News Release - Federal Maritime Commission

Remarks

of Harold J. Creel, Jr.,

Chairman, Federal Maritime Commission

National Industrial Transportation League Monterey Seminar

Monterey, California

May 17, 2002

Panel Discussion: "Are China's New Liner Regulations Out of Step in Today's
Commercial Environment?"

It's a pleasure to be here today to address the timely subject of the recent Chinese regulations on maritime transportation and its potential impact on the U.S./China trade. Before I begin, I first want to add a couple of caveats to my talk here - - just so you don't think I'm trying to be evasive about answering your questions. The program bills this panel as discussing the "immediate and long term ramifications" of the new Chinese law. As you probably know, the Commission recently published a Notice of Inquiry (or "NOI") asking almost the same question as the topic of this panel, that is, "what is the effect of these regulations?" and we're still awaiting responses, which are not due until June 13. So we're still in the early information-gathering stages of this inquiry. We haven't reached any conclusions about the new Chinese law or whether it will affect U.S. oceanborne commerce in a restrictive way, so for that reason alone, I can't talk to you or make any predictions about what our conclusions are going to be. But, I can talk to you about why we issued the NOI in the first place, that is, what we heard that was so troubling about the new law.

Before I address the advertised subject of this talk, though, I want to give you a little background on how the FMC fits into the big picture. The FMC is an independent regulatory agency. We regulate the providers of ocean shipping and related services in our foreign trade to assure that all participants, regardless of flag or ownership, abide by the same rules. Our statutory concern extends to assuring that all such entities have a fair shot at and give a fair shot to the users of their services, with allowances for the commercial flexibility to make deals through service contracts. Additionally, we're tasked with assuring that those general rules of fairness are not impinged upon by regulatory actions or restrictive practices of the governments of our trading partners. But we don't negotiate treaties or other trade agreements with foreign governments. MarAd is the executive branch agency that advocates for and represents the interests of privately-owned U.S. entities which participate in providing and using ocean shipping in our trades and negotiates with foreign governments. We simply analyze the facts as they're presented to us and figure out how to use the tools we're given as regulators to encourage the other government to correct or address any restrictions we identify.

And I'll make one more point about the FMC's role, in order to avoid a frequent misconception about how the Commission fits into today's multilateral environment. The Commission's ability to address restrictive foreign practices is not limited by the World Trade Organization. In fact, some of the harshest sanctions the FMC has ever imposed were against one of our most important trading partners and fellow WTO member - Japan. The Commission has the ability to act unilaterally, and the hope is that we can act nimbly enough and with enough precision to be effective in identifying, analyzing and, when necessary, responding to the practices of foreign governments which create barriers to U.S. oceanborne commerce. This kind of a narrowly targeted, unilateral process ensures that only maritime issues are addressed. We focus only on doing away with laws and practices that negatively affect oceanborne trade. So the Commission is not constrained by the WTO process, and won't be as long as there is the confidence that the FMC can be effective in identifying threats to market access, as well as opening closed markets and keeping them open.

Back on December 21, 2001, the State Council of the People's Republic of China shocked those of the shipping community that are Chinese-speaking by publishing Decree Number 335, entitled, "Regulations of the PRC on the International Maritime Transportation" which was to become effective on January 1, 2002, just 11 days from its original publication. The new law immediately caused much confusion and consternation in the ocean shipping industry. Shortly thereafter, the Commission was contacted by businesses concerned about what the new Chinese law would mean for their ability to do business in the U.S.-China trade. We also heard from the Maritime Administration, which had written to the Chinese MOC to express its concerns. Captain Schubert wrote to notify me that he would be leading a delegation to Beijing to express their initial concerns and get some clarification.

But before even getting to the content of the new law, we initially heard this collective "gasp" of surprise and shock. After some American groups finally were able to translate the new law into English, we heard about a general concern that the new law might be out of step with the type of deregulation that has been going on here in the U.S. and elsewhere. There was a feeling that the new law might represent a step backwards for China, but what the new law would really mean was unclear. The biggest concerns at that time were provisions in the new law that many thought would create disadvantages to foreign-owned shipping companies and advantages for Chinese-owned shipping companies. These were:

different requirements for Chinese and non-Chinese owned shipping companies that appeared to be more onerous on foreign-owned/invested shipping companies;

apparent limits on foreign ownership and control for joint ventures doing vessel operating and auxiliary services;

a requirement to operate at least one Chinese-flagged vessel to obtain an "international maritime transportation business" license, effectively preventing foreign-owned companies from obtaining a business license;

possible exposure of shipping lines' confidential service contract rates to their Chinese government-owned competitors;

subjection of foreign companies to investigations in which their Chinese competitors may participate as "experts;" and

the apparent prevention of foreign shipping lines not only from carrying international cargo to and from inland ports and points in mainland China, but also between the mainland and Hong Kong, Macao and Taiwan.

There were also concerns that the new law might be an attempt to create extra-jurisdictional regulations; in other words, it appeared that the new law might impose a requirement that foreign companies doing business in China also report to the Chinese government on the business they do outside of China. Finally, there was the concern that the new law would interpose the Chinese government into commercial freight rate determinations.

As he told you already, the Maritime Administrator led a team to Beijing in late March. He can tell you better than I, of course, but it looks like that trip may have resulted in some positive developments. First, the Administrator's team was able to ask some very tough questions and got detailed explanations from the Chinese about the aims of specific provisions of the new law. Second, the Chinese in turn asked to send a team over to Washington to study how the FMC currently operates. That group met with Commission staff on April 22nd, 23rd and the 24th. None of the Commissioners were involved; these were purely staff-level meetings. But I can tell you that the FMC staff went into great detail with the study group about how the FMC does business, how our laws and regulations work in general, what we're required to disclose to the public, and that we're generally required to request public comment and respond to public comment. They also talked a great deal about how OSRA changed the Shipping Act of 1984 and how the Commission works. I understand the Chinese spent a good deal of time with other groups, such as the NIT League, in Washington talking about their new law. We hope they now go back and work hard on some good implementing rules that will go further to address not only the concerns that the Administrator has raised in his discussions with them back in March, but also the concerns that they will receive directly from the industry. Of course, we'll have to wait and see what develops and what you tell us about your experiences and concerns with the new law.

We formulated the NOI based on concerns raised to us by MarAd and by organizations representing shippers, carriers and OTIs in the U.S.-Chinese trade. The Commission issued the NOI in March asking for reactions of the shipping public to the law - especially how it was being implemented and whether it would detrimentally affect shippers' ability to secure efficient and economical intermodal transportation services in U.S. oceanborne commerce. We asked for comments from the shipping public -- and that includes shippers, carriers and intermediaries -- about how the new Chinese law would affect their current and prospective business.

This NOI was made part of an ongoing Commission proceeding initiated back in August, 1998 involving other potential Chinese restrictions. In that proceeding we are gathering information regarding certain apparently restrictive Chinese laws, rules and regulations in order to determine if further action under either section 19 of the Merchant Marine Act, 1920 or the Foreign Shipping Practices Act of 1988 is warranted. Under section 19 the Commission can respond to foreign laws which create conditions unfavorable to shipping in the foreign trade by limiting sailings, suspending tariffs and service contracts or carrier agreements, imposing fees of up to $1 million per voyage, or by taking any other action it finds necessary and appropriate to adjust or meet those unfavorable conditions. Under FSPA, the Commission can take action when it finds a foreign law that creates adverse conditions for the overseas operations of U.S. carriers but that do not exist for foreign carriers in the U.S. In response to an adverse finding under FSPA, the Commission can respond by limiting sailings, suspending tariffs, service contracts or carrier agreements, or imposing fees of up to $1 million per voyage.

It is my understanding that the Chinese may issue implementing rules in certain areas if such rules are deemed necessary, so whether they're deemed necessary may depend on them receiving comments from interested groups like yours. And I hope we'll also hear from you about how those rules will affect your ability to do business in China. The NOI is the Commission's way of establishing a clear record of the impact of the new law on companies currently doing business or seeking to do business in the U.S.-China trade. We're looking forward to getting a lot of useful comments detailing how the new Chinese law will affect their ability to do business. As I said before, the deadline for comments is June 13 and I hope we hear from a lot of you.

If you haven't had a chance to read it yet, I'd like to let you know where you can find the text of this new Chinese law. As far as I know, the Chinese government has not put their official English translation on any website yet, but if you'd like to check out the law in its original Chinese, I think you can find it at www.moc.gov.cn or www.chineseshipping.com.cn. We've also been advised that Dr. Zhang Guofa (Deputy Director-General of the Department of Water Transport at the Ministry of Communications) is the Chinese government point of contact for all questions from the public on the new law and the forthcoming regulations. He has told us that he welcomes your questions and comments. You can contact Dr. Zhang via e-mail at MOCZGF@263.net. If you want to read the official government version of the PRC English translation, which has been a long time coming, it is available in hardcopy or pdf format through the Commission's Secretary's Office. You can e-mail your request to secretary@fmc.gov or call the Secretary's Office at (202) 523-5725 and we'll get a copy out to you. Of course, a copy of the NOI is also available on the Commission's home page at http://www.fmc.gov.

I'd like to address the question of why you might care about a Chinese law which directly affects only ocean carriers and NVOCCs. Although your membership now includes both vessel and non-vessel operating common carriers, let me give you a couple of reasons your shipper members might care:

Your business is likely to suffer without:

access to transportation on fair terms;

access to the carrier of your choice

access to markets to buy your raw materials, as well as ones in which to sell your finished, retail products;

the ability to compete against buyers and sellers whose transportation costs may not be subject to these encumbrances.

As I mentioned, the Commission hasn't made any determinations on what the new Chinese law means yet. But what are our options once we have an accurate picture of the effects of the new Chinese law? Well, the Commission may find, based on the responses we get to the NOI, that the new Chinese law creates "conditions unfavorable to shipping in the foreign trade, whether in a particular trade or in commerce generally" or that it should initiate an investigation under FSPA of foreign laws which create conditions which adversely affect the operations of U.S. carriers in the U.S. oceanborne trade and don't exist for foreign carriers in the U.S. Then the Commission has to decide what response would be most effective and we have a bit of latitude here. In the Japan case we imposed a $100,000 per voyage fee on Japanese carriers, well below the $1 million maximum, so that it wouldn't shut down trade, but sufficient enough to get their attention. But in certain situations, the imposition of those kinds of fees may be disruptive to trade, or at the other extreme, inadequate; they may not get anyone's attention. And the Commission has the latitude to be creative in formulating a response that will move the foreign government closer to our ultimate goal, which is getting the restrictive practices changed. Of course, the Commission doesn't act on every "doing business" regulation or practice of our trading partners just on the basis that it is different from our own; rather, the Commission acts when it finds that the practice in question has caused or will cause harm to our trade in shipping services, which in turn affects the ability of U.S. shippers to access foreign markets.

So in a nutshell, the Commission could: find that no restrictive practices exist; or find that restrictive practices do exist. Part of that determination may involve the Commission's issuance of more formal information demand orders on the carriers in the trade to supply information and if we do find restrictive practices exist, the Commission may issue a Notice of Proposed Rulemaking both finding restrictive practices and proposing countermeasures.

So we're really just at the beginning of this process; let me just say that it is my I hope that whatever the Commission decides to do results in more opportunities for your business to compete and to succeed.