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COUNCIL OF AMERICAN-FLAG SHIP OPERATORS v. UNITED

September 26, 1984

COUNCIL OF AMERICAN-FLAG SHIP OPERATORS, et al., Plaintiffs,
v.
UNITED STATES OF AMERICA, et al., Defendants



The opinion of the court was delivered by: OBERDORFER

 I.

 This case presents the question of whether the Cargo Preference Act of 1954 (CPA), 46 U.S.C. § 1241(b), applies to cash assistance furnished to Israel by the Agency for International Development (AID). The Act provides that:

 
Whenever the United States . . . shall furnish to or for the account of any foreign nation without provision for reimbursement, any equipment, materials, or commodities, . . . or shall advance funds or credits or guarantee the convertibility of foreign currencies in connection with the furnishing of such equipment, materials, or commodities, the appropriate agency or agencies shall take such steps as may be necessary and practicable to assure that at least 50 per centum of the gross tonnage . . . which may be transported on ocean vessels shall be transported on United States-flag commercial vessels. . . .

 Cash transfers to Israel are authorized by amendments to the Foreign Assistance Act. The amendments effective for the fiscal year 1979 and thereafter provide that:

 
The total amount of funds allocated for Israel . . . may be made available as a cash transfer. In exercising the authority of this paragraph [of the amendment], the President shall ensure that the level of cash transfers made to Israel does not cause an adverse impact on the total amount of nonmilitary exports from the United States to Israel.

 22 U.S.C. § 2346a(b)(2). *fn1"

 Primary responsibility for the administration of the Cargo Preference Act has been exercised by the Maritime Administration (MarAd), now an element of the Department of Transportation. The Foreign Assistance Act, including cash transfers to Israel, has been administered by AID. At one time, financial assistance to Israel was provided under the Commodity Import Program (CIP). Under that program the beneficiary nation, in this case Israel, was reimbursed by AID for the foreign exchange expended by the beneficiary for specific nonmilitary imports. Both AID and the Maritime Administration agreed that the Cargo Preference Act applied to these transactions. From 1976 through 1978 part of the assistance to Israel was furnished pursuant to CIP, but an additional amount was provided as a nonreimbursable cash grant in order to finance such things as Israel's withdrawal from the Sinai and the additional cost of oil incurred as a result of the withdrawal. Beginning in 1979 and thereafter, no assistance has gone to Israel pursuant to CIP; all has been by cash transfer.

 After 1976, the Maritime Administration took the position that the Cargo Preference Act applied to cash grants and cash transfers. MarAd relied upon 1954 and 1955 congressional reports which expressed the view that the Cargo Preference Act would apply to programs financed in any way by federal funds in whatever form they might take. See General Counsel of the Maritime Administration, Department of Commerce, Memorandum dated March 28, 1979, at 4. AID, however, adhered to its long standing position that

 
the requirements of the Cargo Preference Act are inapplicable to cash grants or transfers carried out pursuant to authority contained in the Foreign Assistance Act of 1961, as amended. . . .

 Letter dated August 8, 1978 from Barry Veret, Assistant General Counsel, AID, to L. Mitchell Dick, Assistant General Counsel, United States General Accounting Office (GAO). To resolve the conflicting opinions, MarAd sought the advice of the Comptroller General (GAO) as to whether the MarAd interpretation was "acceptable."

 In an opinion dated March 3, 1980, the GAO disagreed with the Maritime Administration's view that the CPA applies to the cash transfer program for Israel. In GAO's view the cash transfer program was materially different from the Commodity Import Program to which the CPA applied. Under CIP, individual transactions were documented so that "money was tied to commodity purchases." 59 Comp. Gen. 279, 279 (1980). Under the cash transfer program, "the need to document each purchase of goods made by Israel to obtain reimbursement was obviated." Id. at 280. Instead, the United States required only an assurance from Israel that its nonmilitary imports from the United States would at least equal American assistance and that American exporters' competitive positions would not be adversely affected. Without disparaging the administrative difficulties which would confront an effort to apply the CPA to cash transfers, the GAO based its opinion entirely on legal considerations. GAO agreed with AID that the Cargo Preference Act related to the furnishing of "equipment, materials or commodities" and that the cash transfers to Israel are not advanced in connection with the furnishing of such items. It distinguished the direct linkage of AID funds to commodities purchased under CIP from the "unrestricted" aid furnished by cash transfers. The GAO was not persuaded that the requirement that Israel maintain purchasing levels in the United States requires or justifies application of the CPA, because "shipments of nonmilitary exports . . . cannot be identified as purchases made by Israel with American Funds." Id. at 283.

 Although the Comptroller General's 1980 opinion was not binding on the Maritime Administration (and is not binding on this Court), *fn2" MarAd officials have advised counsel for the United States that since 1980,

 
MarAd has not pursued enforcement of the requirements of the Cargo Preference Act with respect to ...

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