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

February 6, 1979

ALASKA BULK CARRIERS, INC. TRINIDAD CORPORATION, APPELLANTS

v.

JUANITA M. KREPS, SECRETARY OF COMMERCE, U.S. DEPARTMENT OF COMMERCE, ET AL.; SHELL OIL COMPANY (A DELAWARE

CORPORATION), APPELLANT

v.

JUANITA M. KREPS (INDIVIDUALLY AND AS SECRETARY OF THE UNITED STATES DEPARTMENT OF

BULK CARRIERS, INC. TRINIDAD CORPORATION

v.

JUANITA M. KREPS, SECRETARY OF COMMERCE, U.S. DEPARTMENT OF COMMERCE, ET AL. POLK TANKER CORPORATION, ET AL., APPELLANTS; SHELL

OIL COMPANY (A DELAWARE CORPORATION

v.

JUANITA M. KREPS (INDIVIDUALLY AND AS SECRETARY OF THE UNITED STATES



Before BAZELON, McGOWAN and WILKEY, Circuit Judges.

UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT

COMMERCE ACTING IN HER OFFICIAL CAPACITY), ET AL.; ALASKA

DEPARTMENT OF COMMERCE ACTING IN HER OFFICIAL CAPACITY), ET

AL. SEATRAIN SHIPBUILDING CORP. AND POLK TANKER CORP., APPELLANTS

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).

APPELLATE PANEL:

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WILKEY

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.

Page I. BACKGROUND

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

C. Administrative Interpretation 829 IV. SECTIONS OF THE MERCHANT MARINE ACT OF 1936 RELIED UPON BY THE

AGENCY AND THE TRIAL COURT AS SOURCES OF AGENCY AUTHORITY 833

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 ...


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