products in the domestic trade. OSG Bulk Ships, Inc. and Attransco, Inc. Complaint P 2. The complaints allege that these tankers are threatened with unlawful competition from government-subsidized tankers as a result of rulings by MarAd allowing tankers built with CDS for exclusive operation in the foreign trades to be diverted instead into the domestic trades after they reach the age of 20 years. OSG Bulk Ships, Inc. and Attransco, Inc. Complaint P 1.
It is undisputed that many other tankers and bulk liquid carriers will soon reach the age of 20 years and that many dry cargo ships and liners will reach the age of 25 years; several already have and already operate in the domestic trade. Plaintiffs Statement of Material Facts P 12; Letter from Joseph A. Klausner, Counsel for OSG Bulk Ships, to the Court (Oct. 20, 1994). According to plaintiffs, the additional ships will add significant additional tonnage to the domestic trade and unfairly and illegally compete with plaintiffs. OSG Bulk Ships, Inc. Complaint PP 24-25, 29; Plaintiff's Statement of Material Facts PP 14-15. Plaintiffs argue that Section 506 prohibits CDS tankers from ever operating in the domestic maritime trade without continued payment to the government because otherwise the CDS-vessels would have an unfair cost advantage over non-CDS-vessels.
Defendant-Intervenors American President Lines, Ltd., Puerto Rico Maritime Shipping Authority, and Sea-Land Service, Inc. (the "Liner Defendants") each operate liners that were built with construction-differential subsidies. American President Lines owns and/or operates over ten CDS liners that will all reach age 25 within the next four years. Liner Defendants' Statement of Material Facts P 10; A.R. at 477-78. Puerto Rico Maritime Shipping Authority operates five liners that either have entered or soon will enter the domestic trade. Liner Defendants' Statement of Material Facts P 11. Sea-Land owns and/or operates fourteen liners that were built with CDS between 1968 and 1981. Id. at P 12. Four of these CDS-vessels have already operated for over 25 years. The remaining Sea-Land CDS-vessels will attain 25 years of age between 1997 and 2006. Id.
Defendant-Intervenors Margate Shipping Co. and Chestnut Shipping Co. (the "Tanker Defendants") and their affiliates operate ten U.S.-flag tankers in the domestic trade, including two that became 20 years old and entered the domestic trade in 1994, one that attained the age of 20 years in 1995, and two that will become 20 years old in 1997. Tanker Defendants' Statement of Material Facts PP 1, 12, 13, 16, 27, 31, 46. Defendant-Intervenor Mormac Marine Transport, Inc. operates three U.S.-flag CDS tankers; one became 20 years old in 1995 and the other two will become 20 years old in 1996 and 1997, respectively. Mormac's Statement of Material Facts P 5.
Defendant-Intervenor BP Oil Shipping Company is a principal user, or charterer, of tankers that operate in the domestic trade, shipping Alaska North Slope crude oil from Alaska to other United States ports. Memorandum In Support of Motion of BP Oil Shipping Company, USA, Aquarius Marine Company, and Atlas Marine Company To Intervene at 1. In addition to seeking to use or charter the tankers of Aquarius Marine Co. and Atlas Marine Co. once their domestic trading restrictions are lifted, BP Oil Shipping already charters the services of a 20-year old tanker operated by defendant-intervenor Margate Shipping. Id. at 2-3.
Plaintiffs seek a declaration that the restrictions of Section 506 against operation in the domestic trade by a vessel built with construction-differential subsidies run for the entire life of the vessel and do not expire when the vessel reaches a minimum age or at any other time. Defendants and defendant-intervenors argue that over a 30-year period MarAd has consistently interpreted Section 506 to impose domestic trading restrictions on vessels constructed with CDS only during their "economic" or "statutory" life, which for tankers is 20 years and for dry cargo and passenger vessels is 25 years. They maintain that after the expiration of the economic or statutory life of such ships, they no longer are restricted from entering the domestic trade.
The Court agrees with defendants. The Supreme Court's unanimous decision in Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 63 L. Ed. 2d 36, 100 S. Ct. 800 (1980), requires the Court to conclude that the trading restrictions expire when either the CDS-shipowner pays back the unamortized subsidy or the subsidy becomes fully amortized at the end of the economic life of the ship. In addition, because the statute is silent with respect to whether the domestic trading restrictions last forever or lapse after 20 or 25 years, the Court concludes that it should defer to MarAd's reasonable, long-standing and consistent interpretation of the Merchant Marine Act, which MarAd has the sole authority to administer.
A. MarAd's Interpretation Of Section 506 Of The Merchant Marine Act Is Consistent With Supreme Court Precedent
In Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 63 L. Ed. 2d 36, 100 S. Ct. 800 (1980), Seatrain received a construction-differential subsidy to construct a supertanker, the Stuyvesant. Seatrain agreed to operate the vessel exclusively in foreign trade unless otherwise authorized by Section 506 of the Merchant Marine Act. By the time construction of the vessel was completed, however, there no longer was any demand for the use of the Stuyvesant in the foreign trade as a result of the Arab oil embargo. To counter this problem and to take advantage of the growing need for transportation of Alaskan crude from Valdez to ports in the Eastern United States, Seatrain requested that the Stuyvesant be released from the restrictions on its operation in domestic trade in exchange for Seatrain's repayment of the vessel's CDS. The Secretary of Commerce granted Seatrain's request. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 576-78. Shell Oil, Alaska Bulk Carriers and Trinidad Corporation filed lawsuits, arguing that the Secretary had no authority under the statute to do so.
The Supreme Court held that while Section 506 permitted temporary releases from the foreign-trade-only requirement in two specific situations, it did not speak to the availability of permanent releases from the requirement but certainly did not forever bar CDS-built vessels from entering the domestic trade. Rather, the Court concluded that it was consistent with the statute to permit an owner to obtain a permanent release from the domestic trading restriction by buying out the remaining subsidy on its CDS-vessel and that the Secretary had broad discretion to grant such a release. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 587-90.
The Supreme Court found that Congress had expressed no clear intention regarding permanent releases from the Section 506 restrictions. The Court determined that the language of the Act and its legislative history reflected an intent by Congress to grant the Secretary of Commerce broad authority to administer it. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 585. Because it found no language in the statute suggesting that Congress intended to rule out permanent releases from the domestic trading restrictions of Section 506, the Court rejected the view that "the Secretary's authority to approve entry of subsidized vessels into the domestic trade" was limited to "the specific exceptions in § 506." Id. at 587-88. It concluded that the Secretary had the authority under the statute to approve a permanent release from the domestic trading restrictions.
The Court also considered whether the Secretary's construction of the Act was reasonable. It observed that "a permanent release from the foreign-trade-only requirement may quite directly further the general goals of the Act by . . . improving the chances that a domestic shipyard will survive." Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 588. It stated that a permanent release
confers no windfall. On the contrary, at least where repayment of the CDS includes some amount reflecting capital costs which would have been incurred had no subsidy been available, such a transaction merely permits a once subsidized vessel to enter the domestic trade on a footing equal to that of vessels already in that trade. It was not the purpose of the Act to prohibit such entry, and we accordingly agree with the District Court that "nothing in section 506, [or] in any other provision of Title V, . . . either expressly or implicitly addresses the issue of permanent revocation of a CDS contract."
Id. at 589-90 (emphasis in original) (citations omitted).
The critical issue before this Court is closely analogous to that addressed by the Supreme Court in Seatrain: whether Section 506's domestic trading restrictions permanently bar CDS-built vessels from entering the domestic trade. The Supreme Court found that they do not in the context of a "permanent-release/full-repayment transaction." Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 595. This Court finds that they do not in the context of the expiration of a vessel's statutory economic life. Seatrain instructs that a CDS-vessel may purchase its release from the domestic trading restriction by repaying a steadily decreasing unamortized portion of the subsidy, an amount that becomes zero at the end of the ship's statutory economic life. Once the subsidy has been fully amortized over the economic life of the vessel, then nothing remains to be paid for the CDS-vessel to gain release from the foreign-trade-only restrictions.
Plaintiffs assert that Seatrain did not give CDS-vessel owners the statutory right to repay the subsidy to gain a release, but merely recognized that the Secretary has some discretion on a case-by-case basis to allow a CDS-vessel owner to buy out its remaining subsidy. They argue that Seatrain involved MarAd's contracting discretion, while this case involves MarAd's ability to construe the scope of the Section 506 domestic trading restrictions more globally. Plaintiffs' reading of Seatrain is far too narrow. Seatrain repeatedly speaks to the Secretary's broad authority to oversee administration of the Act, not just to his authority to enter into contracts for repayment of the subsidy. See Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 583-84, 585, 586, 588. Furthermore, in Liberty Maritime Corp. v. United States, 289 U.S. App. D.C. 1, 928 F.2d 413, 419 (D.C. Cir. 1991), our Court of Appeals concluded that Congress gave the Secretary of Transportation broad administrative authority to oversee the administration of the Merchant Marine Act and that his authority extends beyond his contracting authority and allows him reasonably to interpret his discretion under various provisions of the Act.
Seatrain controls this case and requires the Court to conclude that MarAd has the discretion to construe the Act as it does. Just as a CDS-vessel may be released from the restrictions upon payment of its remaining unamortized subsidy, the domestic trading restrictions lapse at the expiration of the statutory economic life of the CDS-vessel, that is, upon full amortization of the subsidy.
B. The Court Should Defer To MarAd's Reasonable And Permissible Interpretation Of Section 506
In deciding the weight to accord an agency interpretation, the Court first must determine "whether Congress has directly spoken to the precise question in issue." Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 842, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). To determine whether the intent of Congress is clear and unambiguous, the Court must examine the text, the structure and the legislative history of the Act. Coal Employment Project v. Dole, 281 U.S. App. D.C. 294, 889 F.2d 1127, 1131 (D.C. Cir. 1989). "If the statute is clear and unambiguous 'that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.'" K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 100 L. Ed. 2d 313, 108 S. Ct. 1811 (1988) (quoting Board of Governors, FRS v. Dimension Financial Corp., 474 U.S. 361, 368, 88 L. Ed. 2d 691, 106 S. Ct. 681 (1986); Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. at 842-43). If the intent of Congress is ambiguous or if the statute is silent, and if the agency itself has reasonably interpreted the statute in a particular way, "the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, . . . the question for the court is whether the agency's answer is based on a permissible construction of the statute." Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. at 843; see National Recycling Coalition, Inc. v. Browner, 299 U.S. App. D.C. 405, 984 F.2d 1243, 1251 (D.C. Cir. 1993).
1. The Statute Is Ambiguous
To determine whether Congress has directly spoken to the question at issue in this case, the Court is guided by the Supreme Court's examination of Section 506 of the Merchant Marine Act in Seatrain. Although the Court in Seatrain did not consider the precise issue of whether the domestic trading restrictions lapse with the end of a CDS-vessel's economic life, it did address the closely analogous issue of whether the domestic trading restrictions were permanent. The Supreme Court found that Congress had not directly spoken to the issue, stating that "nothing in section 506, [or] in any other provision of Title V, . . . either expressly or implicitly addresses the issue of permanent revocation of a CDS contract." Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 590 (quoting Shell Oil Co. v. Kreps, 445 F. Supp. 1128, 1135 (D.D.C. 1978)). It noted, however, that "there [was] no language suggesting that Congress intended to rule out permanent releases [of Section 506's domestic trading restrictions]," id. at 594, and that "at most, we find the legislative history ambiguous, even puzzling." Id. at 590. This Court concludes that the language, structure and legislative history of Section 506 are equally inconclusive with respect to the question presented here: whether the domestic trading restrictions expire after the conclusion of the statutory economic life of CDS-financed vessels.
As to the language of the statute, plaintiffs maintain that there is no time limit on the foreign-trade-only restriction because Section 506 states without qualification that every vessel built with CDS "shall be operated exclusively in foreign trade" and does not on its face set a time limit for the domestic trading restrictions. In contrast, defendants contend that inclusion of the language in Section 506 regarding repayment of CDS subsidies when a CDS-vessel is operated in the domestic trade pursuant to the Section's two exceptions establishes a statutory economic life for CDS-vessels, the end of which releases the vessel from its domestic trading restrictions. The Court finds that the plaintiffs infer too much from Congress' silence regarding any time limit on the restrictions, while defendants read too much into the fact that Section 506 incorporates a statutory economic life for the vessels. The fact is that Section 506 does not explicitly state what happens at the end of a vessel's economic life; it is silent on the issue of whether the restrictions lapse after a CDS-vessel has been in service a certain number of years.
The parties' arguments regarding legislative history also fail to reveal an unambiguous congressional intent concerning the issue before the Court. The legislative history of the 1936 statute and the 1938 and 1960 amendments are ambiguous and inconclusive regarding the consequence of the lapse of the statutory economic life of a CDS-vessel. One can find inferential support in the legislative history for plaintiffs' position that the domestic trading restrictions were intended to be permanent and for defendants' position that they lapse after the running of a CDS-vessel's statutory economic life. But the parties point to no persuasive legislative history demonstrating a clear congressional intent on the issue. Rather, they rely on lengthy excerpts from testimony before Congressional committees by industry members or MarAd administrators, statements during hearings by legislators who were not sponsors of any of the bills that led to the enactment, and statements by legislators during floor debates. These are not persuasive authorities on congressional intent, particularly when they are in conflict. See Brock v. Pierce County, 476 U.S. 253, 263, 90 L. Ed. 2d 248, 106 S. Ct. 1834 (1986); Chrysler Corp. v. Brown, 441 U.S. 281, 311, 60 L. Ed. 2d 208, 99 S. Ct. 1705 (1979); Schwegmann Bros. v. Calvert Distillers, 341 U.S. 384, 394-95, 95 L. Ed. 1035, 71 S. Ct. 745 (1951); Public Citizen v. Farm Credit Admin., 291 U.S. App. D.C. 25, 938 F.2d 290, 292 (D.C. Cir. 1991); Austasia Intermodal Lines v. Federal Maritime Comm'n, 188 U.S. App. D.C. 379, 580 F.2d 642, 645 (D.C. Cir. 1978).
2. MarAd's Interpretation Is Reasonable
Having concluded that the statute is ambiguous or silent with respect to the issue before the Court, the Court next must determine whether Congress delegated to the relevant agency authority to administer the statute and whether the agency's interpretation "reflects a plausible construction of the plain language of the statute and does not otherwise conflict with Congress' expressed intent." Rust v. Sullivan, 500 U.S. 173, 184, 114 L. Ed. 2d 233, 111 S. Ct. 1759 (1991) (citing Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. at 842.) "The court must defer to the agency's interpretation so long as it is reasonable, consistent with the statutory purpose, and not in conflict with the statute's plain language." Coal Employment Project v. Dole, 889 F.2d at 1131 (citations omitted). In this case, the Court must ensure that MarAd's interpretation "is arguably consistent with the underlying scheme in a substantive sense" and must ascertain "whether 'the agency considered the matter in a detailed and reasoned fashion.'" Rettig v. Pension Benefit Guaranty Corp., 240 U.S. App. D.C. 118, 744 F.2d 133, 151 (D.C. Cir. 1984) (quoting Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. at 865). Because Congress gave MarAd "broad authority to oversee administration of the Act," Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 585, the "agency's interpretation must be accepted 'unless it is manifestly unreasonable.'" Liberty Maritime Corp. v. United States, 928 F.2d at 419 (quoting National Wildlife Fed'n v. Gorsuch, 224 U.S. App. D.C. 41, 693 F.2d 156, 174 (D.C. Cir. 1982)).
a. MarAd's interpretation does not conflict with the statute's plain language
Section 506 of the Merchant Marine Act provides that "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. . . ." 46 U.S.C. app. § 1156. At the same time, the statute provides that "if the [CDS-built] vessel is operated in the domestic trade . . . [the owner] will pay annually. . . that proportion of one-twenty-fifth of the construction-differential subsidy paid for such vessel. . . ." 46 U.S.C. app. § 1156. This latter provision is applicable either when a portion of a CDS-built vessel's voyage is in the domestic trade or if the shipowner seeks a temporary transfer of the CDS-built vessel to the domestic trade. The Supreme Court has examined these provisions and determined that they speak "to temporary releases from the foreign-trade-only requirement, and only to such releases." Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 588. Because nothing in Section 506, or in any other provision of Title V, expressly addresses the issue of permanent release from the domestic trading restrictions, MarAd's interpretation does not conflict with the statute's plain language. The language of the statutory provision at issue suggests that Congress did not intend that the domestic trading restrictions of Section 506 would permanently bar CDS-built vessels from entering into the domestic trade.
b. MarAd's interpretation is consistent with the statutory purpose of the Merchant Marine Act
In its interpretation of a statute, an agency must provide "a reasonable explanation for its conclusion that [its interpretation] serve[s] the [objectives of the statute in question]." Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. at 863; see Continental Air Lines, Inc. v. Department of Transportation, 269 U.S. App. D.C. 116, 843 F.2d 1444, 1452 (D.C. Cir. 1988). Reasonableness in the context of a Chevron review of an agency's interpretation of a statute primarily "means. . . the compatibility of the agency's interpretation with the policy goals . . . or objectives of Congress." Continental Air Lines, Inc. v. Department of Transportation, 843 F.2d at 1452. Congress expressed the primary purpose of the Merchant Marine Act as follows: "It is declared to be the policy of the United States to foster the development and encourage the maintenance of . . . a merchant marine." 46 U.S.C. app. § 1101; see Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 584. Congress intended to assist U.S.-flag vessels in gaining parity with foreign competition in foreign trade. See S. Rep. No. 713, 74th Cong., 1st Sess., 3 (1935) (Report of the Committee on Commerce on the Merchant Marine Act of 1935). In Section 506 of the Act, Congress also sought to protect the unsubsidized United States ship owners operating in the domestic trade from competition from subsidized United States shipowners. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 586-87. Thus, the goal of Section 506 is to ensure that the domestic shippers were protected from unfair competition from the CDS-subsidized fleet.
MarAd's interpretation is compatible with Section 506's objective of protecting the domestic fleet from unfair competition. In addition, MarAd has sufficiently explained the compatibility of its interpretation with this objective. In 1964, the Acting General Counsel of MarAd stated that an owner who has operated a vessel in the foreign trade "for the statutory life of the vessel . . . should be in the same position as if he had paid the full domestic price; that is, he should not be required to make further repayments, and should not be bound to an exclusive foreign trade obligation." Memorandum from Graydon L. Andrews, Acting General Counsel, Maritime Administration, to Maritime Subsidy Board, Maritime Administration (July 28, 1964), A.R. at 24. Such an owner would be "in the same relative position as a domestic carrier who had paid the U.S. costs of his ship." Id. The Acting General Counsel's explanation was subsequently included in a Comptroller General's 1964 opinion, concluding that two vessels were allowed to gain a permanent release from the domestic trading restrictions. Comptroller General Decision B-155039, 44 Comp. Gen. 180 (1964), A.R. at 31.
Plaintiffs contend that MarAd's interpretation is not consistent with the intent of Congress because Congress also intended to retire and replace obsolescent subsidized vessels and therefore not to allow them to compete in the domestic trade. Similarly, they maintain that the legislative history of the Act reveals that Congress intended to stimulate continued renewal of the American merchant marine. Plaintiffs' arguments are based on the congressional intent for Sections 507, 508 and 510, which were enacted to address the obsolescence of World War I tonnage. 46 U.S.C. app. §§ 1157, 1158, 1160. These sections have little bearing on the purpose of Section 506 and are not the proper touchstones for a Chevron analysis of whether MarAd's interpretation of Section 506 is consistent with the purposes of the Act. See Continental Air Lines, Inc. v. Department of Transportation, 843 F.2d at 1451-52.
3. MarAd's Long-Standing Interpretation Of Section 506 Is A Permissible And Reasonable Exercise Of Its Delegated Authority
Plaintiffs assert that MarAd's interpretation of Section 506 is not entitled to Chevron deference because it is conclusory, unreasoned, has been only informally announced and is not the subject of any promulgated rules. Plaintiffs argue that the agency's more considered reasoning has only been offered during this litigation and therefore should receive no deference. As to this last point, they rely on this Circuit's decision in Georgetown Univ. Hosp. v. Sullivan, 290 U.S. App. D.C. 108, 934 F.2d 1280, 1283 n.3 (D.C. Cir. 1991).
Plaintiffs' reliance on Georgetown Univ. Hospital v. Sullivan is misplaced. MarAd's interpretation of Section 506 was not offered for the first time in the context of this litigation but has been its consistent, long-standing interpretation of Section 506 since at least 1963. A careful review of MarAd's interpretation persuades the Court that it should defer to the agency's position. See City of Mesa, Arizona v. FERC, 301 U.S. App. D.C. 226, 993 F.2d 888, 893 (D.C. Cir. 1993).
In 1963, in a letter to the Chairman of the House Committee on Merchant Marine and Fisheries, the General Counsel of the Department of Commerce, the department then responsible for administration of the Merchant Marine Act, expressed MarAd's view that the "obligation to repay construction-differential subsidy for operation in domestic trade was intended to be, and should be, terminated at the end of the economic lives of the vessels." Letter from Robert E. Giles to the Hon. Herbert J. Bonner (July 10, 1963), A.R. at 14-15. In a 1964 letter, the General Counsel of MarAd notified a shipper that MarAd "believe[s] Section 506 of the Merchant Marine Act, 1936, as originally enacted, was intended to terminate the obligation to repay construction-differential subsidy for the operation of the vessels in domestic trade at the end of the economic lives of the vessels. We are still of that opinion." Letter from Robert J. Ables, General Counsel, Maritime Administration, to Warren Bean, Staff Attorney, Matson Navigation (Feb. 4, 1964), A.R. at 19.
In 1964, MarAd confronted the question of whether it had the legal authority to amend CDS contracts between Grace Line Inc. and the Federal Maritime Board to remove from those contracts the domestic-trading restrictions. The Acting General Counsel of MarAd advised the Maritime Subsidy Board that
. . . the elimination of the exclusive foreign trade obligation can be effected by the expiration of the vessel's statutory life or by the repayment of the unamortized subsidy.
. . .
. . . Upon the basis of the rationale for the repayment of subsidy, it appears that if the Government receives the full benefit of its subsidy by the Owner's operation in the foreign trade and the compliance with the other construction differential subsidy contract obligations for the statutory life of the vessel, or if, in the case of a vessel with an age less than the statutory life, 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; that is, he should not be required to make further repayments, and should not be bound to an exclusive foreign trade obligation. Stated another way, the repayment in full of any undepreciated balance (based upon the statutory life cycle) of the subsidy, would place the Owner of a vessel on which construction-differential subsidy had been paid in the same relative position as a domestic carrier who had paid the U.S. costs for his ship. . . .