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charge or demand a greater or less or different compensation for the transportation of passengers or property than are specified in the tariff filed with the Commission.

Section 212(e) of the Merchant Marine Act, 1936 (46 U.S.C. section 1122), authorizes the Federal Maritime Commission to investigate any and all discriminatory rates, charges, classifications and practices whereby exporters and shippers of cargo originating in the United States are required to pay a higher rate from any United States port to a foreign port than the rate charged on similar cargo from such foreign ports in the United States. The Federal Maritime Commission is further authorized to recommend to Congress measures by which any such discrimination may be corrected. Extensive rebating may result in such a discrimination if the published tariff rate is effectively discounted below U.S. outbound rates on the same commodities.



Section 301 of the Trade Act of 1974 (29 U.S.C. section 2411) authorizes the President of the United States to suspend the benefits of any trade agreement or impose duties or other import restrictions on the products of a foreign country and impose fees or restrictions on the services of such foreign country if he determines that a foreign country engages in discriminatory or other acts which are unjustifiable or unreasonable and which burden or restricts United States Commerce. The term Commerce includes services associated with international trade.

III. UNITED STATES DEPARTMENT OF JUSTICE 18 U.S.C. section 371 makes it unlawful for any two or more persons to conspire to commit any offense against the United States. Any two persons conspiring to violate any provision of the Shipping Act, 1916 or the Intercoastal Shipping Act, 1933, would also be in violation of this statute.

Section 18 U.S.C. section 1001 makes it unlawful for any person to knowingly file a false or fraudulent report with a United States government agency. Any false or fraudulent statements regarding rebates given or received which are filed with the Federal Maritime Commission, IRS or SEC would be in violation of this statute.

IV. INTERNAL REVENUE SERVICE 26 U.S.C. section 162(c), 7206, 7207. The Internal Revenue Code makes it a crime to knowingly fail to report rebates received as income or to make deductions for rebates granted. However foreign flag carriers may be exempt from U.S. taxation if a similar exemption is granted to U.S. fag vessels by the foreign flag country.


5 U.S.C. section 78m, and 78ff. Companies required to file reports with the Securities and Exchange Commission may incur criminal penalties for failure to include the material fact that rebates were paid by the company.


Washington, D.C., November 8, 1977. Hon. PAUL N. MCCLOSKEY, Jr., House of Representatives

DEAR Mr. McCLOSKEY: I refer to your suggestion at the October 20 ses ion of the hearings of the Subcommittee on Merchant Marine of the House Merchant Marine and Fisheries Committee on rebating in the U.S. ocean commerce that an international conference be convened to deal with this problem.

The Department believes that an international meeting to consider the prollem of rebating and exchange of documents could well be useful at some stage of our negotiations with foreign governments. Before attempting to organize such a meeting, however, we believe that it would be advisable to explore informally with the governments concerned their professed willingness to discuss means of solving the rebating problem and to solicit their views on how best to organize such discussions; in particular, we believe these initial contacts will enable us to judge better whether such discussions could more profitably be pursued bilaterally or in a multilateral context. As a first step, the Director of the Department's Office of Maritime Affairs plans to meet informally with shipping officers of Embassies of a number of leading maritime nations on November 4.

If it should appear advantageous to hold an international meeting on rebating and exchange of documents, the Department believes that an unpublicized and relatively informal meeting would be the most likely forum to facilitate a satisfactory resolution of the rebating problem. Furthermore, such a meeting would enable members of Congress, if they chose to participate as members of a U.S. delegation, to emphasize to representatives of foreign governments their concern over rebating and its harmful effects on U.S. ocean commerce. By contrast, an open, formal conference could very well put the nations involved in the position of being asked to yield publicly and under pressure to our demands, and accordingly might not bring the desired results. Sincerely,


A88istant Secretary for

Congressional Relations. [Whereupon, at 1 p.m., the subcommittee adjourned, to reconvene at 10 a.m., Thursday, October 20, 1977.]




Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 1334, Longworth House Office Building, Hon. John M. Murphy, chairman of the subcommittee, presiding.

The CHAIRMAN. The committee will come to order.

This morning we will continue hearings on H.R. 9518, a bill to amend the Shipping Act, 1916, to provide for a 3-year period to reach a permanent solution of the rebating practices in the U.S. foreign trade.

At the hearing held on October 14, 1977, the subcommittee heard testimony from various Government agencies; namely, the Department of Commerce, Justice, and State.

At that time, a request was made by the subcommittee that the Honorable Robert J. Blackwell, Assistant Secretary of Commerce for Maritime Affairs, and Richard K. Bank, Director, Office of Maritime Affairs, Department of State, appear today for further testimony.

We will also hear from additional witnesses, including all Government agencies which have statutory responsibility concerning rebating.

I would state at this time that I hardly need to remind the agency witnesses that we expect to hear specific recommendations to accomplish the objective of H.R. 9518, that is, to solve the problem of rebating. And I understand Mr. Zeferetti, the acting chairman on Friday last, very specifically made that request.

But, even more important, these hearings are beginning to reveal a lack of coordination within the various agencies on maritime policy. We believe it is vital that the policy of the Merchant Marine Act, 1936, be carried out. And, we will demand and expect positive recommendations from all the agencies concerned in order that both the promotional and regulatory parts of our shipping policy are focused on any problem that may exist.

Before we hear from our first witness, I would apologize to the witnesses and to the members here for the short delay, but we had a procedural vote this morning on a conference report, and we had to have unanimous consent for this committee to sit, because of the 5-minute rule of the regulations. So we were delayed somewhat by an important vote involving forced busing. Mr. Blackwell?



Mr. BLACKWELL. Mr. Chairman, members of the committee, the Maritime Administration and the Department of Commerce testified on H.R. 9518 on October 14. I have no further remarks to make regarding the bill.

The Maritime Administration was asked to send a witness to this hearing, and I am here, presumably to answer inquiries from the Chair and other members of the committee.

The CHAIRMAN. The gentleman knows that in the maritime authorization bill this year, as it came out of the conference committee, and will go to the House, and hopefully be accepted, that there is a 240-day suspension in order for this committee to act, and for the Senate to act appropriately concerning the rebate question. So this committee will be acting as expeditiously as it can.

The calendar will not permit us to go to the floor until next year, but we will be meeting on this issue so that as early as possible next year we will have a legislative solution or recommendation to the Congress.

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

Mr. Blackwell, last time when you appeared before the subcommittee, there seemed to be considerable consensus that the underlying cause of rebating, as you stated, was overtonnaging and other matters in the trade, and rebating was only a symptom of the problem.

Now, you made certain recommendations, that you personally espoused. You did not commit the agency. You talked about controlling entry into our trade, shippers' councils, the right of independent pricing by members, and perhaps consideration of the UNCTAD Liner Code, a 40-40-20 split.

I would like to have you go over, briefly, for the committee, each of these recommendations that you made, and tell us why they would reduce the incentive, and perhaps control rebating.

You might start with dual rate contracts.
Mr. BLACKWELL. OK, Mr. Kyros.

As far as dual rate contracts are concerned, up until the late fifties and the early sixties, the dual rate contract system was reasonably strong

In other words, the covenants that the shipper signed to ship all or a major part of their goods with the conference members, were rather effective. But even under the old system some shippers, by changing the routing of cargo, were able to avoid their duel rate contract responsibilities under certain circumstances.

However, and as I mentioned to the committee, perhaps those old contracts were much too heavily in favor of the carriers as a result of a series of investigations, both in the House and in the Senate, the dual rate contract systems were changed by amendments to the Shipping Act of 1916.

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