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02/06/79 Alaska Bulk Carriers, Inc. v. Juanita M. Kreps


February 6, 1979













Before BAZELON, McGOWAN and WILKEY, Circuit Judges.





Nos. 77-2080, 78-1211, 78-1212, 78-1281 1979.CDC.24

Rehearing Denied March 22, 1979. Rehearing En Banc Denied April 3,1979. Certiorari Granted June 18, 1979.

Appeals from the United States District Court for the District of Columbia (Civil Action No. 77-1647) (Civil Action No. 77-1645) (Civil Action No. 77-1647) (Civil Action No. 77-1645).



Opinion for the Court filed by WILKEY, Circuit Judge.

Dissenting opinion filed by BAZELON, Circuit Judge.

See 99 S. Ct. 2880.

Alaska Bulk Carriers v. Kreps, et al.


A. Statutory 817

B. Factual 819 II. THE ISSUE

A. The Language of Section 506 822

1. Exclusion of Other Exceptions 822

2. Findings of Need as Essential Basis for Limited Waiver 823

B. Legislative History of Section 506 824

1. The Original 1936 Act 824

2. 1938 Amendments 827



A. Section 504, Title V, of the Merchant Marine Act of 1936

(46 U.S.C. § 1154) 834

B. Section 207, Title V, of the Merchant Marine Act of 1936

(46 U.S.C. § 1117) 835

C. Section 1104 (a), Title XI, of the Merchant Marine Act of

1936 (46 U.S.C. § 1274(a)(3)) 836 V. POLICY OF THE MERCHANT MARINE ACT OF 1936

Conclusion 840

This is an appeal from an unsuccessful challenge in the District Court by appellant-plaintiffs to action taken collectively by the Secretary of Commerce, the Maritime Administrator, and the Maritime Subsidy Board. The Agency (to use the term inclusive of the actions and authority of all appellee-defendants) had removed statutory restrictions barring operations of the 225,000-ton tanker Stuyvesant in the domestic maritime trade in exchange for the repayment (by 20-year promissory notes) of the entire $27.2 million subsidy the Agency had previously paid toward construction of the Stuyvesant. We hold that nothing in the Merchant Marine Act of 19361 permits the Permanent removal of the statutory bar to the utilization of construction-subsidized vessels in the domestic maritime trade, and therefore reverse the decision of the District Court. I. BACKGROUND

A. Statutory

It has been recognized that the cost of building ships in U.S. shipyards, and likewise the cost of operating vessels with American crews and according to American safety standards, is considerably higher than construction in foreign shipyards or operation with foreign crews. It has also long been recognized that an adequate merchant marine is vital to both the national defense and the commercial welfare of the United States.2 Since the earliest days of the Republic, the problem of maintaining an adequate merchant marine in the domestic trade has been solved by preferential legislation that only U.S.-built and U.S.-flag vessels can be operated in commerce between points in the United States.3 The Jones Act, § 27 of the Merchant Marine Act of 1920,4 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 . . . ."5 Since all ships operating in the U.S. domestic trade are both U.S.-built and owned, there has thus never been a need for a subsidy.

In U.S. foreign commerce, however, the practical competitive situation is otherwise. 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 carried in ships of its flag. If the construction and operating costs of the foreign-flag vessels are lower, which they are and have been for many years, 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 subsidy for ships to be built in U.S. yards and an operating-differential subsidy for the manning of American-flag vessels by American citizens in accordance with American safety standards. Under the construction-differential subsidy program,6 which is the only subsidy at issue here, the Government may pay up to 50% Of the construction costs of vessels needed for the U.S. foreign maritime trade.7

The U.S. merchant fleet is thus divided into two distinct segments. The "Jones Act" fleet, which operates in the protected U.S. domestic trade, cannot economically compete in 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 has never been allowed to compete in the domestic trade, because it would be grossly unfair to allow U.S. vessels which have received a subsidy of up to 50% Of construction costs to compete with U.S. vessels whose owners paid the full costs 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 negated if subsidized U.S.-flag competition were allowed to invade this protected reserve. As a consequence of such competition, American shipowners would be reluctant to build vessels without subsidy and the long-range investment decisionmaking of American shipowners and shipbuilders would be seriously upset.8

The appellants argue that "until the agency actions complained of here, ships built in U.S. shipyards for the subsidized fleet were permanently barred from competing with the Jones Act fleet in the protected domestic trade."9 Appellants point to § 506 of the Merchant Marine Act of 193610 as providing this statutory barrier. Section 506 provides that the owner of any ship built with construction-differential subsidy must agree that the vessel is to be operated only in foreign trade, except for certain intermediate stops in the United States or its territories as part of world-wide voyages or under temporary waivers granted by the Agency not to exceed six months in any one year.11 The exact language of § 506 constituting this statutory bar, with two exceptions, is:

Every owner of a vessel for which a construction-differential subsidy has been paid shall agree that the vessel shall be operated exclusively in foreign trade . . . (or on voyages with intermediate stops as part of world-wide voyages) . . . and that if the vessel is operated in the domestic trade on any of the above-enumerated services, he will pay . . . (a proportional amount of the subsidy). The Secretary may consent in writing to the temporary transfer of such vessel to service other than the service covered by such agreement for periods not exceeding six months in any year, whenever the Secretary may determine that such transfer is necessary or appropriate to carry out the purposes of this chapter. (Proportional repayment of the subsidy again provided.)

While other sections of the Merchant Marine Act of 1936 are discussed by both sides in this case, § 506 is the centerpiece about which the argument turns, and in our view its proper interpretation is decisive here.

B. Factual

The Stuyvesant, a 225,000 deadweight ton oil tanker, was built at a total allocated cost of $102.7 million by Seatrain Shipbuilding Corporation.12 The United States Government's contribution to the financing was as follows:13

$27.2 million

construction-differential subsidy awarded by the Agency in 1972, the equivalent of 26% Of the total cost of construction of the Stuyvesant, under Title V of the Merchant Marine Act of 1936;

$30.2 million

loans guaranteed by the Agency under Title XI of the Act;

$5 million

loan by the Economic Development Administration , another agency of the Department of Commerce, for conversion from military to civilian purposes of the former Brooklyn Naval Yard, which constructed the Stuyvesant and other ships for Seatrain Shipbuilding Corporation (Seatrain);

$73.8 million

EDA guarantee to the extent of 90% Of additional $82 million private loans to Seatrain Shipbuilding for the purpose of developing and maintaining the Brooklyn Naval Yard.

In accordance with § 506 of the Act, as a condition to receiving the $27.2 million subsidy, Seatrain and Polk Tanker Corporation (Polk), the vessel's purchaser, executed agreements to operate the Stuyvesant exclusively in the foreign trade of the United States.14

In contrast with two similar vessels constructed by Seatrain Shipbuilding, when the Title V subsidy and the Title XI financing insurance were awarded, the Stuyvesant had no firm commitment for employment in the foreign trade. Unfortunately, on its completion in 1977, there were still no prospects for the Stuyvesant in foreign commerce.15 As the Stuyvesant's owners looked about for her gainful employment, they observed the changed situation in the carriage of Alaska oil. Contrary to original expectations, Alaska crude was not being carried from Valdez on relatively short hauls to U.S. West Coast ports, but because of the glut of oil in the West was being hauled around Cape Horn to the Eastern United States and the Caribbean. Furthermore, the world tanker tonnage over-supply had little effect on this trade, because this trade by U.S. maritime laws was largely confined to American-flag vessels.16

There was, however, one obvious obstacle: while the Stuyvesant was American-built, it was also constructed by subsidy and thus was not eligible for employment in the domestic coastwise trade. To overcome this obstacle, in July 1977 the Stuyvesant owners applied for a three-year waiver of the § 506 restrictions on employment of the ship in other than the U.S. foreign trade, invoking the general contract-making authority of the Secretary of Commerce under § 207 of the Merchant Marine Act of 1936.17 The present plaintiff-appellants and others intervened before the Agency, pointing out that § 506 of the Merchant Marine Act specifically provided only for a six-month waiver and that there was no legal authority for a three-year waiver. In response to these objections, the Stuyvesant owners (intervening defendants here) withdrew their application.18

There followed a series of Ex parte meetings between the Agency and Seatrain and Polk.19 On 25 August 1977 Polk presented a new offer to the Agency, which would permit the Stuyvesant to operate in the Alaskan or any other domestic trade. The offer also provided that the Agency release the restrictions required by the statute and embodied in the subsidy contract upon Polk's execution of a twenty-year promissory note payable in 40 semiannual installments as reimbursement of the amount of the subsidy and other monies advanced by the Government.20 This letter application was not published in the Federal Register, but the Agency by two letters of 31 August 1977 to Polk and Queensway Tankers, Inc. (the proposed operator of the Stuyvesant ) approved the application to waive the restrictions Permanently as well as various other features of the complicated refinancing necessary.21

On 22 September 1977, appellants filed this action in the District Court, one day prior to the scheduled closing of the entire transaction. A temporary restraining order was granted, ultimately preliminary injunction was denied, and the transaction was consummated on 30 September 1977. After extensive discovery, cross-motions for summary judgment on the merits were filed, and the District Court ruled for the defendants on the principal issue of the Agency's authority to waive permanently the restrictions on employment of the Stuyvesant in the U.S. domestic maritime trade.22 II. THE ISSUE

We regard the issue as one of straightforward statutory interpretation, primarily of § 506, and, to whatever extent relevant, of other sections of the Merchant Marine Act of 1936.

The trial court phrased the first of his stated four legal issues as:

hether the Secretary has the legal authority under the Merchant Marine Act of 1936 to remove domestic trading restrictions upon the operation of a vessel built with . . . (construction-differential subsidy) in exchange for repayment in full of the . . . (construction-differential subsidy) . . . .23

The trial court found no explicit authority for the Agency action challenged here, either in § 506 or any other part of the Act, but held that there must be inherent Agency power after subsidy repayment to waive permanently the § 506 bar on a vessel's operation in the U.S. domestic trade. Our analysis is to the contrary: a proper construction of § 506 shows that the statute implicitly bars such waiver, the legislative history of § 506 supports this, and no other statutory provision either explicitly or implicitly gives rise to the authority asserted by the Agency here. III. ANALYSIS OF SECTION 506 OF THE MERCHANT MARINE ACT OF 1936

A. The Language of Section 506

The initial clause of § 506 is rather explicit:24

Every owner of a vessel for which a construction-differential subsidy has been paid shall agree that the vessel shall be operated exclusively in foreign trade . . . .

Recalling our discussion above, the purpose of this clause is obvious: a construction-differential subsidy is only to make American-built vessels competitive with foreign-flag vessels in the foreign trade; there is no need or purpose to make subsidized vessels competitive in the U.S. domestic trade, because these vessels are exclusively built in American shipyards without subsidy. To put subsidized vessels into that trade would be unfair to owners who have built and purchased without Government subsidy, and ultimately would eliminate unsubsidized U.S. shipbuilding. Section 506, therefore, is The clause in the Merchant Marine Act which separates the two fleets, I. e., the Jones Act domestic trade fleet (unsubsidized), and the U.S. foreign trade fleet (subsidized).

The statutory language is strong: "Every owner . . . shall agree."25 It is not just the original builder or first purchaser, but every owner during the life of the vessel who must agree to the restriction.26 The restriction is "that the vessel shall be operated exclusively in foreign trade," for the obvious purpose aforementioned. The restrictive language also refers to a subsidy which "has been paid." The idea is one of permanence; once the ship has been constructed by Government assistance of up to 50% Of its original construction cost, the ship is dedicated to the U.S. foreign trade. Payment of the subsidy stamps indelibly the character of the ship then and thereafter.

1. Exclusion of Other Exceptions

Section 506 not only mandates the owner's obligation to operate the vessel exclusively in U.S. foreign trade, but it provides the only exceptions to that obligation to be found in the Merchant Marine Act. These exceptions are, first, that certain intermediary stops may be made in the course of long voyages in foreign trade,27 where the American vessel naturally would touch at more than one American port and it would be uneconomic to forbid the vessel to carry cargo between such American ports. Second, the Agency may consent to the Temporary operation of a subsidized vessel in U.S. domestic maritime trade for a period not to exceed six months in any one year if such operation is deemed "necessary or appropriate to carry out the purposes" of the Act.28 If either exception is invoked, the owner must pay back that part of the construction subsidy proportional to the period of the exception.29

In the entire Merchant Marine Act, only § 506 explicitly does these three things:

(1) mandates the vessel's exclusive operation in the U.S. foreign trade;

(2) provides two exceptions to such exclusive foreign trade operation; and

(3) authorizes the Agency to accept payback of subsidy for vessels to operate in the domestic trade.

The obligation of exclusive operation is clear, the two exceptions are precise and limited, and the financial consequences of invoking the exceptions are equally precise and clear.

Since these provisions are so clear on the face of the statute, we are puzzled by the trial judge's statement that ". . . Nothing in section 506 . . . either expressly or implicitly addresses the issue of Permanent revocation of a . . . (construction-differential subsidy) contract."30 By the usual canons of statutory construction, we think the issue of Permanent revocation of a construction-differential subsidy contract Is addressed implicitly by the specific enumeration of the permissible exceptions to the vessel's permanent dedication to U.S. foreign trade. Where a statutory mandate is laid down, followed by specifically enumerated exceptions to such mandate, and where neither this mandate nor exceptions thereto are found anywhere else in the same statute, we think that the unquestioned canon of statutory construction is that the enumerated exceptions are Exclusive, and that any other exception (here, permanent waiver or revocation of vessel use restrictions) is ruled out implicitly.31

2. Findings of Need as Essential Basis for Limited Waiver

That § 506 implicitly forbids the Permanent lifting of the bar to employment of the subsidized vessel in the domestic trade is borne out by examination of the procedure for implementing the limited waiver which Is authorized by § 506. On inquiry by the court at oral argument as to what finding the Secretary would need to make under § 506 to justify consent to place the subsidized vessel for six months in the domestic trade, counsel for the Agency promptly replied, ". . . what the need . . . (for vessels) will be in the foreseeable future . . . ."32 It was then observed that § 506 requires a partial return of the subsidy proportional to the limited term the vessel is permitted in the domestic trade, and therefore a complete return of subsidy might be thought consistent with a permanent lifting of the barrier against employment in the domestic trade, if such permanent waiver were authorized. Continuing with the analysis, the question then arises, what finding should the Secretary make as a basis for consent to the Permanent waiver of the restriction? To this Government counsel responded that prediction of need for a vessel "would be really . . . impossible to make over 25 years. The Secretary can only predict what the needs will be . . . (for) about three years."33

Thus the analysis of the Government will not stand up. Where a waiver for a limited period is involved, it is rational to believe that the Secretary can make a finding of need for the vessel for a limited period of time, since Government agencies and private businesses frequently make economic judgments for a period of six months. In the case at bar, the determination by the Secretary of the need for the Stuyvesant, and the noncompetitive effect of the Stuyvesant's entry into the Alaska oil trade, was made for a limited period. However, a finding of need and no competitive effect resulting from the entry of a subsidized vessel into the entire U.S. domestic trade for the permanent life of the vessel a period in excess of 25 years is a finding impossible to make. No Government agency or private enterprise can logically make a finding of need for this or any other vessel for its entire life.34

If it is logically possible to make a finding of need and noncompetitive effect for a limited period of six months, or perhaps even three years, then lifting the restrictions for that limited period has a logical basis. If it is logically impossible to make a finding of need or noncompetitive effect on a permanent basis, for the entire life of this new vessel, Then it is logically impossible to make the only finding which will sustain rationally the waiving of the restriction against the employment of the subsidized vessel in the domestic trade. For a limited period the finding to sustain the waiver can be made; for an unlimited period the finding to sustain the waiver cannot be made; therefore, the waiver for a permanent period cannot be made.

B. Legislative History of Section 506

We think that § 506 properly analyzed forbids by implication the grant of the permanent waiver by the Agency here. The trial court asserted that "Nothing in section 506 . . . or in the legislative history of these provisions either expressly or implicitly addresses the issue of Permanent revocation of a . . . (construction-differential subsidy) contract."35 Since we do, however, find support in the legislative history for the statutory interpretation set forth above, we will discuss briefly the legislative history as we have found it.

1. The Original 1936 Act

Prior to the enactment of the Merchant Marine Act of 1936, the question of possible permanent release from the restriction against the employment of subsidized vessels in the U.S. domestic trade was discussed. Some original proponents of the 1936 Act urged inclusion of a provision allowing such release; others did not. All in all, some fifteen versions of the finally enacted Merchant Marine Act of 1936 were considered.36 A number of drafts of the eventual § 506 which were before the Congress in 1935 and 1936 provided for time-unlimited waivers conditioned upon repayment of subsidy.37 For example, the bill that first passed the House in 1935, but failed to win approval in the Senate, allowed a vessel constructed with the aid of Government subsidy to operate in the domestic trade, if the owner received the "written consent of the . . . (Agency) so to operate" and repaid to the United States that amount of the construction subsidy proportional to the "remaining economic life of the vessel."38 Since the prior experience of Congress with construction subsidies had shown that the domestic operation of ships constructed under subsidy could disadvantage the unsubsidized Jones Act fleet,39 later drafts reported to the Senate restricted the Agency's authority to lift the restriction against domestic trading. For example, one draft considered by the Senate in 1936 permitted permanent waivers, But provided that the Agency could not grant any waiver transferring a subsidy-built vessel to the domestic fleet "except to replace a vessel engaged in such trade, or unless there are not available vessels to serve adequately the needs of commerce" in a particular domestic service "in which it is proposed to operate such vessel."40

The drafting and redrafting process, with numerous conflicting versions of the Merchant Marine bill appearing and disappearing, understandably introduced certain confusions and conflicting passages in the ultimate legislation. The final Act41 included visible traces of individual legislators' conflicting desires which produced a § 506 that, although ambiguous, could have been construed to mean that permanent release could be granted by the Agency on repayment of that part of the subsidy proportional to the remaining life of the vessel.

As originally enacted in 1936, § 506 read:42

It shall be unlawful to operate any vessel, for the construction of which any subsidy has been paid pursuant to this title, other than exclusively in foreign trade, or on a round-the-world voyage or a round voyage from the west coast of the United States to a European port or ports or a round voyage from the Atlantic coast to the Orient which includes intercoastal ports of the United States, or on a voyage in foreign trade on which the vessel may stop at an island possession or island territory of the United States, Unless the owner of such vessel shall receive the written consent of the Commission so to operate and prior to such operation shall agree to pay to the Commission, upon such terms and conditions as the Commission may prescribe, an amount which bears the same proportion to the construction subsidy theretofore paid or agreed to be paid (excluding cost of national-defense features as hereinbefore provided), as the remaining economic life of the vessel bears to its entire economic life. If an emergency arises which, in the opinion of the Commission, warrants the temporary transfer of a vessel, for the construction of which any subsidy has been paid pursuant to this title, to service other than exclusive operation in foreign trade, the Commission may permit such transfer: Provided, That no operating differential subsidy shall be paid during the duration of such temporary or emergency period, and such period shall not exceed three months. . . .

The ambiguities of the language above are apparent. Although the non-italicized first half of the long first sentence of the 1936 version generally prohibited domestic operation of a subsidized vessel, the italicized second half of that sentence arguably created a general exception to that prohibition. That exception was conditioned only upon "written consent of the Commission" and agreement by the shipowner to repay to the Commission an amount of subsidy proportional to the "remaining economic life of the vessel." This exception was not expressly confined to any particular economic conditions or to any type or duration of voyage. The second sentence of the section dealt with temporary transfers of a subsidized vessel to domestic service at times of "emergency," and could be read not to limit the much broader exception to the prohibition provided in the first sentence. It was thus possible to read the 1936 version of § 506 as authorizing both (1) an unlimited waiver (despite the absence of specific reference to such a waiver), conditioned only upon approval of the Commission and the shipowner's agreement to repay a portion of the subsidy; and (2) a temporary waiver allowable for a period of three months, and only in the case of national emergency.43

On the other hand, the second sentence of § 506 as passed in 1936 could also be read as qualifying the first sentence, so as to disallow permanent waivers in favor of waivers allowable for periods of no more than three months in the event of an "emergency."44 Regardless of one's reading of the language of § 506 as enacted in 1936, however, it is perhaps most critical to the present case to note that legislative history of the section shows that The issue of use restriction waivers whether temporary or permanent, and whether allowed or disallowed was addressed by that section and nowhere else in the Merchant Marine Act of 1936. Not a scintilla of legislative comment or debate has come to light which indicates that any other section or provision of the Act provided authority for, or was intended to deal in any way with, the issue of waivers to restrictions imposed by § 506.45

2. 1938 Amendments

In 1938, comprehensive amendments were passed to the Merchant Marine Act of 1936.46 With regard to § 506 of the Act, then Maritime Commission Chairman Joseph P. Kennedy stated that the purpose of the proposed amendment was to remove "ambiguities" and "confusions" in the section, described as follows:47

The section now provides that the owner can only engage in foreign trade exclusively with certain enumerated excepted services, for which services the owner is required to repay part of the construction-differential subsidy. There are also provisions which appear to give owners the right to engage in services other than the excepted ones, if the Commission consents to such use and the owner repays part of the construction-differential subsidy. Whether this right is restricted to the cases of emergency and to periods of three months as mentioned in the section, it is difficult to determine.

When the Maritime Commission Chairman noted that "(it is difficult to determine) (w)hether this right (to engage in non-excepted services) is restricted to . . .," he referred to "the cases of emergency and to periods of three months." He did not specifically mention the other alternative of his "whether," but this could only have been the arguable alternative at the end of the first sentence of § 506 as enacted in 1936, I. e., the ambiguous reference to repayment of subsidy proportional to the economic life of the vessel in return for the lifting of restrictions on the use of that vessel.48 Thus the Maritime Commission Chairman sought to relieve the ambiguity of whether the section authorized a permanent lifting of use restrictions in return for repayment of subsidy, or merely a temporary waiver on the ground of emergency. The proposed 1938 amendment, which was adopted by both Houses and stands essentially unchanged as the present § 506,49 resolved the ambiguity by eliminating all of the language in the original section that established the arguable exception to that section's general prohibition of domestic use, I. e. the clause that begins, "unless the owner (shall receive consent) . . ."50 Thus the amendment removed the only language that could be interpreted to authorize a permanent waiver, and substituted therefor a clause requiring repayment of subsidy proportional to the gross revenue derived from the domestic leg of a foreign voyage.

The Maritime Commission Chairman described the effect of these changes as follows:51

If the owner desires to engage in domestic trades other than . . . (domestic portions of world voyages), he can do so only by receiving the consent of the Commission. The consent for this service is limited to 6 months in any one year. . . . he section as rewritten will result in improved administration and will protect the interests of the Government and those of the carriers, both foreign and domestic.

This explanation by the Commission Chairman was incorporated almost verbatim into both the Senate and House reports which accompanied the bill amending § 506 in 1938,52 thus demonstrating irrefutably that Congress intended in 1938 to allow only temporary waivers, with duration of no more than six months.53

Thus it does not now matter whether some of the sponsors of the 1936 Act believed that language in the statute authorized a permanent lifting of restrictions in return for repayment of the full subsidy, because the action of the Congress in 1938 resolved the ambiguity by removing from § 506 the only language which could be interpreted to authorize more than a temporary waiver of the restriction against employment in the domestic trade. In 1938 the intention of Congress was unmistakably manifested: to eliminate the only statutory language which could arguably have authorized the permanent waiver of the domestic trading restriction upon repayment of subsidy, and to limit the waiver of the domestic trading restriction to six months in any one year, with no discretion in the Secretary to authorize a longer period.

No one in the present case, however, now contends that § 506, as amended, authorizes permanent waivers. The trial court specifically so stated,54 and looked elsewhere in the statute for inherent authority in the Secretary to do this.55 However, the 1936 version of § 506 is the Only provision which any party to this case has ever cited as providing direct authority for permanent waivers. That language is now Gone, by specific direction of Congress. We cannot believe that by deleting the only language in § 506 which could be argued to permit permanent waivers, and by leaving only language permitting temporary waivers, Congress thereby manifested an intention that the Agency should have Express authority to issue Temporary waivers under § 506 and Implied authority to issue Permanent waivers, pursuant not to § 506 but to some unexpressed inherent power conferred in other sections of the Merchant Marine Act of 1936.56

As we read the legislative history, both permanent and temporary waiver provisions were considered both in 1936 and in 1938 by the Congress, and Congress in 1938 determined, on the recommendation of the Maritime Commission, to permit the Agency to grant only temporary waivers. This deliberate Congressional intent, pursuant to a carefully constructed policy to maintain separate subsidized and unsubsidized fleets, cannot be ignored by the Agency and the courts on some vague notion of inherent power elsewhere, which it now might be convenient to utilize. Contrary to the assertion of the trial court that there was "nothing" in the legislative history of § 506 concerning permanent waivers,57 and the court's further reference to "this total dearth of guidance from the statutory language and the legislative history,"58 we find ample legislative history relevant to this question. Legislative history of the 1936 Act is somewhat ambiguous, as was the 1936 statute itself. The legislative history of the 1938 amendment, however, confirms our present interpretation of the statutory language and demonstrates that whatever vestigial authority there was in the original 1936 Act to issue permanent waivers was eliminated by the 1938 amendment.

C. Administrative Interpretation

After remarking, erroneously we hold, on the "total dearth of guidance from the statutory language and the legislative history" of § 506, the trial court thus found a justifiable basis for turning to "other indicia of legislative intent" and "whether the Agency's interpretation of the Act "serves to further the purposes of the legislation . . . .' "59 The principal Agency interpretation cited by the court is "the Comptroller General's 1964 decision with respect to two . . . ships owned by Grace Line . . . both of which were built under . . . (construction-differential subsidy) contracts . . . ."60 In that 1964 decision61 the Comptroller General advised the Secretary of Commerce, in accord with a legal opinion on the same question issued earlier by the Acting General Counsel to the Maritime Administration,62 that the Agency had the legal authority to remove provisions in two construction-differential subsidy contracts signed between the Agency and Grace Line barring domestic operations of two Grace Line vessels, in return for "repayment to the Government of the unamortized construction-differential subsidy. . . ."63 The Comptroller General reasoned that, "Upon the basis of the rationale for the repayment of subsidy (provided for by section 506 of the Merchant Marine Act of 1936), it appears that if . . . the unamortized subsidy is repaid to the Government, the owner should be in the same position as if he had paid the full domestic price of the vessel . . . and should not be bound to operate the vessel exclusively in foreign trade."64

The Grace Line affair, however, is no precedent65 for what the Agency has attempted to do here. First, the two Grace Line vessels were not Built under construction-differential subsidy contracts; they were originally built unsubsidized, then later converted from cargo to container vessels by subsidy funds for use in foreign trade.66 The 1964 action by the Agency was on the proposal of Grace Line, which was experiencing difficulties in operating the vessels abroad, to sell the vessels to a domestic operator for use in the domestic trade.67 As we discuss in Part V, Infra, the fact that the vessels were originally constructed in American yards without subsidy is important for basic Merchant Marine Act policies.68 Competing domestic operators could take the tonnage of these vessels into account at the time the vessels were built in making their own future investment decisions. However, in the instant case, American carriers estimating future demand for Alaskan oil tankers could not have known that the Stuyvesant, under construction in American yards With subsidy, would in its initial operation try to enter the Alaskan market in competition with unsubsidized vessels.69

Second, the request to return the Grace Line vessels to the unsubsidized fleet was unopposed, so far as the record shows. It is also significant that there was no court test of the validity of the Agency's action in removing the restrictions on the vessel's use.70

Finally, the 1964 Comptroller General's opinion is totally inconsistent with the trial court's rationale as to the source of the Agency's authority to accept the return of subsidy in exchange for a waiver of use restrictions. The trial court specifically held that "Nothing in section 506 . . . either expressly or implicitly addresses the issue of Permanent revocation . . .,"71 and rested its approval of the Agency's action on the ground that "such authority is inherent in the Secretary's broad contractual authority provided by sections 504 and 207, 46 U.S.C. §§ 1154 and 1117" and is "expressly contemplated by section 1104(a)(3), 46 U.S.C. § 1274(a)(3) . . . ."72 In 1964, however, the Comptroller General's opinion relied Solely on § 506 as the source of the Agency's authority.73 Therefore, we hold that the 1964 Grace Line opinion furnishes no precedent for the trial court's rationale of a permanent waiver authority implicit somewhere else in the Act.

Nor do we agree that "since the 1964 Grace Line transaction, the Secretary has consistently interpreted section 506 as Not precluding permanent waiver of domestic trading restrictions . . . ."74 We find the Agency's internal interpretations of dubious consistency, and neither numerous nor impressive. In fact, the most thoroughly developed Agency interpretation cited by the court provides no support whatsoever for the Agency's action in the present case.75 This Agency interpretation was formulated in response to the application in 1970 of Seatrain Lines, Inc., the parent corporation of the appellee Seatrain Shipbuilding Corporation here, for a construction-differential subsidy for two vessels other than the Stuyvesant. As part of its application, Seatrain sought from the Agency a contractual prior commitment to authorize future "Permanent operation of the vessels in the domestic trade upon the repayment of the unamortized portion of . . . (the subsidy)."76 In an opinion considering the legality of such a provision, the General Counsel to the Maritime Administration urged strongly against granting Seatrain's request because advance agreement to waive the prohibitions of § 506 would "conflict . . . with the basic purposes of the . . . (construction-differential subsidy) provisions of the . . . (Merchant Marine Act of 1936)."77 The General Counsel pointed out, as in the present opinion we have as well, that "Neither section 506 nor any other provision of the Act relating to the . . . (construction-differential subsidy) provides for releasing a . . . (ship built with such subsidy) from the domestic trade restrictions imposed by section 506 upon repayment of unamortized . . . (subsidy)."78 The General Counsel no more than Implied in his opinion that the Agency might have authority in a future case to grant a timely request for such a waiver,79 and he set forth no circumstances or conditions under which he believed such approval would be appropriate.80 It is incredible, therefore, that the trial court and appellees in the present case find support in this General Counsel's opinion for the Agency's claim of authority to waive on a permanent basis the prohibitions of section 506.

The other Agency interpretations cited by the trial court are no more compelling.81 The trial court reports that in 1976 the Agency amended two subsidy contracts to permit subsidy repayment and possible future entry into the domestic trade of two vessels operating between the Virgin Islands and the continental United States, "If the non-domestic status of the Virgin Islands is changed at some later date."82 These contract amendments by the Agency were conditional and restricted, and are as yet unexercised and therefore unchallenged in any court. One further instance of Agency approval of a prospective waiver of domestic use restrictions on subsidized vessels has also been reported.83 This waiver option, like that granted to the two vessels operating in the Virgin Islands trade, was apparently approved despite the earlier opinion of the General Counsel to the Maritime Administration in 1970 that such prospective agreement would "conflict with the basic policies" of the Merchant Marine Act of 1936 and, further, that no waiver of the 506 proscription was authorized either by § 506 or by any other provision of that Act.84 Also, the vessels which were the subject of this waiver, like the two Virgin Islands vessels, have not yet exercised their option and entered the domestic trade.85

Though the Agency actions on behalf of the owners of these various ships are arguably consistent with each other (if not with the advice of Agency legal counsel), they are all distinguishable on their facts from the present case, where an immediate rather than a prospective waiver is sought. The Agency actions do not, in any event, constitute compelling precedent in view of our present construction of the law, and clearly they do not bind this court.

The Grace Line reconversion remains the only instance of actual entry into domestic operations by vessels that received construction-differential subsidy, but, as discussed above,86 this Agency action likewise does not serve as precedent here. We also do not believe, as will be discussed herein,87 that Congress has in any sense "ratified" the Grace Line action by subsequent enactments. IV. SECTIONS OF THE MERCHANT MARINE ACT OF 1936 RELIED UPON BY THE

All parties to this appeal agree, and the trial court found,88 that the Agency does have authority to accept total repayment of the construction-differential subsidy, if such repayment is offered. But, as is made amply clear by the argument of parties on this appeal, that is not the issue. The issue here is whether the Secretary has authority to lift permanently the restriction against entry of previously subsidized vessels into the domestic trade in return for such payment.89

We cannot assume that it follows as night follows day that if the subsidy is repaid in full, then the operating restriction against entry into the domestic trade must automatically be lifted. We have already set forth above the policy reasons that indicate why this should not be true,90 and we develop these reasons more fully herein.91 But policy arguments aside, for the Agency to take the extraordinary step of removing the restriction on the originally subsidized vessel's operation in the domestic trade to allow competition of that vessel with U.S. ships built without subsidy, the Agency must, in our view, find some specific authority in statutory law. The trial judge clearly and appropriately rejected the existence of any such authority, explicit or implicit, in § 506,92 and he was right. The trial judge then turned to three other sections of the Act93 to find such Agency authority, and there we think he was wrong.

Curiously, while the Government and the private party appellee here urge that affirmative authority to lift the operational restriction is found in sections 207, 504, and 1104(a)(3) of the Act, the trial court's opinion does not claim to find authority for lifting the restriction in those sections. The trial court said:94

The threshold issue before the Court is whether the Secretary has authority to accept total repayment of . . . (construction-differential subsidy) in exchange for the removal of the domestic trade restrictions imposed by section 506 of the Act, 46 U.S.C. § 1156. Resolution of this issue requires this Court to determine first whether the Secretary has the general authority to accept total repayment of . . . (the subsidy) after the subsidy contract has been executed, and second, whether section 506 bars the Secretary from removing domestic trade restriction in exchange for such total repayment.

The trial court's analysis thus reflects an assumption that accepting total repayment is inextricably linked with removal of the domestic trade restriction an assumption that it contradicts by citing other statutorily "permissible" reasons for which repayment might be made.95 Though the trial court found no authority in section 506 or the other cited sections to waive domestic trade restrictions, but only to accept repayment of subsidy under "appropriate circumstances,"96 the court nevertheless resolved that such a waiver was not "addressed" and thus not "precluded" by those sections.97 The court then sought to justify the waiver by reference to a claimed, long-standing Agency understanding of this right and the "implicit" ratification by Congress of this right in certain amendments passed in 1972.98 Thus the trial court found little more than an Assumed authority to accept repayment without discussing, In relation to the relevant statutory sections, whether this also included authority to lift the domestic trade restriction.

On this appeal the Government and private party appellees have recognized the distinction by strenuously arguing that an additional legal determination is necessary to their case, I. e., that the three statutory sections Do affirmatively confer authority to lift the restrictions. In our own analysis, this second finding is necessary to the appellees' case and to support the trial court's judgment; but we do not find such authority in any of the three sections cited, and instead we find that § 506 itself is a positive bar to lifting the restrictions.

We turn now to consider each of those three sections.

A. Section 504, Title V, of the Merchant Marine Act of 1936 (46 U.S.C. 1154)

Section 504 grants to the Agency certain contractual powers: arguably the power both to make and to amend contracts conferring construction-differential subsidies, and the right to include terms which will protect the interest of the United States in subsidy contracts.99 However, this contractual authority is not so broad as to eliminate restrictions mandated by statutes enacted specifically to protect maritime interests,100 as the last sentence of § 504 makes unmistakably clear:101

The contract of sale, and the mortgage given to secure the payment of the unpaid balance of the purchase price, shall not restrict The lawful or proper use or operation of the vessel, except to the extent expressly required by law.

Certainly, "lawful or proper use or operation of the vessel" requires conformity with other sections of the Merchant Marine Act, and with other statutes. Specifically, we think such use and operation must be in conformity with § 506.102 The appellees agree that this language of 504 refers to, among other provisions, the § 506 domestic trade restriction, but argue that § 506 does not purport to speak to the situation where the subsidy is repaid in full in exchange for an unlimited waiver.103 As discussed above, we hold that § 506 does contain an implicit prohibition against a waiver unlimited in time.

In short, we find nothing whatsoever in § 504 which would authorize the lifting of the domestic trade restriction of § 506. To the contrary, the reference to "lawful or proper use or operation" refers to the § 506 restriction against entry of a subsidized vessel into the domestic trade.

B. Section 207, Title V, of the Merchant Marine Act of 1936 (46 U.S.C. 1117)

At oral argument, in discussing the statement in the Government's brief that "the Secretary will consider the advisability of issuing proposed guidelines or rules outlining the exceptional circumstances which might justify . . . (permanent waiver of domestic trade restrictions) in the future,"104 Government counsel was asked on what section of the Merchant Marine Act these guidelines and rules would be based. He immediately responded, "Section 207, which gives the Secretary contractual powers . . . ."105 This was consistent with the position taken in the Government's appellate brief, which cited § 207 as the Agency's basic source of authority to take the action at issue here.106

The pertinent part of § 207 states:107

The Federal Maritime Commission and the Secretary of Commerce may enter into such contracts, upon behalf of the United States, and may make such disbursements as may, in its or his discretion, be Necessary to carry on the activities authorized by (. . . The Merchant Marine Act of 1936 ) Or to protect, preserve, or improve the collateral held by the Commission or Secretary to secure indebtedness, in the same manner that a private corporation may contract within the scope of the authority conferred by its charter.

We think § 207 is what is commonly called a "housekeeping statute," and a similar provision is found in nearly every administrative agency basic statute. It is a section which details the means and methods of implementation of specific powers which are granted elsewhere in the statute. It is not an independent grant of power in itself.108 The authority to make and amend contracts cannot imply the authority to enter into a contract in violation of another section of the same Act or other applicable law, or without a power conferred in another section, just as the power to enter into contracts commonly conferred by corporate charter cannot authorize a corporation to enter into contracts foreign to the purposes of the corporate charter or in violation of law.

In Dollar v. Land,109 a case analogous to the present one, this court concluded that § 207 conferred no powers upon the Agency not otherwise specified in the Merchant Marine Act of 1936. In Dollar the Maritime Commission argued that, upon the authority of § 207, it had power to take title to stock of a steamship company. We stated in that case:110

The power to own and operate transoceanic steamship lines is a power of tremendous scope. . . . It is inconceivable to us that Congress would have left to implication so vast a power. We do not think that if Congress had intended the Maritime Commission to enter upon such ownership and operations it would have left the matter entirely to a clause which merely authorized the Commission to execute contracts.

Similarly, § 207 cannot be a foundation of Agency power to waive statutorily imposed restrictions and thus upset the vital underlying purposes of the Merchant Marine Act, or, indeed, to exercise any power not otherwise granted in the Act or other statute.

C. Section 1104(a), Title XI, of the Merchant Marine Act of 1936 (46 U.S.C.A. § 1274(a)(3))

While the Government appellees rely principally upon § 207 as a source of Agency authority, the private party appellees and the trial court rest more strongly upon § 1104(a)(3). The trial court concluded that ". . . he Secretary does in fact possess general authority to accept total . . . (subsidy) repayment in appropriate cases. . . . his authority is expressly contemplated by section 1104(a)(3), 46 U.S.C. 1274(a)(3) . . . .111

The trial court turned to § 1104(a)(3) after finding a "total dearth of guidance from the statutory language and the legislative history (of 506),"112 an area in which we have found decisive guidance. Yet 1104(a)(3) does not deal with the issue of construction-differential subsidy at all. It is not part of Title V, which pertains to such subsidies, but of Title XI, which authorizes Government guarantees of private loans to finance shipbuilding in American yards.113

Section 1104(a)(3) was added in 1972 to extend the Agency's authority to make guarantees, and provides that the Secretary:114

. . . may guarantee or make a commitment to guarantee, payment of the principal of and interest on an obligation which aids in

(3) financing, in whole or in part, the repayment to the United States of any amount of construction-differential subsidy paid with respect to a vessel pursuant to . . . (Title) V of this . . . (Act).

On its face, this provision gives no authority to repay subsidy, much less to lift any statutory operational restrictions. All it does is provide a means for Financing repayment, if such repayment is otherwise authorized by statute.

How, when, and by what authority subsidy can be repaid must be found in Title V,115 not Title XI116 of the Act. Title V provides for two general conditions under which subsidy may be repaid, and both are found in 506.117 The 1938 amendment removed any ambiguity in Title V, and there is no conflict between Title V and § 1104(a)(3) of Title XI. Nothing in Title XI changes the plain meaning of § 506 of Title V.

Underlying the appellees' and the trial court's rationale that somehow the 1972 amendment to Title XI provides authority to perform an act the permanent waiver of trade restrictions which is contrary to the implicit prohibition of § 506 of Title V, in spite of the fact that if such authority were granted we would expect to find it in § 506 and nowhere else, is the failure to recognize that there may be reasons for subsidy repayment completely unrelated to domestic trading. A shipowner might choose to repay subsidies in order to be eligible for refinancing up to 87 1/2 % Of the vessel's cost,118 or perhaps to escape U.S.-flag requirements as to manning and other U.S. rules of vessel operation.119 As we have pointed out before, no party here argues that any section of the Merchant Marine Act prohibits the Agency's acceptance of subsidy repayment, but the Agency's power to waive permanently the § 506 domestic trading restriction is quite another matter.

In summary, § 1104(a)(3) reflects only a congressional understanding that subsidy may be repaid, either under § 506 of Title V or for other reasons unrelated to entry into the domestic trade. It says nothing about authority of the Agency to grant trade restriction waivers.

Strangely, however, the argument of appellees and the rationale of the trial court really do not rest upon the language of § 1104(a)(3) as enacted in 1972, but on language which was proposed but Never enacted.120 An initial draft of this section in 1971 provided for:121

. . . financing, in whole or in part, (of) the repayment to the United States of any amount of construction-differential subsidy paid with respect to a vessel pursuant to Title V of this Act, as amended, in order to release such vessel from all restrictions imposed as a result of the payment of construction-differential subsidy, when such repayment is permitted by the Secretary of Commerce after considering the competitive effect of releasing such vessel from such restrictions.

It is the above language Which was never enacted which the appellees and the trial court cite as a source of the Agency's present authority to release subsidized vessels from operating restrictions. They reach this conclusion by citing language in the House Report which commented on the deleted language,122 and by concluding that the nonenactment shows that the Agency already had such powers and that the 1964 Grace Line action was thereby confirmed by a later Congress. Unfortunately for this singularly convoluted line of reasoning, both the House and Senate disclaimed any intention of so doing.

The language of the House Report relied on by the appellees and the trial court reads as follows:123

In the entire history of the administration of the 1936 Act there has been only one instance where a construction-differential subsidy repayment, authorized by the Secretary under very special circumstances, could have called into play the provisions of this paragraph. Your committee questions the desirability of general legislation to deal with such an unusual situation, and feels that Title XI assistance should be extended to all instances of subsidy repayments under Title V, so as to include the relatively frequent situation of repayments under the first sentence of section 506 of the Act. Your Committee has therefore amended the legislation by deleting the language (specifying the conditions under which repayment could be accepted and trade restrictions waived). . . .

There are several points vitiating the reliance of the appellees and the trial court on this language. First, it is clear that the Committee regarded the Grace Line case as a "very special circumstance" and "an unusual situation,"124 and chose the path of leaving such matters entirely to the courts rather than enshrining any principle in general legislation. So the Congress specifically declined to adopt the Agency's Grace Line action as a general principle. As aptly stated by one appellant here, "The most that can be said about the . . . (intent of Congress in 1972 is that it) declined to commit itself on the issue."125

Second, the language of § 1104(a)(3) refers specifically to subsidy repayments under Title V.126 Yet the only types of domestic trade restriction waivers authorized calling for subsidy repayments under Title V are those cited in § 506, which are limited to certain world voyages embracing ports in the U.S. coastwise trade and to temporary periods not to exceed six months.127

Third, and most importantly, the House Committee Report quoted above contains a sentence following the portion quoted and relied upon by the trial court, which the trial court omitted. That sentence reads: "This paragraph (§ 1104(a)(3)) in Title XI does not in any way extend or affect the application of Title V of the Act."128 The Senate Report contained the same language omitted by the trial court:129

Paragraph (3) (of § 1104(a)) is new. This paragraph would permit the Secretary of Commerce to guarantee an obligation which aids in financing, in whole or in part, the repayment to the United States of any amount of construction-differential subsidy pursuant to Title V of the Act. This paragraph in Title XI does not in any way extend or affect the application of Title V of the Act.

Nothing whatever was said in the Senate Committee report about the Grace Line matter or authorizing waiver of domestic trade restrictions.

The bottom line of the legislative history of § 1104(a)(3) in both House and Senate is clear: "This paragraph in Title XI does not in any way extend or affect the application of Title V of the Act." We think that no inference of reaffirmed or expanded waiver authority can be drawn from either the congressional action or the Reports with regard to 1104(a)(3). Congress plainly refused to ratify the Grace Line action or to permit the enactment of § 1104(a)(3) to change Title V as the statutory section determining exclusively the circumstances under which subsidy can be repaid in exchange for a lifting of trade restrictions. V. POLICY OF THE MERCHANT MARINE ACT OF 1936

In Sea-Land Service, Inc. v. Kreps,130 a case involving the award of operating-differential subsidy under Title VI of the Merchant Marine Act of 1936,131 we indicated that when "(t)he relevant statutory language provides no direct guidance in resolving . . . (a) dispute" over that statute's proper application, both the Agency and the reviewing court "must of necessity look to the Purposes underlying the particular statutory provision and the Act in general . . . ."132 It should be clear that in the present case we believe there is much guidance to be derived from the language of the statute itself, particularly § 506 of Title V. In addition to this, we now turn to consider whether the Agency's interpretation of the statute on which its action in the instant case is based will in the long run further the purposes of the legislation in a reasonable and sound manner.

We believe there is risk of harm to the overall and long-term policies of the Merchant Marine Act in sustaining the Agency action here. The policy of the Act is to create a protected area of purely American shipbuilding and ship operation in the domestic coastwise trade. This is accomplished by excluding all foreign-built or foreign-operated vessels from this trade. The American shipowner and shipbuilder then knows that he must compete only with like-situated American shipowners and shipbuilders, and he can adjust his sights accordingly. On the basis of known economic facts, the builder or operator makes his calculations of the market and of competition, in which the Government plays no direct part, except in administering guarantees of construction loans available equally to all.

The American shipowner and shipbuilder competes in foreign trade on an entirely different economic footing. To compete with foreign shipping, the American builder and operator are able to secure up to 50% Of a ship's construction costs from the U.S. Government. The purpose of this policy is to enable the American operator to compete initially with foreigners on an equal basis of cost per ship, and to sustain the viability of American shipyards. The American operator is further aided by an operational-differential subsidy, which compensates him for the recognized extra cost of American crews. The American shipbuilder and operator know the competitive factors present in the foreign trade, and they are assisted by U.S. Government funds in meeting foreign competition.

Given these two completely separate competitive areas, unsubsidized American vessels have always operated in the protected, Jones Act domestic trade, while subsidized American vessels, in accord with the restriction of § 506, have always operated in the foreign trade.133 To permit a ship heavily subsidized in its construction cost to compete with unsubsidized U.S.-built ships is to introduce into the domestic portion of our maritime trade a totally variable and incalculable factor. While the Government may feel that it should be able to take whatever action is necessary to free itself of its unfortunate financial obligations here, and though indeed there may be public (but not maritime) policy arguments strongly in its favor, yet the transfer of, first, the Stuyvesant and possibly later of the Bay Ridge134 into the domestic trade would inevitably have a depressive impact on the future of American shipbuilding and ship operation by American owners. To accomplish a short-term Government goal, the actions of the Agency here would imperil a carefully conceived, long-established, and far-sighted maritime policy of the United States.


We find the Agency's action unauthorized by any applicable statute, prohibited by § 506 of the Merchant Marine Act of 1936, and contrary to the overall congressional policy expressed in the structure of that Act. The decision of the District Court is reversed, and the case is remanded to the District Court with instructions to enter an appropriate order granting the plaintiff-appellants the relief requested.

Reversed and Remanded.


BAZELON, Circuit Judge, dissenting:

Although the majority gives a plausible account of the statutory framework governing this case, I am persuaded that nothing in the Merchant Marine Act precludes the Secretary from waiving domestic trading restrictions in return for total repayment of subsidy. In my view, the Secretary had ample authority to enter into the contractual modification at issue in this case, and in exercising that authority she did not abuse her discretion. I therefore respectfully dissent from the decision to reverse the district court. I.

I cannot agree that the 1938 Amendments to the Merchant Marine Act of 1936 "unmistakably manifested" *fn1 Congress' intention to preclude total repayment of the construction differential subsidy in return for a permanent waiver of the domestic trading restrictions contained in § 506 of the Act. The Report of the House Committee on Merchant Marine and Fisheries observed that "no fundamental change . . . has been effected" in § 506 by the 1938 Amendments. *fn2 The original version of § 506 was part of Congress' effort to strengthen the American built and operated "foreign-going" fleet through the creation of a "construction differential subsidy," which replaced the much abused "ocean mail contract subsidy" program. One of the principal failures of the ocean mail subsidy was the diversion of subsidy payments from foreign to domestic service, providing the subsidized operators an unfair advantage over the unsubsidized, "Jones Act" operators. *fn3

The 1936 Act eliminated much of the unfair competition by restricting the conditions under which a ship built with a construction subsidy could engage in the domestic trade. At the heart of the original § 506 was the requirement that owners of subsidized vessels must repay a portion of the construction differential subsidy corresponding to the remaining economic life of the vessel in order to engage in direct competition with the unsubsidized, Jones Act fleet. *fn4

The remaining text of § 506, however, introduced a central ambiguity into the operation of the section, an ambiguity that led to the 1938 amendment. *fn5 The original § 506 could be read to permit permanent waiver of the domestic trade restrictions, contingent on proportional repayment of subsidy, as well as "emergency" temporary waiver of restrictions without the need to pay back any of the construction differential subsidy. Alternatively, the section could be read to permit only temporary waivers, coupled with the requirement of payback.

As Judge Wilkey notes, the former is the more plausible interpretation of the original § 506. *fn6 Accordingly, the "original purpose" of § 506 included the possibility of permanent waiver so long as the source of unfair competition, the previously granted construction differential subsidy, was eliminated. In contrast, the ability to secure emergency temporary waivers without the required payback of subsidy did provide operators of subsidized vessels a significant advantage over their Jones Act competitors. It therefore seems likely that Congress was addressing this latter situation when clarifying the "original purpose" of § 506. Congress clearly eliminated the temporary waiver advantage, since the amended § 506 clearly requires a payback of subsidy for even temporary transfers.

Nonetheless, it is undeniable that in eliminating the 3-month temporary transfer for which no subsidy need be repaid, Congress also eliminated from § 506 the language that appeared to authorize permanent transfer from foreign to domestic service. Despite its expressed intention not to alter the "original purpose" of the section, the House Report stated:

The section has been entirely rewritten in order to remove ambiguities arising from the method of describing the services other than foreign. . . . If the vessel is used, with the consent of the Commission, in the domestic trade in services other than those enumerated, The obligations of the owner to repay part of the subsidy are clearly defined. *fn7

The clearly defined obligation of the amended § 506 includes partial, but not permanent repayment of subsidy. Yet nowhere in the legislative history is there any indication that permanent waivers, apparently permissible under the 1936 Act, were expressly considered and eliminated in 1938. *fn8 II.

In 1964, the Comptroller General issued his decision in Grace Line *fn9 upholding the Secretary of Commerce's authority to remove domestic trading restrictions in return for repayment of the unamortized construction differential subsidy. Although there are some factual differences between the present case and Grace Line, I do not believe that they are material to the question of the Secretary's authority, since the action taken in Grace Line was not contemplated by the express language of § 506 any more clearly than the present action of the Secretary.

I find the Comptroller's rationale in Grace Line questionable. The Comptroller's reasoning began with the observation that ships built with subsidy would be permitted to engage in domestic activities without restriction once the subsidy had been fully depreciated. In the Comptroller's view, this represented a congressional judgment that when the unfair advantage created by the subsidy terminated, the reasons for the restriction would expire, thus justifying unrestricted domestic trading by previously subsidized vessels. Applying the same reasoning to an "accelerated amortization" through repayment, the Comptroller concluded that the purpose of the restrictions would lapse upon repayment, and the Secretary could then permit domestic trading, consistent with the Act.

The difficulty with this argument is that the statute explicitly contemplates a subsidized ship entering unrestricted domestic trade after the economic life of the subsidized vessel had expired, without any further repayment of subsidy. *fn10 In contrast, no such explicit provision governs "accelerated" amortization.

Although Grace Line thus does not stand as well-reasoned precedent, it is precedent nonetheless, and appellees argue that subsequent congressional actions represent ratification of at least the result in Grace Line.

In 1970, Congress enacted a number of amendments to the Merchant Marine Act designed to promote American ship-building for the foreign trade, but § 506 was left intact. *fn11 However, Congress' failure to amend § 506 under those circumstances cannot be viewed as a ratification of Grace Line, since the issue of transfer from the foreign to domestic trade was not germane to the principal focus of the Amendments.

A stronger case can be inferred from Congress' amendment in 1972 of 1104 of the Merchant Marine Act. *fn12 As introduced, the new § 1104(a)(3) clearly contemplated the release of the domestic trading restrictions in return for full repayment of subsidy. The House Committee however, deleted the explicit reference to repayment in return for lifting the trading restrictions, observing:

In the entire history of the administration of the 1938 Act there has been only one instance where a construction-differential subsidy repayment, authorized by the Secretary under very special circumstances, could have called into play the provisions of this paragraph. Your committee questions the desirability of general legislation to deal with such an unusual situation and feels that Title XI assistance should be extended in all instances of subsidy repayments under Title V, so as to include the relatively frequent situation of repayments under the first sentence of section 506 of the Act. Your committee therefore has amended the legislation by deleting the language. *fn13

There are three items of note in the quoted passage. First, Congress showed a clear awareness of the Grace Line precedent. Second, by characterizing the purpose of the language so as "to include" partial repayments, Congress intended that other types of repayment might occur. *fn14 Finally, Congress indicated that the enactment of § 1104(a)(3) was not, in its view, an alteration of Title V. Thus, whether or not such repayments were intended must be gauged by the Act as it stood prior to 1972. But in judging what restrictions Title V imposed prior to 1972, we must take into account Congress' awareness of Grace Line as an interpretation of Title V.

I have little doubt that in enacting the 1972 Amendments the House Committee clearly contemplated the use of § 1104(a)(3) loans for precisely the sort of repayment of subsidy at issue in Grace Line and here, albeit with the expectation that full repayment would be rare. There is no note of disapproval in the House Committee's discussion of Grace Line. A fortiori, the House Committee must have believed the Secretary had the Authority to accept repayment in return for waiving domestic trading restrictions, and that Title V posed no barrier to such an arrangement. III.

This result is perfectly consistent not only with the overall purposes of the Act (fostering the development of a U.S.-flag, U.S.-built merchant marine) but is equally consistent with the purpose of the trading restrictions imposed by § 506. Unlike the temporary transfers, a permanent transfer does not allow the vessel's operator to take advantage both of the benefits of subsidy in foreign trading, and the protection of the Jones Act in domestic trading. Full repayment of subsidy irrevocably places the transferred vessel on the same footing as all other ships in the Jones Act fleet, without affording an unfair advantage to the previously subsidized operator. *fn15 The only conceivable harm to the Jones Act operators is an increase in competition from an additional U.S.-flag, U.S.-built vessel. I do not believe it is the purpose of § 506 in particular, or the Merchant Marine Act as whole, to protect Jones Act operators from this type of competition. *fn16

The fact that the 92nd Congress thought that § 506 did not preclude removal of domestic trading restrictions in return for full repayment does not conclusively end our inquiry. Although the views of subsequent Congresses are entitled to significant weight, NLRB v. Bell Aerospace Co., 416 U.S. 267, 275, 94 S. Ct. 1757, 40 L. Ed. 2d 134 (1974), where the intent of the enacting Congress is unmistakable, it is the latter that controls, unless expressly overridden by the positive act of a later Congress. International Brotherhood of Teamsters v. United States, 431 U.S. 324, 354 n. 39, 97 S. Ct. 1843, 52 L. Ed. 2d 396 (1977). The difficulty posed by this case is, on the one hand, the original intent is not unmistakable (as in Teamsters ) but, on the other hand, the intention of the later Congress was not embodied in legislation directly affecting the ambiguous provision, that is, Title V.

Although the matter is not free from doubt, I would affirm the decision of the district court, subject to the qualification expressed in note 15, Supra. *fn17 My conclusion is buttressed by the language in both §§ 501 and 504 of the Act, 46 U.S.C. §§ 1151 and 1154 (1970), that "(t)he contract of sale . . . shall not restrict the lawful or proper use or operation of the vessel, except to the extent Expressly required by law." (Emphasis added.) Taking all the relevant guides to interpretation together, I cannot say that the Secretary's interpretation is unreasonable. See Udall v. Tallman, 380 U.S. 1, 16-18, 85 S. Ct. 792, 13 L. Ed. 2d 616 (1965), nor that there are "compelling indications" that her interpretation is wrong, See E. I. du Pont de Nemours & Co. v. Collins, 432 U.S. 46, 54-55, 97 S. Ct. 2229, 53 L. Ed. 2d 100 (1977); Columbia Broadcasting System, Inc. v. Democratic National Committee, 412 U.S. 94, 121-22, 93 S. Ct. 2080, 36 L. Ed. 2d 772 (1973).

Despite the statement of counsel for the Secretary at oral argument, I do not believe the question of whether the Secretary must make a finding of necessity for a full repayment is relevant to the Secretary's authority to accept such repayment, since full repayment is not expressly covered by § 506. *fn18 A finding of need is mandated by § 506 for Partial repayment and Temporary transfer. This is consistent with a concern that subsidized carriers not take unfair advantage of unsubsidized carriers simply to skim off the most lucrative domestic trade and return at will to foreign service. In contrast, full repayment places the formerly subsidized carrier on an equal footing with the other vessels in the Jones Act fleet, and the possibilities of abuse are thereby eliminated. Nonetheless, the Secretary cannot arbitrarily agree to accept repayment, but rather must provide a reasoned basis for that action. The circumstances of this case provide ample support for the Secretary's discretionary decision to accept repayment.

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