Commission. The Committee was informed by the American Importers Association that the Customs Cooperation Council in Brussels has been working for a number of years on a Harmonized Commodity System to be used internationally for customs purposes, with completion expected in 1981. The Chairman of the FMC noted that "there is no existing system of cargo classification that would be quickly adapted to use in our foreign commerce.'

The Committee encourages efforts toward bringing uniformity in commodity descriptions and cargo classifications. But mandating such actions within a narrow specific time period is inappropriate under the present circumstances.

Another deletion during markup was the authority of shippers' councils to "negotiate" rates with carriers and conferences and shippers' councils. The American Importers Association stated: "It has never been our position that a shippers' council should negotiate with respect to specific commodity rates." Sea-Land noted that the key is communication, not negotiation, especially since conferences are required to adopt procedures for promptly and fairly considering shippers' requests and complaints.

CENSA testified that the evolution of shippers' councils in Europe has been based on consultation and not negotiation. Negotiation of rates could lead to statements that would create the very instability in rates and transportation conditions that the bill seeks to mitigate. Consultation between carriers or conferences and shippers' councils, and agreement, if possible, on general rate levels should lead to "ocean transportation rates and practices for United States exporters and importers that are internationally competitive, and which are not unjustly discriminatory", one of the policy objectives of title II of the bill. This result can be achieved without requiring negotiation. The Committee therefore has deleted authority to negotiate rates from the bill.

IV. Conclusion-Impact of the Title

Enactment of title II of the Omnibus Maritime Bill provides a simplified, efficient, less costly, more responsive and effective system for regulating maritime transportation in the foreign commerce of the United States. The bill establishes policy objectives in maritime regulation. It requires Commission action within specific periods of time and simplifies standards for processing agreements. These steps reduce government regulation and wasteful interference in commercial maritime transactions.

The bill promotes even-handed regulation of U.S.-flag and foreignflag carriers. By specifically exempting certain agreements and concerted activities from the antitrust laws, and by limiting standards for disapproving or modifying agreements, the bill obviates conflicts and removes uncertainties which have been a source of lengthy litigation for many years. The role of the Antitrust Division, Department of Justice, with its double standard of intervention in Commission proceedings to the detriment of U.S.-flag carriers, is now eliminated. Consultations among shippers and between shippers' councils and conferences or carriers are authorized. This should lead to more rate stability to the benefit of United States exporters and importers as well as to improvements of trade conditions generally.

The Commission is provided effective means for policing and penalizing violations of the law. Prohibited acts are clearly defined; more severe penalties for violations, especially knowing and willful violations, are authorized.

The Committee is convinced that the bill will provide responsive and responsible regulation of the ocean transportation industry in the foreign commerce of the United States.

B. TITLE III—AMENDMENTS TO THE MERCHANT MARINE ACT, 1936

The Merchant Marine Act, 1936 ("the 1936 Act" or "the Act) authorizes the primary programs for the promotion of the U.S. merchant marine and the U.S. shipbuilding industry. It seeks this goal through programs of direct subsidy payments to shipyards and ship operators to allow them to compete at a parity with their foreign competition. The Act also establishes tax deferred funds for the construction of new vessels, government guarantees for vessel mortgages, and a program of reservation of government impelled cargoes for U.S.-flag vessels.

Following four years of oversight of the subsidy programs affecting maritime transportation, the Committee on Merchant Marine and Fisheries concluded that legislation was essential to arrest the disastrous decline our merchant fleet had taken since 1950 when seagoing vessels engaged in U.S. commerce (foreign and domestic) numbered 1,224. By 1970, when amendments to the 1936 Act were enacted directing a ten year construction program of 300 vessels for use in the U.S. foreign commerce, the U.S.-flag privately-owned merchant fleet had declined to 793. At most recent count, (March 1, 1980) the number of vessels engaged in commerce totalled 538, only 244 of which engage in our foreign commerce.

It is evident the subsidy system, which has been operative in one form or another since 1936, has not produced the merchant marine which the nation must possess. For example, construction in U.S. shipyards over a ten year period, commencing in 1970, produced only 171 commercial vessels; 72 for the domestic trade and 99 for the foreign commerce (all of these 99 were built with subsidy). In effect, the public paid over $2 billion for fewer than one-third the number of vessels sought by Congress in 1970. At the same time, U.S. foreign trade grew from 473.25 million long tons in 1970 to 775.65 million long tons in 1978.

Of the total tonnage moving in foreign commerce 56.5 million tons moved in liners, 410.3 million tons in tankers, and 308.9 million tons in non-liner vessels, the U.S.-flag share of these movements being 28.3 percent, 2.8 percent and 1.5 percent respectively, and these figures include government impelled cargoes, half of which are now reserved to American ships. It thus appears that present policies have failed to develop a fleet capable of carrying even a miniscule percentage of our foreign commerce, let alone the "substantial portion" which, since 1936, has been the goal set by Congress.

Introduced on July 12, 1979, H.R. 4769 reflected the widespread. belief that restrictions placed upon the procurement and operation of subsidized vessels were responsible for the inability of the subsidized fleet to respond flexibly to the increased demand for ocean ship

1

ping. Further, Committee hearings on the failure of a subsidized liner operator in 1978 supported the conclusion that the restrictions associated with subsidies may have contributed to its bankruptcy. Testimony received from the Maritime Administration during hearings on H.R. 4769 also disclosed still other difficulties besetting American commercial vessels operating in the foreign commerce.

H.R. 4769 set out to attack operational inflexibility. That proposal: (1) authorized subsidy for foreign-to-foreign voyages as well as for voyages involving the United States foreign commerce; (2) permitted U.S.-built vessels eligible for subsidy to operate in the heretofore prohibited domestic trades, (after paying back to the United States a proportionate amount of its construction subsidy); (3) allowed a vessel, regardless of its origin to be eligible for operating subsidy; and (4) eliminated essential trade routes on which subsidized vessels must operate and from which they may not deviate without government approval as a criteria for receiving subsidy.

H.R. 4769 severed the relationship between construction and operating subsidies. In order to revitalize the shipbuilding industry, H.R. 4769 would have gained subsidy for any ship constructed in a U.S. shipyard, regardless of the country of documentation.

The bill required certain efficiency standards to be adopted as criteria for construction subsidy eligibility. H.R. 4769 loosened the long standing policy that all parts and materials included in a subsidized vessel must be of U.S. origin in order to reduce government imposed impediments to the creation of shipbuilding industry which would be costcompetitive with foreign shipbuilding operations.

The Omnibus Maritime Regulatory Reform, Revitalization and Reorganization Act of 1980, H.R. 6899, while modifying to a considerable extent the positions taken in its predecessor bill, adheres to its amendments to titles V and VI of the 1936 Act, and to its premise that flexibility must be encouraged to the greatest extent possible, and that government should not interfere with commercial or management operations.

1. AMENDMENTS TO TITLE I OF THE 1936 ACT

A. DECLARATION OF POLICY

Section 101 repeats, in substantial part, the language of present section 101, with two modifications. First, the objective that the nation's merchant marine be "efficient and competitive" was added. These terms reflect the Committee's desire to develop a merchant marine capable of successfully matching foreign competition on the basis of effective commercial performance in the marketplace. Pursuant to the final clause of new section 101, it is the national policy "to foster the development and encourage the maintenance of such merchant marine."

Second, a technical amendment was made to conform the policy statement regarding ownership of the fleet to the bill's loosened citizenship requirements.

1 Pacific Far East Line Oversight, Hearings before the Subcommittee on Merchant Marine of the Committee on Merchant Marine and Fisheries, 95th Cong., 2d sess. (1978) Serial No. 95-3.

H.R. 4769 also contained a new section 101 which affected a substantial revision of standing law. Witnesses before the Committee indicated that such a departure from the language of present policy might suggest an intent to qualify or weaken the policy underpinnings of the 1936 Act, and recommended adherence to, and reaffirmation of, the original objectives of the Act.

While dissatisfied with the present posture of the nation's merchant fleet, the Committee perceives no need to modify or qualify in any material way the objectives of the 1936 Act, save with regard to the changes previously discussed. On the contrary, the nation's inability to attain all of the objectives enunciated by the 1936 Act should in no way reflect unfavorably on the goals of the Act, which, in the opinion of the Committee, remain as desirable in 1980 as they were upon original passage.

Both section 101 and new section 103 speak to the question of merchant fleet size and capability and adopt the 1936 Act's standard that the United States possess a merchant marine "sufficient to carry its domestic waterborne commerce and a substantial portion of the waterborne export and import foreign commerce of the United States... The Committee intends that "substantial portion" mean that the United States should possess a fleet capable of carrying not less than 50% of the liner and bulk cargoes, computed separately by tonnage, moving in the foreign commerce of the United States. This approach is consistent with the intent of the drafters of the 1936 Act.2

As the legislative history of the 1936 Act and the Committee's Hearing Record indicate, the "substantial portion" carriage capability goal is viewed by the Committee as the optimal standard for fleet size and capacity. Possession of a fleet sufficient to meet this carriage goal will beneficially affect the national balance of payments posture, minimize dependence on foreign shipping whose reliability in time of war or national emergency may be uncertain, and guarantee the availability of a U.S.-flag fleet for support of national security requirements if the need should arise.

Testimony before the Committee has established that the U.S.-flag merchant marine presently carries only 4% of our exports and imports. Furthermore, the nation's leading military experts have informed the Committee that this diminished fleet capacity has the gravest national security implications. Indeed, representatives of the Joint Chiefs of Staff advised the Committee that the nation's capacity to support overseas military commitments is of questionable reliability. Consequently, the Committee reasserts the fleet size goal of the 1936 Act, confident that it is a timely policy objective, essential to the national interest.

B. NATIONAL MARITIME POLICY

New section 102 states national policy with respect to cargo reservation by foreign governments or other measures which adversely affect the operation of U.S.-flag vessels.

2 Hearings before the Senate Committee on Commerce on S. 3500. S. 4110 and S. 4111, 74th Cong., 2d sess., 39-40 (1936) hereafter cited as 1936 Senate Hearings; and 80 Cong. Rec. 10076 (1936) (Statements by Senators O'Mahoney and Copeland); and H.R. Rep. No. 1277, 74th Cong., 1st sess.. 20 (1935).

31936 Senate Hearings; and H.R. Rep. No. 1277, 74th Cong., 1st sess. (1935).

Section 102 (a) states that the foreign commerce of the United States "is best served by competitive, efficient, commercially oriented ocean transportation services." At the same time, however, the subsection takes cognizance of present economic realities which include unilateral or bilateral actions by foreign governments to reserve cargoes to national fleets. Thus, the section recognizes "that national, economic, or political factors in some nations adversely affect the operation of such ocean transportation services."

Section 102 (b) outlines a two step response process which must be undertaken in the event that "national, economic, or political factors of a nation" result in the reservation of cargoes or adversely affect U.S.flag carriers. Initially the Secretary of Commerce, in consultation with the Secretary of State, is directed to commence negotiations with the foreign government. If, and only if, these negotiations are unsuccessful in inducing a modification or reversal of the foreign government's action, the Secretary shall commence negotiations on an International Maritime Agreement and conclude such an agreement to protect the interests of U.S.-flag carriers.

The Committee is aware that foreign governments can, and may, resort to the use of quasi-independent agencies, government-controlled corporations, or other devices or entities to effect cargo reservation schemes. Consequently, the Secretary is empowered to review a broad range of considerations, including "national, economic, or political factors of a nation" in determining whether a cargo reservation scheme eixsts. In effect, it is the intent of the Committee that the Secretary look to economic and political realities in making his determination.

By establishing this two step process, the Committee implies that which is made explicit in subsection (a), namely, that the national policy with respect to Intergovernmental Maritime Agreements is one of responsive reciprocation, rather than one which would ordinarily invite such agreements as a matter of course. This section is thus consistent with the President's communication to the Committee Chairman of July 20, 1979 wherein the President stated that while the United States would not aggresively seek or encourage bilateral cargo sharing agreements it was nonetheless not averse to protecting American interests in the face of such foreign actions.

The Committee thus views the Intergovernmental Maritime Agreements mentioned in section 102(c) as remedies of last resort, to be pursued only when intergovernmental negotiations have failed to reverse foreign cargo sharing policies.

Finally, the Committee intends that the Secretary of Commerce be the lead or principal government spokesman in conducting the intergovernmental negotiations contemplated by the section, and that this authority be exercised "in consultation with" the Secretary of State.

Section 102(c) specifies the minimum acceptable contents of an Intergovernmental Maritime Agreement. In general, these terms are intended to assure that such agreements are open, nondiscriminatory, and sufficiently broad to be of general benefit to all United States carriers and shippers.

In these circumstances, it would appear logically to follow that the Secretary of Commerce would be obliged to ensure, by express provision in the Intergovernmental Maritime Agreement, that the U.S. ex