terms of the Act. The third sentence concludes that the Act would apply to such a sale if the United States participates in the sale by "advanc[ing] or guarantee[ing] the convertibility of currencies in connection with such a sale." Id.
Certainly, when the Attorney General is asked to determine the applicability of the Act to a foreign aid program, he would refer to those kinds of programs in interpreting the Act. The issue to be resolved in the Attorney General's opinion was not whether a foreign aid purpose was required before the Act would apply, but whether the sales of commodities at issue could be regarded as purely private commercial transactions which are outside the scope of the Act. The opinion cannot be read to mean that additional criteria, not stated in the Act or its legislative history, must be satisfied before the Cargo Preference Act may apply to a specific export program. It is the Court's determination that so long as the United States participates in the export sale as prescribed by the Act, these sales are subject to its provisions.
Further, the Court finds that even if the Attorney General's opinion were read to mean that the Act was limited to foreign aid or concessional export programs and the Court were somehow required to adopt that reasoning, the Cargo Preference Act would still apply to the Blended Credit Program.
As noted above, under the terms of the Program, the CCC extends interest-free credit on 20 percent of each covered sale as distinguished from any standard commercial transaction. The effect of these favorable and noncommercial terms is that the parties enjoy the benefit of interest rates 2 percent below prevailing U.S. commercial market values. As observed by Attorney General Kennedy, a program cannot be of "a purely commercial nature" if it "provides for a low rate of interest, comparable to that of Government obligations, and for the payment of the purchase price in installments extending over twenty years. Genuinely commercial transactions would not normally grant such long-term credit for agricultural commodities nor provide for such low interest rates." Id. at 215.
The Government also provides certain protections which normally would not be afforded to parties in a purely commercial transaction. For example, the exportation is completely protected against default or any commercial risk of nonpayment. Further, the Government's involvement in helping negotiate agreements with foreign governments prevents this program from being considered as strictly a commercial transaction. Therefore, these sales pursuant to the Blended Credit Program may be considered concessional and so the Act would apply even if the Court were to accept defendants' interpretation as to its coverage.
Applicability of the Cargo Preference Act to the Blended Credit Program
As described above, the CCC, through the Blended Credit Program, provides "credits" or "advance[s] funds" to both the American exporter and the foreign importer. Under the GSM-5 portion of a Program sale, the CCC, after delivery of the exported commodities, purchases, for cash, the exporter's account receivable as to 20 percent of the sale. The CCC's payment to the American exporter literally "advance[s] funds" in connection with the sale of agricultural commodities to foreign nations. At the same time, under the GSM-5 portion of the Program, by assuming the risk of nonpayment by the foreign importer and its obligator banks, the CCC extends "credit" to the importer. Defendants "do not dispute that the portion of the program referred to as GSM-5, which averages between 15 and 20% of the total program, advances credit." Defendants' Memorandum in Opposition to Plaintiffs' Motion for Summary Judgment at 4.
Defendants contend, however, that the remaining portion of the Program under GSM-102 provides no credit nor guarantees of the convertibility of foreign currency within the meaning of the Act and therefore the Program, as implemented, does not apply to the Cargo Preference Act.
Defendants' contention is without merit. Because there is no dispute that the GSM-5 portion of the Program "advances credit", id., the Program as a whole must be considered to fall within the terms of the Act. Under the Blended Credit Program, "registration of the GSM-5 and GSM-102 portions of a given contract must take place at the same time and prior to export." Defendants' Motion to Dismiss or for Summary Judgment, Exhibit 5 at 1 ("Defendants' Exhibit"); Plaintiffs' Exhibit 1 at 1. The GSM-5 portion is not to be shipped before the GSM-102 portion. Defendants' Exhibit 5 at 1; Plaintiffs' Exhibit 1 at 1. Before the CCC may disburse any GSM-5 funds, the U.S. exporter must present a certification stating that the GSM-102 portion of the contract has been shipped. Defendants' Exhibit 5 at 2; Plaintiffs' Exhibit 1 at 2. The Blended Credit Program is devised and administered as a single indivisible program. To claim that the Cargo Preference Act applies only to the GSM-5 portion of the Blended Credit sales would be inconsistent with the Program. The Court will accordingly look at the Blended Credit Program as a single, unitary program where the CCC "advance[s] funds" and provides "credit" to foreign importers and American exporters.
Even if the Court were obliged to examine the GSM-102 portion of the Program to determine whether it falls within the terms of the Cargo Preference Act, the Court would conclude that it so applies.
Under GSM-102, the CCC guarantees payment by the foreign importer or its bank to the American exporter or its assignee. By accepting the risk of the foreign importer's or its banks' nonpayment, the CCC stands in the position of a standby debtor providing to the American exporter a guarantee of payment. This payment guarantee in connection with the GSM-102 portion of the Program sales must be considered as a guarantee letter of credit. Although not necessarily applicable, the Uniform Commercial Code ("U.C.C.") defines a letter of credit as "an engagement by a bank or other person . . . that the issuer will honor drafts or other demands for payment upon compliance with the condition specified in the [letter of] credit." U.C.C. § 5-103(1)(a) (1977).
Accordingly, the Court also finds that the GSM-102 portion of the Blended Credit Program falls within the literal meaning of the Cargo Preference Act.
MARAD's and DOT's Prior Position as to the Applicability of the Cargo Preference Act to the Blended Credit Program
Prior to July 27, 1983, MARAD had taken the position that the Cargo Preference Act applied to the Blended Credit Program. See Plaintiffs' Exhibits 2-13. For example, in a letter dated January 26, 1983, to Richard A. Smith, Administrator, Foreign Agricultural Service, USDA, defendant Shear stated that:
Both [the Cargo Preference Act] and its legislative history indicate that the ocean transportation of goods purchased with the assistance of Federal credits is covered by the U.S.-flag requirement of the statute. The statute is applicable where the United States "advances funds or credits," encompassing nonreimbursable as well as reimbursable advances.
Plaintiffs' Exhibit 3 at 2. Certainly it is not unreasonable for this Court to make this same conclusion, particularly after it has reviewed extensively the legislative history of the Act, the Attorney General's opinion as to its meaning, and its plain language incorporated in the statute.
For the reasons outlined above, the Court concludes that the Cargo Preference Act applies to the Blended Credit Program.
Necessary and Practicable Clause
As stated above, the Cargo Preference Act requires that government agencies
shall take such steps as may be necessary and practicable to assure that at least 50 per centum of the gross tonnage of such . . . commodities . . ., which may be transported on ocean vessels shall be transported on privately owned United States-flag commercial vessels, to the extent such vessels are available at fair and reasonable rates for United States-flag commercial vessels, in such a manner as will insure a fair and reasonable participation of United States-flag commercial vessels in such cargoes by geographic areas. . . .
46 U.S.C. § 1241(b)(1). Defendants argue that the "necessary and practicable" clause of the Act provides for an exception to the general requirement that at least 50 percent of the statutory cargoes be shipped on U.S.-flag vessels. They argue that when the costs of U.S.-flag shipment would offset any benefits that the program might promote, they are permitted to ignore the terms of the statute and not implement the 50-percent cargo preference. The Court finds that defendants' position is without merit and, therefore, finds them to be in violation of the Cargo Preference Act.
In coming to this conclusion, the Court again looks to the legislative history and to the purposes of the Act. When S. 3233 was under consideration in Congress, both Houses recognized that any cargo-preference requirement would be more costly than if commodities were shipped by foreign-flag vessels. The very reason for the Cargo Preference Act was the recognition by the Congress that without such preferences, U.S.-flag vessels would be unable to compete with foreign-flag vessels. As the bill's sponsor, Senator Butler, stated at the commencement of the hearings for the cargo preference legislation: "It is all too apparent that American shipping is fighting a losing battle against low-cost foreign competition." Senate Hearings at 1. Accord id. at 13; House Report at 1. Because the very purpose of the Act was to ensure that a substantial portion of cargoes shipped under government programs would be carried on generally more expensive U.S.-flag vessels, it would make little sense to read that legislation as exempting programs from cargo preferences simply because of higher costs. If the very reason for the Act were to reserve cargo for U.S.-flag vessels, which would not otherwise be available because of higher shipping costs, it would be contrary to the purposes of the Act to exempt transactions from the 50-percent requirement when enforcement of that provision would make transport of government-financed cargoes more costly.
In examining defendants' argument, it is difficult for the Court to understand why Congress would enact legislation establishing a cargo preference to help protect the higher-cost American maritime industry, but at the same time permit agencies to ignore that preference when there are less expensive ways of shipping government-financed cargoes. Further, if the Court were to accept the argument that defendants are only required to apply the preference when it is "practicable"; that is, when there is no cost differential, there would be no need to enact cargo preference legislation. If shipping costs were the same for U.S.-flag vessels and foreign-flag vessels, the Cargo Preference Act would have been completely unnecessary.
When Congress enacted S. 3233, it specifically addressed the cost issue. The 50-percent rule is subject to the availability of U.S.-flag vessels "at fair and reasonable rates for United States-flag commercial vessels. . . ." 46 U.S.C. § 1241(b)(1). For Congress to make reasonable U.S.-flag vessel rates one of the criteria to be met when applying the 50-percent requirement, it follows that it did not also intend to allow departure from that rule whenever foreign-flag vessels could be attained at a lower cost. Despite the extensive testimony in opposition to the bill because of increased cost, see House Hearings at 3 (Statement of Admiral Francis C. Denebrink, United States Navy, Commander Military Sea Transportation Service); 29 (Statement of Arthur G. Syran, Director, Office of Transportation, Foreign Operations Office); 120-122 (Statement of John C. White, Counsel, American Cotton Shippers Association), there is no suggestion in the legislative history that the "necessary and practicable" clause could be interpreted to overcome increased cost objections.
In the House hearings Mr. Klemmer of the Department of State questioned the "wisdom" of applying the 50-percent rule to programs that foster the sale of agricultural surpluses. Id. at 53. He believed that such a requirement might reduce the chances of selling such commodities abroad and, therefore, interfere with that export program. Later, during the hearings, Congressman Bonner restated that concern. See id. at 107. Congressmen Bonner and Dies considered an amendment to S. 3233 which would exempt sales of surplus commodities from the 50-percent requirement, see id. at 110, 113-14, but no such amendment was ever offered. It is reasonable to conclude that the House Committee must have intended the 50-percent requirement to apply to sales of surplus commodities, regardless of the effect the higher costs of U.S.-flag shipments might have on those exports.
In Attorney General Kennedy's opinion, 42 Op. Att'y Gen. 203, the Attorney General concluded that the abandonment of Congressman Bonner's suggestion that an amendment be offered to the legislation, demonstrated that Congress intended the 50-percent requirement to apply despite the potentially adverse effect it might have upon export sales of commodities. The Attorney General states:
The discussions of the Cargo Preference Act before the House Committee . . . show a recognition of the fact that the act would cover the shipment of commodities. It was realized that the cargo preference requirement with respect to the disposition of agricultural surplus commodities under Public Law 480 would increase the ocean shipping charges. Nevertheless, a suggestion by Representative Herbert C. Bonner . . . that shipment under Public Law 480 be excluded from the Cargo Preference Act was abandoned.*
Id. at 210 (some footnotes omitted).
In 1954, Attorney General Herbert Brownell, Jr. reached the same conclusion:
In sum, while the applicability of the 50 percent preference to the Title I Public Law 480 program, as administered, seems beyond cavil fully consistent with the purpose of [the Cargo Preference Act], it is by no means clear that it is inconsistent with the declared foreign trade development policy of Public Law 480. This seems so, because under the program, as it is to be applied, such preference would result in no dollar drain on the dollar reserves of importing nations for transportation costs in American bottoms, since such dollar costs will be paid by the United States. However, even if it were to be regarded in any degree inconsistent, my conclusion would not be altered by reason of the fact that, as hereinabove discussed, the Congress has already provided for the applicability of such preference to programs comparable in purpose, operation, and dollar finance.