how it can be done. I recall the example of where one shipper was offered the right to have his children go to school in Geneva at the expense of the shipping company.

I think it was Mr. Amos of Lykes Bros., who testified before the Senate Committee on a similar bill.

Captain CLARK. Mr. Amos did not testify before the Senate Committee. He was substituted for by Mr. Tom Smith.

Mr. McCLOSKEY. Tom Farrell?
Captain CLARK. Tom Smith.
Mr. McCLOSKEY. Tom Smith of Farrell Lines?

Captain CLARK. I don't know whether he said it. I was in South America,

Mr. McCLOSKEY. Well, you would substitute a process against the agent of the shipping company here in the United States. The sanction would then go against that agent rather than against the company itself. You would allow its ships to land here, but you would just deny it the right to have an agent unless its agent could fully comply with the request for information that the FMC placed upon it.

Captain Clark. Mr. McCloskey, the thrust of this is you have someone in your hand you can serve a subpena on. You don't have anyone today. If you had these lines, foreign lines, hiding behind the sovereign powers of the nations who, in effect, state that they will not let their lines give you the information, you in effect enforce the order of the FMC by telling the lines you won't have any agents in this country and, therefore, you won't be able to operate; but we are not going to close our ports to you. They could retaliate against you on the other side, without any doubt.

Mr. McCLOSKEY. Captain Clark, I don't think a corporation can do business in a state without having a resident agent to accept the service of process. What you are saying is that in international trade, we shouldn't deny entry to a port to the ships of a company that doesn't comply with our law. Effectively you are denying them the port if they don't have an agent here to generate cargo for their return trip.

Is that the essence of what you are saying?
Captain CLARK. Yes.

You are also exerting economic pressure on them at the same time because this would have a disrupting effect on their business.

Mr. McCLOSKEY. But don't they have an ability to retaliate if they call this to the attention of their government?

Aren't there 100 ways where we can still have access to their ports, but there are no laborers or labor crew, something that prevents our ships from being able to operate ?

Captain CLARK. Mr. McCloskey, I doubt seriously that would happen. There would have to be a legitimate reason for the retaliation. If the line is guilty or there is evidence of guilt, well, certainly through courts, as in the European community, the lines would have to comply, but a complying line would have no difficulty. They are complying here.

It is the same thing in Japan or Australia. In the Latin American trades, these malpractices have been for all intents and purposes eliminated through the equal access, pooling agreements.

Mr. McCLOSKEY. That is another remedy, equal access or pooling agreements.

If we consider pooling agreements as an alternative, would rebating practices in your judgment, disappear?

Captain CLARK. In the developing nations, yes, sir; but what I referred to in response to the question of Mr. Breaux, and perhaps the question was before you came in, on the North Atlantic and North Pacific, the problem is a little more difficult. You would have to have a variety of weapons and provisions to take care of it. You would have to have closed conferences. You would have to employ the contract system. You would also have to have some type of an implementation, just as we are talking now about the production of documents, and then also, of course, a pooling or rationalization agreement with all that.

'I think the lines themselves would welcome such an arrangement if you yourself have advocated as the first step.

Mr. McCloskey. Well, you know, I see the problems associated with it. I just have not been able to see an alternative which would remove this problem of the overtonnage in the trade, other than a closed conference system.

If you start with the fact that overtonnaging is the key problem, then a closed conference or some form of governmental remedy which denies entry to an excessive number of ships into a given trade seems to be the only possible alternative.

That also brings in the government because you are not going to get closed conference with a greater government surveillance of what that closed conference does.

Captain CLARK. Mr. McCloskey, the whole thrust of my testimony is requesting the Congress of the United States to provide us with the framework of condition, rules and statutes to enable us to seek the solutions to our problems. If we have that framework, there wouldn't be a need, in my opinion, for rigid enforcement, commercial incentives themselves would take care of the problem.

Mr. McCLOSKEY. What do you do about the third-flag problem?

You are also asking for protection against the Soviets. There certainly cannot be any concern about commercial conditions if the Soviets put hard currency acquisitions as their No. 1 foreign policy goal for the merchant marine.

Captain CLARK. I mentioned the framework of laws and statutes, when there is a demand for documentation or justification for dumping or what have you; the sinister intrusion in our trades of the Soviet bloc ships, which are growing, growing, growing. They are still moderate, it is true, but they are growing and they have declared their intent to go on every one of our trade

routes. Then you would have to be able to police that.

You know, every time there is talk about a third-flag bill, the Soviets become nice again.

Have you noticed that? That happens. If we back away from it, then they become a little bit more rough in their ways.

Mr. McCLOSKEY. But the legislative process has never proven very effective when engaging in foreign diplomacy. It seems to me that we either ought have a law or we ought not to have a law; but we shouldn't threaten to have a law in order to try to remedy some temporary problem that we have in the maritime industry.

Captain CLARK. Mr. McCloskey, I am talking about strengthening the hand of the Federal Maritime Commission.

Mr. McCLOSKEY. You think it should be the Federal Maritime Commission, not the State Department?

Captain CLARK. The State Department has to be all things to all people. There are overriding political conditions.

Mr. McCLOSKEY. You are asking us to strengthen the hand of a Commission that hasn't proven very competent in doing what it is supposed to do?

Captain CLARK. I hope we have a new day in court with the new Commission; and I think that the Commission would welcome a strengthening. I think the Commission would welcome the suggestions that I have made.

Mr. McCLOSKEY. The new Chairman has said that he doesn't propose to negotiate with the Soviets. That is one aspect of the strengthening that we would give him; isn't it?

Captain Clark. I am not suggesting you negotiate with them.
Mr. McCLOSKEY. What are you suggesting?

Captain CLARK. I suggesting what you apply when you want documents. For instance, if you want their costs, which is the basic problems we have had in the past, that you do it through their agents. If there is no compliance or reasonable compliance or ineffective compliance, you tell that agent to give more or else you can't represent them.

Mr. McCloskey. Let's assume they produce their documents and their costs as they compute them and show they are deliberately operating at a 10-percent commercial loss to generate currency for other purposes which they fell appropriate to the national policy? What do you do then?

Captain CLARK. Then the Federal Maritime Commission should have the right to say, you are upgrading the low cost and you are effectively dumping and you can't do it.

Now, the power which is given to the FMC now includes such provisions, as I interpret the statute.

Mr. McCLOSKEY. The power also exists in the special trade representative, doesn't it, under 301 of the Trade Act? Can't he say you are dumping ships on us?

Captain CLARK. Title 3 is a very effective instrument. As a matter of fact, to my knowledge, to date, it is the most effective weapon we have.

Mr. McCLOSKEY. What about that as an alternative to putting this power in the FMC?

Captain CLARK. The problem has been that the FMC has been weakened and is particularly vulnerable to the Justice Department. Therefore, we show, as in the case of the Guatemalan discriminationwell, we filed a complaint with the FMC. We actually had the hearing with the special representative for trade under the authority of the Trade Act of 1974. We received prompt action within 212 months.

Mr. McCLOSKEY. That is precisely my question. I am trying to analyze what you are saying,

You are saying the FMC hasn't been much help. The State Department hasn't been much help. The special trade representative gave us real help on one case and yet we don't

urge

that we use him or the Trade Act. We are urging the strengthening of the FMC. I don't understand that.

Captain CLARK. Well, there is one practical aspect to it.

In the case of the developing countries that receive GSP, Generalized System of Preferences, you have a real lever over any developing countries. In that case, Guatemala, Latin America, Africa, and so on, enjoy that type of thing as they have budding industries.

Now, this wouldn't be necessarily as effective in the case of Japan or Europe or the Soviets, of course.

Mr. McCLOSKEY. Ideally, we could have one law which would give us an arsenal of tools to use to cover all situations in that sense.

Captain CLARK. Yes, sir. I have suggested a four-step program and, all brought together, you would have the means, of an arsenal of weapons, as you have stated, which would be very effective.

Mr. McCLOSKEY. Let me go back.

What is your weapon against the Soviets if they choose to operate below cost? Would it be 301 of the Trade Act?

Captain CLARK. It could be, but I question whether the State Department would ever permit it to be used. I believe the FMC could use it if they had the authority which we propose that they be vested with.

Mr. McCLOSKEY. Well, I think perhaps as much as any witness you have given us a lot of food for thought and I hope we can continue this dialog informally as well as at the committee hearings. I think I have probably exhausted my time.

Captain CLARK. Thank you, sir.

Mr. BREAUX. I agree with that. Not on your time, but the continuation.

I will recognize Counsel. Mr. KYROS. No questions.

Thank you.

Mr. BREAUX. Thank you very much, Captain. It has been very helpful. We look forward to working with you.

Captain CLARK. Thank you very much for letting me come on now. I will get back to New Orleans.

Mr. BREAUX. Our next witness will be Mr. Steven Shefler, Deputy Assistant Secretary or Policy Plans and International Affairs, Department of Transportation.

Mr. Shefler, the committee welcomes you. We invite you to take your seat at the witness table.

Mr. McCLOSKEY. While Mr. Shefler is sitting down, I have to say my faith in the free enterprise system is restored by the candor of the free enterprise witnesses as compared with the candor of the Government's witnesses.

Mr. Breaux. I stated that Captain Clark's statement came through loud and clear, even in a dense fog. I think that is correct.

Mr. Shefler, we have a copy of your statement which will appear in the record in its entirety and you may proceed either by summarizing your statement or you may proceed as you see fit.

[The statement referred to follows:]

STATEMENT OF STEPHEN A. SHEFLER, DEPUTY ASSISTANT SECRETARY

FOR POLICY AND PROGRAMS, U.S. DEPARTMENT OF TRANSPORTATION Mr. Chairman and Members of the Subcommittee: I appreciate the invitation to express the views of the Department of Transportation with respect to H.R. 9518 which is designed to eliminate or minimize rebating and other malpractices in the maritime transport of goods in the foreign commerce of the United States.

We in DOT have been following the testimony of the Departments of State, Justice, Commerce, and the Treasury which have dealt with various aspects of this problem. The Department of State has adequately covered the provisions of the bill which would impact on U.S. trade relations with foreign countries, and the Department of Justice has commented on the provisions granting general amnesty. We do not propose to dwell on those areas.

Rebating and malpractices in any form are repugnant. Rebating is a symptom of underlying weaknesses in the liner maritime transportation system of the United States. The 87th Congress Antitrust Subcommittee of the House Committee on Judiciary examined the malpractices of the ocean freight industry in some depth. Since that time the evidence which has surfacedparticularly over the last 18 months--indicates that things are no better and may have gotten worse. In testimony before this Subcommittee last week, the Deputy Assistant Secretary of the Treasury for International Trade and Investment Policy characterized rebating as a "black market in shipping"-an apt definition.

The so-called self-policing system which the ocean carrier industry asked for in the past is not working. We believe this Committee is seeking practical positive alternatives. Out of all the representations made to Congressional Committees to date on this subject. DOT believes one proposed by Sea-Land Service, Inc. warrants your special attention. We are referring to the matter of "independent action" which is the right of an individual carrier member of a ratemaking group to establish a rate for their own service independent of the group. Such action is taken by the carrier after it has been unable to resolve a uniform rate through the normal conference rate voting procedures. The action is taken after giving 48 hours notice to other carrier members of the conference before filing the rate at the FMC. The conference system of ratemaking requires agreement by a certain portion of the carrier members as specified by their approved basic agreement, for example, 3/4, 2/3, simple majority, etc. The possibility for a deadlock is ever present. Independent action is a workable way out of rate situations which create frustration to innovative carriers. Likewise, shippers seeking to expand their foreign markets can re

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