States Marine Intern., Inc. v. Peterson

• Decision Date: 05 September 1975
• Docket Number: 74-1502,Nos. 74-1499,s. 74-1499
• Citation: 171 U.S.App.D.C. 132,518 F.2d 1070
• Parties: STATES MARINE INTERNATIONAL, INC., et al., Plaintiffs, v. Peter G. PETERSON, Secretary of Commerce, et al., Defendants-Appellants, v. LINER COUNCIL, AMERICAN INSTITUTE OF MERCHANT SHIPPING, Intervenor-Appellee. AMERICAN MARITIME ASSOCIATION, Plaintiff-Appellant, v. Peter G. PETERSON, Secretary of Commerce, et al., Defendants-Appellants, v. LINER COUNCIL, AMERICAN INSTITUTE OF MERCHANT SHIPPING, Intervenor-Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1070

518 F.2d 1070

171 U.S.App.D.C. 132

STATES MARINE INTERNATIONAL, INC., et al., Plaintiffs, v. Peter G. PETERSON, Secretary of Commerce, et al., Defendants-Appellants, v. LINER COUNCIL, AMERICAN INSTITUTE OF MERCHANT SHIPPING,

Intervenor-Appellee.

AMERICAN MARITIME ASSOCIATION, Plaintiff-Appellant, v. Peter G. PETERSON, Secretary of Commerce, et al., Defendants-Appellants, v. LINER COUNCIL, AMERICAN INSTITUTE OF MERCHANT SHIPPING,

Intervenor-Appellee.

Nos. 74-1499, 74-1502.

United States Court of Appeals District of Columbia Circuit.

Argued April 17, 1975.

Decided Sept. 5, 1975.

Michael Kimmel, Atty., Dept. of Justice, for defendants-appellants in No. 74-1499. Carla A. Hills, Asst. Atty. Gen., at the time the brief was filed, Earl J. Silbert, U. S. Atty., Leonard Schaitman and James C. Hair, Jr., Attys., Dept. of Justice, and James F. Ford, Atty., Maritime Administration, Dept. of Commerce were on the brief for defendants-appellants in No. 74-1499.

Joseph A. Klausner, Washington, D. C., for appellant in No. 74-1502.

Warner W. Gardner, Washington, D. C., with whom Robert T. Basseches and Odell Kominers, Washington, D. C., were on the brief for Liner Council American Institute of Merchant Shipping.

Robert N. Kharasch, Washington, D. C., entered an appearance for States Marine International, Inc., and others, in No. 74-1499.

Before MacKINNON and WILKEY, Circuit Judges, and JAMESON, ^* United States Senior District Judge for the District of Montana.

Opinion for the Court filed by Senior District Judge JAMESON.

JAMESON, Senior District Judge:

This is an appeal from an order holding that, under the Merchant Marine Act of 1936, 46 U.S.C. § 1101 et seq., the Maritime Subsidy Board may not limit or reduce the award and payment of an operating differential subsidy (ODS) for the carriage of preference cargo, i. e., cargo reserved by law for carriage only on United States flag ships.

Plaintiff-appellant, American Maritime Association (AMA), an organization of independent unsubsidized American flag carriers, and two other plaintiffs ¹ brought these actions to challenge a final order of the Maritime Subsidy Board (1) requiring subsidized shipping lines to carry at least 50% non-preference cargo and providing for the proportional reduction in subsidies for vessels earning less than 50% of freight revenues from non-preference cargo; and (2) rejecting AMA's contention that the owner of a vessel built with a construction differential subsidy (CDS) on which an operating subsidy is paid should be required to rebate the construction subsidy where the vessel fails to "meet foreign-flag competition". The American The federal appellants, including the Secretary of Commerce, Maritime Administration, and Maritime Subsidy Board, contend that the court erred in adopting the intervenor's position insofar as it conflicts with the order of the Board. Appellant AMA contends that the court erred in failing to hold that the payment of any subsidy, ODS or CDS, is precluded when vessels carry preference cargo. In addition, AMA argues that the Board erred in its formulae for determining the existence of "substantial competition", in failing to find that double subsidies were being paid, and in not ruling that the subsidy program was creating unfair competition. In essence the cases involve the interaction of provisions of the Merchant Marine Act of 1936 and various acts providing a preference for American ships with respect to the carriage of certain cargo.

Institute of Merchant Shippers (AIMS), an association of subsidized ocean carriers, intervened and contended that the Merchant Marine Act does not permit any reduction of subsidies because of the carriage of preference cargo. The district court agreed and granted intervenor-appellee's motion for summary judgment. ²

BACKGROUND

The Merchant Marine Act of 1936

The Merchant Marine Act of 1936 was enacted to foster the development and continued maintenance of a modern Merchant Marine fleet. The Act recognized that, "It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne export and import foreign commerce of the United States to provide shipping service essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (b) capable of serving as a naval and military auxiliary in time of war or national emergency . . .". 46 U.S.C. 1101(a, b) (1970). To accomplish this purpose the Act established two subsidies for American flag carriers, an operating differential subsidy (ODS) and a construction differential subsidy (CDS).

Under section 601 of the Act, 46 U.S.C. § 1171(a), the Secretary of Commerce is authorized to grant an ODS only if he determines that (1) the operation of such vessel or vessels in an essential service is "required to meet foreign flag competition and to promote the foreign commerce of the United States"; (2) the applicant's vessels are such as are required to enable him to operate in an essential service, "in such a manner as may be necessary to meet competitive conditions, and to promote foreign commerce"; (3) the applicant possesses the qualifications "necessary to enable him to conduct the proposed operations of the vessel or vessels as to meet competitive conditions and promote foreign commerce"; and (4) the subsidy "is necessary to place the proposed operations of the vessel or vessels on parity with those of foreign competitors, and is reasonably calculated to carry out effectively the purposes and policy of this Act". (Emphasis added).

The CDS is authorized under 46 U.S.C. § 1151 et seq. to aid in construction of vessels to be used in the foreign commerce of the United States. As with the ODS, the Secretary of Commerce is required to determine that the applicant meets various criteria, including a determination that the vessel "will meet the requirements of foreign commerce of the United States, will aid in the promotion and development of such commerce, and will be suitable for use by the United States for national defense or military purposes in time of war or national emergency". § 1151(a). Unlike the ODS there is no requirement that the

granting of the construction subsidy be necessary to "meet foreign flag competition." ³

Cargo Preference Legislation

In order to promote American flag carriers, Congress from time to time has enacted statutes providing that shipments of certain American cargo must be carried exclusively or primarily in ships of United States registry. In 1904, the first of these statutes, the Cargo Preference Act, 10 U.S.C. § 2631, provided that only vessels of the United States may be used in transporting American military supplies. Numerous other preferences discussed infra were enacted later. In 1954 Congress amended the 1936 Act to require in 46 U.S.C. § 1241(b) that whenever government owed or financed cargo is shipped, at least 50% of the gross tonnage must be carried on privately owned vessels of United States flag registry. The effect of the acts is to guarantee that substantial quantities of both civilian and military cargo will be shipped on American vessels.

Proceedings before Maritime Subsidy Board

Seeking relief from what it considered unfair competition, ⁴ AMA on July 1, 1969 petitioned the Secretary of Commerce to exercise his rule making authority under the Merchant Marine Act, 46 U.S.C. § 1114(b), to adopt four rules governing administration of the ODS and CDS programs. Its proposed rules reflected AMA's position that neither ODS nor CDS could be awarded or paid, in full or in part, for the carriage of preference cargoes. ⁵ On December 1, 1969 the Maritime Subsidy Board, on behalf of the Secretary of Commerce, commenced rule making proceedings, under Docket No. S-244, to consider the relationship between ODS and CDS and preference cargo. Extensive hearings were held in which the American Unsubsidized Lines (AUL) joined the AMA in representing the unsubsidized carriers. The AIMS, United States Lines, Inc., and the Military Sealift Command of the Department of Defense represented the subsidized lines.

On June 22, 1971 the Chief Hearing Examiner of the Board issued proposed Findings of Fact in which he recommended, inter alia, that the AMA proposed rule calling for the refund of ODS proportionate to revenues derived from preference cargo be adopted with respect to military and open-rated civilian preference cargo carried at premium rates. The Examiner further concluded that open-rated civilian preference cargo should not be the subject of subsidy refund. Appeal was taken to the Board.

The Board issued its Final Order and Opinion on June 12, 1972. It declined to adopt the rules proposed by the AMA and rejected the legal conclusions of the examiner. Instead the Board formulated a new rule and regulations to govern the award of future subsidy contracts. ⁶

In concluding that it could not accept the position of either AMA or AIMS with regard to the meaning of the 46 U.S.C. § 1171(a) requirement that vessels "meet foreign-flag competition", the Board said:

"The Board specifically rejects AMA's contention that subsidized vessel operations must be devoted almost exclusively to carriage of cargo subject to foreign-flag competition in order to qualify for an ODS contract. The Board also rejects AMA's contention that ODS may be paid under a valid contract only for carriage of cargo subject to foreign-flag competition. We think the statute and its legislative history clearly establish that the purpose of the ODS program is not to subsidize cargo carriage but instead to subsidize operation of vessels so that the vessels are in a position to carry cargo on a competitive basis. On the other hand, we do not accept the AIMS position that the actual performance of a vessel operator as a competitor can be ignored. Rather, it is our judgment that payment of...