Independent U.S. Tanker Owners Committee v. Lewis
| Decision Date | 07 September 1982 |
| Docket Number | No. 81-2121,81-2121 |
| Citation | 690 F.2d 908 |
| Parties | INDEPENDENT U. S. TANKER OWNERS COMMITTEE, (an unincorporated Association), Appellant, v. Drew LEWIS, in his representative capacity as Secretary of the Department ofTransportation, et al., Appellees. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 80-03038).
Joseph A. Klausner, with whom Allan Abbot Tuttle, Ralph G. Steinhardt, Washington, D. C., were on the brief for appellant.
Michael D. Esch, Washington, D. C., entered an appearance for appellant.
Stephanie Golden, Dept. of Justice, with whom Dennis G. Linder, Dept. of Justice, Washington, D. C., was on the brief for federal appellee.
William E. McDaniels, with whom John W. Vardaman, Kevin T. Baine, Washington, D. C., were on the brief for appellees, Richmond Tankers, Inc. and Seatrain Lines, Inc. Jonathan Blank, Washington, D. C., entered an appearance for Seatrain Lines, Inc., appellee.
Before TAMM, Circuit Judge, FAIRCHILD, * Senior Circuit Judge, United States Court of Appeals for the Seventh Circuit, and WILKEY, Circuit Judge.
Opinion for the Court filed by Circuit Judge WILKEY.
Petitioner, the Independent U. S. Tanker Owners Committee, appeals from an unsuccessful challenge in the district court to both informal rulemaking and adjudicative action by the Secretary of Commerce, 1 the Maritime Administration (MarAd) and the Maritime Subsidy Board. MarAd (to choose a term by which to refer to all government defendants) is charged with responsibility for fostering the development and encouraging the maintenance of a U. S.-flag merchant marine and domestic shipbuilding industry. It proceeds, in part, by subsidizing the domestic construction of U. S.-flag ships intended for foreign trade. Ships receiving such subsidies are then precluded from competing in the unsubsidized domestic trade. MarAd, however, has the authority to accept total repayment of a construction subsidy and, in return, to lift the domestic trading restriction on the vessel.
Pursuant to its authority, MarAd promulgated an interim rule describing the procedures to be followed and factors to be considered in passing upon an application for repayment. Shortly thereafter MarAd purported to apply this rule in granting the application of Richmond Tankers, Inc., a defendant-intervenor in this case, for repayment of the construction subsidy on its tanker, the Bay Ridge.
We find procedural flaws in the promulgation of the interim rule and both procedural and substantive failings in the informal adjudication leading to approval of Richmond's application. Accordingly, we reverse the decision of the district court and remand with instructions to vacate both the rule and the results of the adjudication. The district court should order MarAd to promulgate a permanent rule and to reconsider with all dispatch whether the Bay Ridge should be allowed to continue operating in the domestic trade. For reasons discussed below, however, we do not require that the Bay Ridge cease domestic operations pending this reconsideration.
It has long been recognized that an adequate merchant marine, with U. S.-flag ships and trained American sailors, is vital to both the national defense and the commercial welfare of our country. 2 We require a sound merchant marine to protect foreign trade and to provide support for the armed forces in times of war or national emergency. We also require a modern, efficient shipbuilding industry capable of providing military vessels in times of stress.
Unfortunately, the necessary ships, shipyards, and sailors are not readily forthcoming. High wage rates for skilled laborers and stringent safety standards make American production unattractive. High seamen's wages, protective working conditions, and high outfitting, insurance and repair costs make American operating costs uncompetitive. Direct and indirect subsidies given shipyards and operating fleets by other nations further aggravate the disparity in costs. As a result, the American shipping industry, left to its own resources, would have all its ships built abroad, registered under foreign flags, and manned by foreign seamen. 3
In the domestic trade, this shipping dilemma has been readily resolved. Since the earliest days of the Republic, preferential legislation has mandated that only U. S.-built and U. S.-flag vessels can be operated in commerce between points in the United States. 4 The Jones Act, § 27 of the Merchant Marine Act of 1920, 5 provides that only vessels "built in and documented under the laws of the United States and owned by persons who are citizens of the United States" may engage in domestic trade, defined as trade "between points in the United States, including Districts, Territories, and possessions thereof embraced within coastwise laws .... 6 Thus, high costs impair U.S. domestic shipping only to the extent that alternative modes of transport (railroads, trucking, pipelines, etc.) prove less expensive.
In U.S. foreign commerce, however, such protective legislation is not possible. Every foreign nation with which the United States trades has precisely the same interests and precisely the same right to have cargo passing between the two countries in ships of its flags. If the construction and operating costs of the foreign-flag vessels are lower, then on a purely competitive basis both import and export cargo of the United States will be carried exclusively in foreign-flag vessels. To forestall this highly undesirable situation, Congress for many years has authorized both a construction subsidy for ships to be built in U.S. yards and an operating subsidy for the manning of American-flag vessels by American citizens in accordance with American safety standards. Under the construction-differential subsidy (CDS) program, the Government may pay up to 50% of the construction costs of vessels needed for the U.S. foreign maritime trade. 7 There is also a loan guarantee program for ship financing. 8 The guarantee enables a shipbuilder to secure substantial credit to aid in financing the initial construction, reconstruction, or reconditioning of a vessel.
The U.S. merchant fleet is thus divided into two distinct segments. The "Jones Act" fleet operates, by economic necessity, only in the protected U.S. domestic trade. It cannot compete in the foreign trade with either foreign ships or the U.S. subsidized fleet because Jones Act ships are built and operated without subsidy and are thus far more costly to their American owners. The subsidized U.S. merchant fleet, on the other hand, is prevented by law from operating in the domestic trade. 9 It would be grossly unfair to allow U.S. vessels that have received a subsidy of up to 50% of construction costs to compete with U.S. vessels whose owners paid the full cost of construction in U.S. yards. The Jones Act preference legislation, designed to encourage construction in U.S. shipyards and the employment of U.S.-flag vessels in the domestic trade, all without direct cost to the taxpayers, would be completely undermined if subsidized U.S.-flag competition were allowed to invade this preserve. Consequently, the owner of any ship built with a CDS must agree that the vessel will operate only in foreign trade, with two exceptions. First, CDS vessels may sail in the domestic trade on either the first or last leg of an overseas voyage. Second, MarAd may consent to the operation of a CDS vessel in the domestic trade for up to six months in any twelve-month period whenever it determines that "such transfer is necessary or appropriate to carry out the purposes of this chapter." 10 Proportional repayment of the subsidy is required under either of these exceptions.
U.S.-flag tankers in the foreign market have not fared well despite Congress' program of construction and operating subsidies. In fact, a decline in Middle East oil production (originally precipitated by the Arab oil embargo), coupled with overbuilding, has led to a virtual collapse of the world tanker market. World-scale rates are well below the break-even costs of U.S. tankers, subsidized or not. 11
The domestic market, on the other hand, especially the West Coast/Panama Canal trade from Alaska, is flourishing. A shortage of very large crude carriers (VLCCs) has led to highly profitable rates. As a result, there has been persistent pressure from subsidized vessels for permission to enter the domestic market on a permanent basis in exchange for total repayment of any construction subsidies received.
MarAd was placed in an acute dilemma by such pressure. First, neither the Merchant Marine Act nor its legislative history offered any express indication that Congress intended to empower MarAd to approve full-repayment/permanent-release transactions. Second, even if MarAd is so empowered, freely granted releases might be contrary to the purposes of the Act since they would tend to undermine the domestic trade, making planning impossible and new construction unwise. The foreign trade would hang over the domestic trade like a sword of Damocles, ready to trim away any and all profit margin.
The first half of this dilemma, at least, was dissolved in 1980. MarAd had granted a series of requests for repayment during the '70s, culminating in the application of Polk Tanker Corp. for repayment of the CDS on the tanker Stuyvesant in 1977. 12 MarAd dealt with each application on an ad hoc basis, without hearings or notice to interested parties in the domestic trade. When MarAd granted the Stuyvesant application, three competitors in the Alaskan trade brought suit challenging its authority to do so. The district court upheld MarAd's general power to grant permanent release from domestic trading restrictions in...
To continue reading
Request your trial
-
Arthur D. Little, Inc. v. Commissioner of Health and Hospitals of Cambridge
...There is an overwhelming institutional bias in favor of justifying the result in any way possible." Independent U.S. Tanker Owners Comm. v. Lewis, 690 F.2d 908, 920 (D.C.Cir.1982). Putting aside this consideration, the studies themselves also fail to provide substantial evidence for his act......
-
Natural Resources Defense Council, Inc. v. Jamison, Civ. A. No. 82-2763.
...hoc litigation is one that lies primarily in the informed discretion of the administrative agency"); Independent U.S. Tanker Owners Committee v. Lewis, 690 F.2d 908, 917 (D.C.Cir.1982), (agency not "legally obligated to limit its discretion through rulemaking"). An agency promise to "meet t......
-
National Ass'n of Regulatory Utility Com'rs v. F.C.C.
...an informal [proceeding] parties have a right to be informed of and comment on staff positions." Independent United States Tanker Owners Committee v. Lewis, 690 F.2d 908, 925-26 (D.C.Cir.1982) ("[W]here an agency's analytic task begins rather than ends with a set of forecasts, sound practic......
-
Central & Southern Motor Freight Tariff Ass'n v. U.S., s. 83-1581
...one that lies primarily in the informed discretion of the administrative agency." (citation omitted)); Independent U.S. Tanker Owners Comm. v. Lewis, 690 F.2d 908, 917 (D.C.Cir.1982); Trans-Pacific Freight Conference v. Federal Maritime Comm'n, 650 F.2d 1235, 1244 (D.C.Cir.1980), cert. deni......
-
Interpreting regulations.
...1987) (vacating agency rule for failure to provide adequate statement of basis and purpose); Indep. U.S. Tanker Owners Comm. v. Lewis, 690 F.2d 908, 920 (D.C. Cir. 1982) (concluding that agency's one-sentence justification for rule was inadequate and ordering that the rule be vacated for fa......