The opinion of the court was delivered by: JOHNSON
NORMA HOLLOWAY JOHNSON, U.S.D.J.
Plaintiffs, owners and operators of unsubsidized, U.S.- flag, domestic tanker vessels, brought this action for declaratory and injunctive relief against the United States, the Secretary of Transportation (the Secretary), and the Maritime Administrator (MarAd) seeking judicial review, pursuant to the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq., of a final order issued by MarAd on March 24, 1986. The challenged order allowed American Shipping, Inc. (American), under section 506 of the Merchant Marine Act of 1936 (the Act),
46 U.S.C. § 1156, to temporarily transfer its government-subsidized tanker vessel, the Beaver State, whose operation is generally restricted by the Act to the foreign shipping trade, into the unsubsidized domestic trade for one month to perform two voyages transporting crude oil from Valdez, Alaska, to the U.S. west coast. MarAd's order also granted permission, under section 805(a) of the Act, 46 U.S.C. § 1223(a), to Aquarius Marine Company (Aquarius) and Atlas Marine Company (Atlas), both affiliates of American, to continue receiving certain subsidy payments during the period of the Beaver State's aforesaid domestic operation.
The case is presently before the Court on the motion of plaintiffs for summary judgment, the motion of the federal defendants to affirm the Agency action, and the motion of the intervenor-defendants for summary judgment. The principal issues presented are (1) whether MarAd, in allowing the temporary transfer of the Beaver State into the domestic trade under section 506 of the Act, considered the need for and the competitive effect of such transfer, and (2) whether MarAd was required under section 805(a) to provide a hearing to plaintiffs before issuing his final order. Having considered the motions, the oppositions thereto, the parties' respective legal memoranda, the administrative record herein, and the arguments of counsel, the Court concludes, for reasons that follow, that MarAd's order must be affirmed because it was not arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.
The construction and operating costs of American ships have historically been substantially greater than those of foreign vessels. Congress, therefore, has enacted numerous laws designed to foster the development of and protect the United States shipping industry. The "Jones Act", as it is popularly known, 46 U.S.C. § 883, restricts the domestic shipping trade to American-flag vessels. Under the Jones Act, all cargo transported between ports in the United States must be carried on ships built and registered in the United States, and owned by American citizens. Protected in this manner from foreign competition, vessels that operate in the domestic trade, which are often collectively referred to as the "Jones Act fleet", do not receive government subsidies.
Another statute, the Merchant Marine Act of 1936, supra, provides certain subsidies for the benefit of American-flag ships which operate in foreign commerce. These subsidy programs allow U.S.-flag vessels to compete on an equal footing with foreign-flag vessels in markets open to both foreign and American ships. Subchapter V of the Act, 46 U.S.C. §§ 1151-59, authorizes the Secretary to grant a construction differential subsidy (CDS) of up to fifty-percent of the cost of a vessel built in the United States. This subsidy is designed to equalize ship construction costs in the United States and foreign countries. Additional financial assistance for American-flag vessels engaged in the foreign shipping trade is provided through payment of an operating-differential subsidy (ODS). Under the ODS program, which is governed by subchapter VI of the Act, 46 U.S.C. §§ 1171-1185, the government pays the shipowner a subsidy to offset higher operating costs with respect to wages, maintenance, and insurance. Recipients of ODS are required to keep their ships under U.S. registry for a specified period (typically 20 years), to maintain certain shipping operations on specified trade routes, and to employ U.S. citizens exclusively.
In order to protect the unsubsidized Jones Act fleet, for which the domestic shipping trade was reserved, from unfair competition from subsidized vessels, Congress enacted section 506 of the Act, 46 U.S.C. § 1156. That section generally prohibits subsidized vessels from entering the domestic trade. Congress did, however, recognize that the unsubsidized fleet may not always be adequate to satisfy the demand for domestic shipping services. Section 506 therefore contains an exception whereby the Secretary may
consent in writing to a temporary transfer of [a subsidized] vessel to [domestic service] . . . 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 [the Act].
46 U.S.C. § 1156. Temporary waiver of the domestic trade restriction for a particular subsidized vessel under this statutory exception is conditioned upon repayment by the shipowner of a proportionate share of the construction-differential subsidy
and forfeiture of any operating-differential subsidy during the period of the subsidized vessel's domestic service. Id. Although section 506 grants the Secretary authority to consent to such temporary transfers, the Secretary has delegated this authority to MarAd.
Under procedures followed by MarAd, operators of subsidized ships seeking consent to enter the domestic trade on a temporary basis pursuant to section 506 must file a written application with MarAd, who then publishes notice of the application in the Federal Register. Interested parties, typically unsubsidized vessel operators who are potential competitors for the trade for which the waiver is sought, are then given an opportunity to file formal written protests objecting to approval of the application. Following review of the protests and the applicant's response thereto, MarAd decides whether the applicant's entry into the domestic trade is "necessary or appropriate to carry out the purposes" of the Act. Applications are generally denied where any suitable unsubsidized vessel is available to carry the cargo. See Atlantic Richfield Co. v. United States, 249 U.S. App. D.C. 224, 774 F.2d 1193, 1196 (D.C. Cir. 1985). No formal hearing need be held by MarAd in considering a section 506 waiver application and the Supreme Court has characterized MarAd's decision to grant or deny such an application as a "highly discretionary administrative decision." Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 589, 63 L. Ed. 2d 36, 100 S. Ct. 800 (1980).
The remaining statutory provision at issue in this case is section 805(a) of the Act, 46 U.S.C. § 1223(a). That section provides, in relevant part, that
it shall be unlawful to award or pay any subsidy to any contractor under authority of subchapter VI of this chapter, or to charter any vessel to any person under subchapter VII of this chapter, if said contractor or charterer, or any holding company, subsidiary, affiliate, or associate of such contractor or charterer, or any officer, director, agent, or executive thereof, directly or indirectly, shall own, operate, or charter any vessel or vessels engaged in the domestic intercoastal or coastwise service, or own any pecuniary interest, directly or indirectly, in any person or concern that owns, charters, or operates any vessel or vessels in the domestic intercoastal or coastwise service, without the written permission of the Secretary of Transportation. Every person, firm, or corporation having any interest in such application shall be permitted to intervene and the Secretary of Transportation shall give a hearing to the applicant and the intervenors. The Secretary of Transportation shall not grant any such application if the Secretary of Transportation finds it will result in unfair competition to any person, firm, or corporation operating exclusively in the coastwise or intercoastal service or that it would be prejudicial to the objects and policy of this chapter.
46 U.S.C. § 1223(a). Briefly and essentially, section 805(a) forbids the payment of ODS to any person who owns or operates vessels in the domestic trade, or to any affiliate of such person, without the written permission of the Secretary.
It is designed to prevent the diversion of ODS funds from subsidized foreign trade operations to domestic operations, to the disadvantage of unsubsidized operators. See e.g., Pacific Far East Line, Inc. v. Federal Maritime Board, 107 U.S. App. D.C. 155, 275 F.2d 184, 186 (D.C. Cir. 1960), cert. denied, 363 U.S. 827, 4 L. Ed. 2d 1523, 80 S. Ct. 1597 (1960). Under section 805(a), MarAd may grant permission to continue receiving ODS payments to a person who operates, or is affiliated with one who operates, a vessel in the domestic trade only where he determines that granting such permission will not result in "unfair competition" to any person operating exclusively in the domestic trade and that the grant of such permission would not be "prejudicial to the objects and policy" of the Act. A subsidized operator entering the domestic trade, or an affiliate of such an operator, who desires ...