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I. METHODS OF PROCEDURE AND SOURCES OF INFORMATION

I brought to this study experience in the enforcement of those United States criminal and civil statutes which are as closely intertwined as are the Shipping Act of 1916 and the conference self-policing agreements. Confidentiality and neutrality are as essential in my profession of law enforcement as they are in the self-policing profession. My experience with the shipping industry has been negligible. Hopefully, this factor has given me the objectivity which a study such as this requires.

The legislative reports, including the 1912 Alexander Report and the Celler, Bonner, and Douglas Reports of the early 1960's were my basic indoctrination to the shipping industry, malpractices, and self-policing. Court decisions, law review articles and numerous other materials were studied. I have reviewed the various Commission files on self-policing. Specifically, the agreement files and self-policing reports were analyzed.

I conducted my first interviews with officials of lines belonging to the North Atlantic conferences. The officials of the neutral body responsible for these conferences were interviewed also. In addition, I attended a workshop sponsored by the neutral body, reviewed its investigative methods and procedures, and was given an insight into its self-policing philosophy. Cooperation extended to a review of the neutral body's principal enforcement cases.

Representatives of two other shipping industry neutral bodies were interviewed, and several days were spent in general discussions with representatives of the neutral body responsible for the United States' Far East trade. Officials of the U.S. lines and several representatives of foreign lines involved in this trade were also interviewed, as were line representatives from the Gulf. I have interviewed most of the conference chairmen for the United States trades who are residing in the United States.

Officials of foreign lines of countries which belong to a number of conferences concerned with United States trade were sent letters enclosing a battery of questions on selfpolicing. Those conference chairmen responsible for United States trades and who reside abroad were treated similarly.

A representative of the International Air Transport Association (IATA) was interviewed. Additionally, input was received from shippers and their representatives.

The above sources provided the bases for formulation of my initial recommendations as to what steps should be taken to bring about effective self-policing. The first half of my study concludes as to which basic provisions should be incorporated into the conferences' self-policing agreements and by whom self-policing should be conducted. The second half of my study will deal with possible ways to make the self-policing systems more effective, and with the Commission's oversight role.

What should be recognized is that, to date, my discussions with self-policing and shipping officials have dealt with broad concepts on investigating malpractices. I have attempted to review the neutral bodies' overall approach to investigations which they had adopted, and to gain insight as to specific methods and procedures. The dialogue with neutral bodies proved to be useful for myself, and hopefully will prove useful for the neutral bodies as well.

All the officials interviewed and contacted by

letter were advised of my independent status, i.e., that I am not an employee of the Commission but am under contract to do this study. They were also told that the information which was obtained in confidence would not be divulged. This pledge has not been breached.

II. RECOMMENDATIONS

Obviously, the purpose of self-policing is preventing malpractices. What is most striking is that, when one reads the legislative history, and in particular the hearings of 1959 and the early 1960's, it becomes apparent that there has been little change between then and now with respect to the prevalence of malpractices. Those conferences which were cited for abuses then are continuing to suffer from the same problems. Some of those conferences which were retaining neutral bodies then to clean up their trades are once again hiring neutral bodies for the same reasons. Conferences then, as now, did not properly delineate the neutral bodies' functions.

The general impression given during the hearings was that malpractices operated to the detriment of the U.S.-flag lines. Further, cash rebating took place principally on the inbound trade routes. The U.S. owners allegedly engaged in rebating only as an answer to rebating by the foreign lines.

The officials I interviewed did not have such a parochial viewpoint. First of all, they pointed out that malpractices operate to the detriment of those lines which are profit structured, whether they be United States or foreign owned. They stated that Socialist-owned lines pursue maximum revenues for the purpose of earning hard currency and that malpractices affect revenues of nationally-owned lines to the same degree that they affect privately-owned lines. Finally, foreign-flag representatives have as much pride in their business ethics as do the U.S. owners, according to the witnesses.

Recent disclosures indicate that cash rebating existed in the outbound trades as well as in the inbound trades. Further, the trail of rebating leads to the United States as well as to other countries. Cash rebating continues to be a problem.

The officials also claimed that the practice of rebating operates to the detriment of those lines which offer fast and efficient services, whether they be U.S. or foreign owned. Rebating starts when a line cannot offer the above-noted services and has to offer cash inducements to gain business.

The conclusion to be drawn from these remarks is that generalizations cannot be made for the shipping industry. There is a mix of nationalities, economic systems, cultures, ethics, motivations, and business practices which requires

that each problem be addressed on an ad hoc basis.
Specifically, in addressing oneself to the problems of
malpractices, each trade must be examined individually.
Self-policing requirements will differ with the types
of ownership, the trades, the cargoes, the ships, the
roles of freight forwarders and agents, the services
offered, and innumerable other variables. Clearly, for
some conferences, a permanent neutral body is not needed;
for others, it is essential.

Although the types of malpractices may still be the same, the methods used to commit the non-rebate kind have changed with the advent of containerization. To the costs of the operation of a vessel are now added the many variations in the costs of utilization of the containers. Many different benefits can accrue to shippers in relation to the use made by them of the containers, either at the ports or far inland.

The above considerations make self-policing a difficult art. As the patterns of malpractices change, the self-policing mechanisms must change. As containerization is a developing mode of transportation, so is self-policing a developing method of preventing malpractices. The intellectual acumen which is employed in devising new schemes for committing malpractices must be met with the same acumen for detecting the malpractices. Self-policing must be considered as a developing business, requiring the full-time application of the time and talents of its personnel.

The techniques for detecting malpractices must continue to be examined. Self-policing has gone through its initial stages. Trial and error have shown some of the old techniques to be ineffective. What has been shown to be ineffective should be discarded; the effective techniques should be retained; new avenues of investigation should be explored.

It is with this concept of change and development in mind that I offer my initial recommendations and will direct the second part of my study. The opinions of the knowledgeable witnesses I interviewed form the bases for the recommendations. These recommendations are not startling innovations, nor are they unique. They are a compilation of what I consider to be the best thoughts of the witnesses, and a consensus of what we both think should be contained in a self-policing agreement. For the first time, there has been a gathering of testimonies on self-policing for the sole purpose of evaluating self-policing systems. The concepts have been out there waiting for the compilation. Hopefully, all of the recommendations will be adopted, tried, and evaluated.

This report covers the first part of my study. Its conclusion is that an experienced, practicing, full-time neutral body is the only effective self-policing mechanism. But to be effective, the neutral bodies must have basic ground rules set out explicitly in every self-policing agreement. Accordingly, every conference must have a neutral body on a permanent or retainer basis. Also, the self-policing agreements shall contain basic authorities and guidelines under which the neutral bodies shall operate.

Once the mechanism is under way for having the neutral body requirements applied uniformly in every agreement, the second half of my study can address itself to a more detailed analysis of the neutral body self-policing methods. Additionally, Commission oversight has been inadequate and a form of continuing, meaningful oversight must be developed. This, too, will be pursued in the second half of my study.

In connection with this last comment and my recommendations which follow, the Commission approach to self-policing should be one of guidance without interference. The lines should make the decision that self-policing costs are the insurance for the stability of their trades.

My recommendation is that General Order No. 7 be revised forthwith. The revision is for the purpose of having every self-policing agreement contain specific provisions without which there shall be no approval by the Commission. Some conference agreements now contain some of the provisions in whole or in part. Once the conferences adopt all of them, and recognize that they are permanent, what remains, then, is for the neutral bodies to work on the ways and means to improve on their approaches to self-policing. The provisions are as follow:

1) All conferences whose lines have cargoes with a
significant tonnage and dollar value, or have a
demonstrated need for self-policing, and which are
in the United States' commerce shall have a permanent,
effective neutral body to conduct the required investi-
gations of malpractices and subsequent adjudications.
2) All other conferences in the United States' commerce
shall have at the minimum a competent, practicing neutral
body on retainer to conduct investigations on referral from
the conferences as well as to self-initiate investigations.
It will also adjudicate as required. Additionally, each
line shall have, at a minimum, one office audit each year.

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