Remarks of Commissioner Harold J. Creel, Jr.

The South Carolina International Trade Conference

May 19, 1997

Before I begin, I'd like to take just a moment to recognize Don Welch. Don has been a good friend for quite some time, and I, like others, have benefitted immensely from his knowledge and advice. I congratulate Don for all he has done for South Carolina and its ports, and I wish him the very best as he beginsthe next stage of his life.

It is a real pleasure to be back in Charleston with all of you at this important trade conference. So much has been happening at the FMC that I have not been able to accept many speaking engagements. So, it is a rare treat for me to be able to come back to my home state, among so many good friends and business colleagues. Every visit back to Charleston reminds me of what a beautiful place this is -- you all who live and work here are indeed fortunate. But enough of my envy and on to the topic I have been asked to address -- maritime reform legislation.

Actually, our session has been titled "Ocean Carrier Deregulation Potential and Likely Impacts." Now, I know that we will be informed and entertained by Conrad Everhard's presentation. Conrad is extremely well versed on this subject, and based on his outspoken comments over the past several months, I trust he will convince us all that Congress is crafting a wonderful piece of legislation which will produce enormous benefits for everyone involved in U.S. oceanborne trade. Isn't that right, Conrad? And also, I am certain that Mr. Rodriguez is well suited to forecast the economic effects the current legislative proposal will have on all of you whose companies are dependent on ocean commerce.

So I would like to address this issue from the perspective of the government oversight agency responsible for implementingU.S. maritime regulatory laws. I should emphasize that the FMC consistently has been an impartial observer in the legislativereform process. There is a very simple reason for that -- we are not policy makers. That is not to say, however, that we are not playing a vital role in the reform process. We are providing technical advice to Congress and furnishing objective views on the workability or impact of specific proposals and how final policy decisions can best be stated to achieve intended results. Generally, I intend to focus today on the regulatory environment that likely will be created when S. 414 becomes law. I will not bore you by reciting every proposed statutory change and how each has developed during this review process. Instead, I thought I would concentrate on the more relevant changes contained in this bill, what the bill essentially leaves intact, and the manner in which it may affect day-to-day operations -- both yours and ours at the Commission. But allow me one general comment before I proceed.

Those who have been following the reform effort since its beginnings in early 1995, know that the process has come a long way. The proposal passed by the House of Representatives in 1996 would have ended common carriage as we know it, replaced it with a system where rates and conditions of service are essentially hidden from both public and government scrutiny, and eliminated the agency responsible for maintaining a fair and open climate for U.S. ocean commerce. The initial Senate effort, while still calling for significant change, was more moderate in approach. And probably more important than any substantive feature, the Senate has used an open process that has included all segments of the maritime community.

The Senate has made extensive changes along the way, and currently is in the process of fine-tuning S. 414 for consideration by the full Senate probably next month. What has remained constant has been Congress' basic policy objective, which has been added to the Shipping Act's Declaration of Policy. It reads: "To promote the growth and development of United States exports through competitive and efficient ocean transportation, and by placing a greater reliance on the marketplace." Clearly, those who have argued for more flexibility in establishing commercial arrangements and for a relaxation of government filing requirements, have made a convincing case to Congress. Where the rubber currently is hitting the road is in ironing out the final details so that the bill which is enacted strikes an appropriate balance between more streamlined regulation and the necessary degree of effective oversight and protection.

One of S. 414's most significant effects would be to reduce the amount of information that must be filed with the government. Carrier tariffs no longer would be required to be filed with the government. Additionally, while contracts themselves would be filed with the government agency, carriers and conferences would be responsible for publishing their own abbreviated listing of the contract's essential terms for public review.

What does this all mean? Well, on the one hand, the government no longer would be the single repository for all tariff and service contract information. The FMC's current Automated Tariff Filing and Information system, or ATFI as it is known, would not be available to obtain information on a given carrier's rates, charges, or service. Instead, the public now would access such information from a carrier's individualautomated system. S. 414 specifically requires that the systems be in electronic format and accessible to any interested party. The Commission's successor agency has the responsibility to ensure the accessibility and accuracy of these systems. We are optimistic that we can promulgate regulations to ensure the accessibility of this key information. I will not stand here and tell you that the information will be as readily accessible as it is now in our ATFI system; nonetheless, we will initiate the action necessary to fulfill this responsibility Congress has placed on us.

Another important feature of S. 414, which I alluded to earlier, is the added flexibility it provides the industry in arriving at its commercial relationships. Again, this was a primary aim of the reform effort, and I believe it has been accomplished.

The House would have made all service contracts confidential, with no government filings. The Senate's present compromise calls for all contracts - both conference contracts and individual contracts - to be submitted confidentially to the oversight agency, with the publication of essential terms limited to: the commodity involved; the minimum volume of cargo to be moved; the duration of the contract; and the U.S. port range to be served. That's it. That's all the public would know about any particular contract. I am somewhat concerned that disclosure of only the U.S. port range, and not more specific origin and destination information, including the foreign point or port, will limit the usefulness of this information - but I'll leave that point for the industry panelists to comment on. Senator Gorton has proposed an amendment which would require even less public disclosure, with aggregated information, as opposed to contract-specific essential terms, being publicly available. I hesitate to comment on this proposal until I see the actual wording, but it is safe to say that it does move even closer to full confidentiality.

S. 414 will certainly change the way service contracts are negotiated in the future. The greater air of confidentiality should enable contracting parties to better use any leverage they have in their negotiations, while competing interests should find it harder to match these offerings since they will not be privy to the contract's more sensitive information. In addition, a conference could no longer control its members' individual contracting activities. Members could negotiate and even complete contracts without having to advise the conference. And conferences would be precluded from establishing mandatory rules to frustrate their members' efforts in this regard.

As a result of these changes, one should expect an increase in one-on-one contract activities between shippers and individual carriers. As different patterns develop in our various trade lanes, common approaches may emerge. But with increased confidentiality and a limit on information availability, the Commission's oversight role becomes all the more important. We would need to refine our monitoring so as to ensure that any grant of antitrust immunity is not being abused regarding service contracting. We also would have to heighten our awareness so as to protect the rights and interests of all shippers, particularly as to potentially unjust discrimination against certain types or classes of shippers or unfair preferences or advantages to the detriment of the benefactor's competition.

Obviously, carriers and conferences will not be able to offer significant discounts or special services to all of their customers. As favored clients or champion accounts obtain beneficial deals, carriers and conferences will face an increased degree of pressure in their negotiations with other customers. The Commission's oversight is absolutely necessary in this business climate to ensure that equitable conditions prevail and that all concessions and other contract terms offered by carriers are based on legitimate transportation factors. That is why I was so pleased to see that the Senate has retained the prohibition against unjust discrimination or unfair preference in service contracts. Thought had been given to eliminating these prohibitions. We at the Commission agree that the nature of service contracting is to give preferences to certain parties. But to permit discrimination based on non-transportation factors such as nationality of a shipper is unreasonable and should be prohibited.

One element that is not changed by S. 414 is the area of statutory compliance and enforcement. S. 414 specifically requires adherence to published offerings, and continues the oversight agency's various means of enforcing the statute's provisions. I think that makes perfect sense. Once Congress makes the policy decision to preserve common carriage in our ocean trades, requiring adherence to a tariff is only logical. And by adherence, I do not mean strict compliance with technical filing requirements or other perhaps burdensome procedures. The Commission does not carry out its compliance mandate in this fashion. Our focus over the past several years has been on industry practices or behavior that could adversely affect U.S. commerce, as well as individual parties or classes of individuals in that commerce. Also, the ability of carriers to operate with immunity from the antitrust laws, as well as the specifically identified prohibited acts in the Shipping Act, necessitate ongoing oversight.

The Commission for quite some time now has maintained a basic policy objective of ensuring statutory compliance and creating equitable trading conditions in the U.S. ocean commerce. We vigorously have enforced our underlying statute and will continue to do so. I will readily admit that our job will not be easy. In all truth, this program function has become more and more difficult in the recent past, given our decreasing staff levels and reduced budgets. The changes proposed in S. 414 would require more effort on the oversight agency's part in order to obtain information that is vital to its enforcement program.

I am quite pleased with a recent development in the reform process. In its explanation of S. 414, the Senate Commerce Committee indicated its desire to enhance the Commission's ability to address substantially anticompetitive carrieragreements. What we are dealing with here is commonly referred to as the general standard of section 6(g) of the 1984 Act. This statutory provision authorizes the Commission to seek an injunction against any agreement filed with it that appears likely to reduce competition in a manner that produces an unreasonable reduction in service or unreasonable increase in cost. This is a well designed check on the concerted actions a conference takes pursuant to its antitrust immunity. Unfortunately, the legislative history of the Act placed unnecessary restrictions on the Commission's ability to act. Specifically, we are unable to use conference market share as an indication of excessive anticompetitiveness and we must demonstrate "concrete competitive harm" to shippers if we initiate a 6(g) action. We have advised Congress for quite some time that these restrictions hinder our effectiveness. Although the actual report language still needs to be written, we are hopeful that the result will enable the Commission to better apply its expertise to this difficult and controversial area of regulation. I firmly believe that changes in this regard will have a positive effect on the operation of carrier agreements, as well as the flow of commerce in all U.S. ocean trades.

Additionally, carriers owned or controlled by their government have received special attention in S. 414. Statutory prohibitions have been in place since the late 1970s to ensure that state-run carriers do not adversely affect U.S. commerce, or create undue competitive consequences for commercial carriers who must pay attention to profits and cannot as easily control costs. S. 414 would change the definition of "controlled carrier" by removing a loophole in the current law that permits a carrier to avoid controlled carrier status by registering its vessels in a country other than the one by which it is controlled. This modification would prevent controlled carriers from avoiding the significant requirements they face by using flag-of-convenience vessels for their U.S. services. The bill also makes specific modifications to tighten the oversight of controlled carriers. These changes would appear to facilitate quick and appropriate action on controlled carrier rates that have the potential of creating negative consequences for trade as a whole.

Speaking of rates, you may be aware that the rate activities of the Chinese Government carrier, COSCO, have created a good deal of interest of late both in the press and on Capitol Hill. Specifically, Senator McCain offered an amendment to S. 414 that was unanimously approved during the markup of the bill on May 1. The amendment prohibits the Secretary of Transportation from granting a shipbuilding loan guarantee to any vessel operator that has been found to violate certain U.S. shipping laws, or is even under investigation by the FMC for potential violation of these laws. The purpose of this amendment is to resolve the inconsistency of one federal agency providing financial assistance to a carrier, while another agency is fining that carrier for a violation of U.S. maritime law. The bill's expansive inclusion of any carrier even under investigation creates the distinct possibility of the bill reaching further than was intended. Concerns were expressed at the markup on this point, and I understand that attempts may be made to modify the language to more clearly address the specific issue intended.

However, the attention controlled carriers continue to receive and the new statutory prohibitions contained in S. 414 would dictate even closer scrutiny by the Commission's successor in the years to come. The FMC presently has a structured and effective monitoring program to address controlled carrier activity, and this program definitely would be refined and expanded to appropriately deal with the current statutory changes.

I would like to discuss one last change before closing. It's not a specific statutory privilege or restriction. But it is something that has an extremely significant impact on the future of U.S. ocean shipping.

I am speaking about S. 414's proposal to eliminate the FMC as currently structured and merge it and its remaining functions with another government agency. For those of you into acronyms, or who are amused by alphabetic designations so popular inside the Washington beltway, I will lay it out for you: the FMC will be merged with the STB (which was formerly the ICC) to form the ITB as a separate agency within DOT! But I don't mean to make light of a proposal that will have a very profound impact.

I consistently have pointed to the minimal savings that will result from our merger with the Surface Transportation Board, along with the vastly different missions performed by our respective agencies. But more importantly, I have emphasized the importance of retaining a decisionally independent agency to administer what will be the complex regulatory scheme that will continue when S. 414 is enacted. I am concerned that placing the FMC's functions in an agency under the Department of Transportation could send the wrong message to our trading partners who, I believe, respect the effectiveness with which the Commission addresses unfair foreign shipping practices. For example, I do not think that our recent actions in the Japan Port Practices case could have been accomplished in as timely and effective a manner had we been placed within an executive department. To date, the Senate has not been convinced that the FMC should be retained as a free-standing, independent agency. However, I am hopeful that this matter will be further debated as the bill moves forward.

S. 414 is moving forward on a fast track, with the full support of Senate Majority Leader Lott. Should it pass the full Senate, I would expect the House to take it up quickly. And if the House does not have serious concerns with the Senate proposal, a final bill could be on the President's desk before the summer is over. If the President signs it, don't expect to see me or any other Commission employee this fall as we work at writing implementing regulations. Thank you, and enjoy the rest of the Conference.