The South Carolina International Trade Conference

May 18, 1998

Good morning. I am just delighted to be back in Charleston and I appreciate your kind invitation to speak to you again. You know, it's the funniest thing. No matter how jammed my schedule is, somehow, miraculously, it seems to clear when there is an invitation to be in Charleston in the Spring! If I could only extend my stay through Spoleto I would be in great shape!

I am also pleased to participate in the 25th year of this conference which is so important to the international trade community of South Carolina. I cannot help but think of the state of the port and international trade in South Carolina 25 years ago and compare that to the situation today.

Before I move to the substance of my comments, I would like to wish a huge congratulations to Bernie Groseclose and everyone at the Port of Charleston for the tremendous growth the port has experienced. It is heartening to me to pick up the Journal of Commerce in Washington and read how well Charleston is doing. I have read that Charleston's container cargo movements continued to increase at a double-digit clip last year and have maintained that pace so far this year. Being a South Carolina native, I am proud of what Charleston has done to increase its efficiency and productivity, helping it to become our nation's fourth busiest container port.

I have been asked to speak today about the Federal Maritime Commission's international trade responsibilities and our role in the implementation of U.S. foreign trade policy. I am pleased with this topic because in today's world economy, the Commission's role in protecting U.S. shipping interests abroad is more important than ever. Especially when 95% of US foreign trade is carried by ship.

I am sure you all are aware of the Commission's primary regulatory oversight functions. Only recently have the Commission's international trade responsibilities come to be appreciated. Actually, many are surprised when they become aware of the breadth of our authority, as well as the long list of controversies we have successfully addressed over the years.

Although often overlooked, the Commission's responsibility to protect shippers and carriers from the restrictive practices of foreign governments or entities clearly is its most important. Whenever a U.S. interest is being harmed by unjust foreign actions, or U.S. commerce stands to suffer adverse conditions for the same reason, the Commission is required to initiate appropriate responsive action to remove or avoid those undesirable consequences. Specifically, the Commission is authorized to issue rules to meet the actions of foreign governments or carriers that create conditions unfavorable to U.S. shipping on a particular trade route or in U.S. commerce generally. We also are charged with offsetting any foreign government law or regulation that adversely affects U.S. carriers, provided that the condition does not exist for foreign carriers in the United States. And lastly, the Commission is required to address foreign government action that impairs a U.S.-flag carrier's ability to serve a foreign-to-foreign trade.

These statutory authorities prescribe a comprehensive set of remedies. We may assess monetary fees of up to $1 million per voyage, restrict a carrier's port calls or its carriage of certain commodities, suspend a carrier's right to operate in the U.S. trades at all, and we even have a catch-all authority to "take any action we deem necessary and appropriate." Certainly these sanctions are serious, and we use them solely as countermeasures to hopefully remove restrictions adversely affecting U.S. trade or U.S. companies. The Commission consistently strives for that end -- it is not our goal to penalize any entity conducting business in the U.S. trades. That leads me to the Commission's specific role in implementing U.S. foreign trade policy.

You will note that I refer to the Commission's role as implementing trade policy. I must emphasize that the FMC does not formulate U.S. foreign trade policy. Some have misinterpreted the Commission's restrictive practice actions as actually establishing U.S. foreign trade policy. That simply is not the case. U.S. foreign policy on international trade matters is made by the Congress and the President through executive agencies with that specific authority. My agency, the FMC, serves as an advisor to those agencies, both in the general assessment of maritime issues and when specific trade actions are being implemented. We provide background information and advice as to regulatory issues, conditions prevailing in specific trades, and other matters within our area of expertise.

In establishing the nation's approach to international shipping issues, the Departments of State and Transportation maintain a continuing dialogue with their counterparts in foreign governments, exchanging views and negotiating agreements to address what often are conflicting objectives. As to maritime affairs, when a restrictive practice or unjust government action results in negative consequences for U.S. interests or U.S. trade, the executive agencies are the first ones to seek a resolution. With input from the affected parties in the industry, they formulate the U.S. position to be presented to the involved foreign government. The resulting discussions and negotiations often serve to resolve the situation. Just as often though, resolution cannot be achieved. That is when the FMC steps in.

The Commission is an independent agency with autonomous authority to counteract unacceptable shipping conditions. We do not participate in government to government negotiations, nor are we bound by them. When necessary, we initiate specific retaliatory actions after efforts to negotiate a bilateral resolution have failed. We, too, consult with those affected in the industry, as well as the executive agencies, to gain a clear understanding of the problem and the attempts at resolution. Once the Commission has considered all relevant factors, the statutes I described earlier require us to initiate the unilateral action we deem appropriate to remedy the problem. Due process requires us to follow specific procedures providing the respondent parties an opportunity to present their case and argue against any action. After considering their views, as well as those of any other interested parties, the Commission is free to implement the sanctions it deems appropriate. Only the President has the authority to overrule the Commission in such matters, and then only for foreign policy or national security reasons.

The Commission is fully aware that any unilateral action may not have immediate positive results, and can cause some disruption to normal business operations. I refer not only to the targets of our remedial action, such as carriers who may face specific fees or restrictions, but to those indirectly affected. Take ports for example. A trade sanction against a foreign carrier obviously can adversely affect those ports which that carrier serves. The Commission always finds itself performing a balancing act in such circumstances, weighing the possible negative effects of its ruling against its potential for resolving the involved restrictive practice. That is why these matters often involve serious and lengthy deliberations, as well as ongoing last-minute discussions in an attempt to remedy the problem without the need to effectuate countervailing sanctions.

I often am amazed at the divergent perceptions of the Commission as it fulfills its international trade responsibilities. While some speak of the helpful "leverage" our retaliatory authority affords the U.S. executive agencies as they negotiate with a foreign government to remove a restrictive practice, others see us as the heavy hammer unfairly tilting negotiations. While we believe that we act with restrained, well-reasoned unilateral actions, others see us as the uncontrollable cowboy eager to pull its trigger. And, what some refer to as responsive remedies sure to remove trade barriers, others see as unfair sanctions aimed at the wrong individuals with minimal chance of achieving success. The proper course of action is not always obvious, since a failure to act can perpetuate a longstanding and serious problem, while initiating retaliatory action can create concerns in our bilateral relationships. Pertinent factors and probable consequences must be assessed in determining just when and how to use our broad statutory authority.

By any measure, the Commission has an excellent track record in this area. For example, we have helped U.S. companies obtain the freedom to establish subsidiaries and other business operations in Taiwan and the PRC. We have negated the adverse effects of cargo reservation schemes and restrictions against third-flag carriers in South America, which impeded U.S. shippers' right to their carriers of choice. We have fought discrimination against non-Korean intermediaries by the Republic of Korea, and were instrumental in the elimination of a harbor fund in Japan that was extracting payments from carriers with no attendant benefits. We also assisted in the removal of restrictions on the U.S.-flag carriage of military cargo to Iceland. This is only a small sampling of situations in which we have used our international trading authorities to combat praticies harmful to U.S. ocean commerce.

The Commission also addresses restrictive practices without resorting to formal actions such as those I listed. We have found that the mere knowledge that the Commission has been contacted often has influenced foreign governments to take a more serious look at a specific maritime policy or regulation that improperly favors their national carriers. Similarly, our informal discussions with foreign officials and entities have helped to clarify misunderstandings, leading to prompt remedial action. And of course, the looming threat of FMC retaliatory action in and of itself can bring about necessary change.

In administering its restrictive practices program, the Commission is guided by a clear policy objective:  ensuring equitable trading conditions. If foreign companies are free to conduct their maritime businesses here in the U.S., then American companies must have the same opportunities overseas. If foreign nations are responsible for unnecessary burdens or unfair restrictions that inhibit U.S. companies or favor their own, then the FMC must step in to level the playing field. The free flow of commerce and the fundamental principal of fairness dictate it. The wisdom of U.S. law, and the Commission's implementation of it, struck me recently while attending an economic and trade policy conference on "globalization."

The conference was commemorating the 50th anniversary of the General Agreement on Tariffs and Trade, or GATT, and its central theme was how all of the world's economies are inter-connected. The speakers included a wide range of individuals, including the Vice President, the U.S. Trade Representative, the President of the AFL-CIO, members of Congress, foreign leaders and dignitaries, including the President of the European Union, ambassadors, and CEOs of major U.S. and foreign corporations. Now, I do not believe that the U.S. should sign away its ability to unilaterally address unfair shipping practices by agreeing to include maritime services in the GATT. The Commission's authority to counteract restrictive practices, quickly and effectively, is extremely valuable and should not be disturbed. But there is much to be said for the increasingly popular concept of "globalization." If a country truly considers itself our trading "partner," then it is even more important for that "partner" to allow our shipping companies the same access to its ports and other facilities and services in the transportation chain as its carriers enjoy in the United States. This is a very simple concept, but one that unfortunately is not subscribed to by all foreign governments. The basic precept of fairness goes back as far as the Golden Rule. In our international maritime dealings, it is not extraordinary concessions that we seek from these countries. U.S. policy and U.S. law simply hold that if you want to be treated fairly when you call at a U.S. port or conduct business in America, then allow us the same courtesy or privilege when we enter your ports or conduct business in your country. The Commission's case against restrictive port practices in Japan is a perfect example.

This proceeding focused on two major problems:  first, a set of complex, arbitrary procedures for addressing operational matters at Japan's ports, known as the prior consultation system; and second, the exclusion of non-Japanese companies from that country's harbor services industry. Port operations in Japan are controlled by an association of companies that provide harbor services, the Japan Harbor Transportation Association, or JHTA. The prevailing conditions and JHTA itself exist with the approval of the Japanese government.

These unfavorable conditions have existed in Japan for almost 15 years and have led to gross inefficiences and increased costs. The Departments of State and Transportation attempted to resolve the problems with the Japanese over several years but to no avail. Given the lack of significant progress, the Commission issued a final rule last February imposing monetary sanctions against Japanese-flag carriers of $100,000 per voyage. Remember that we have authority to impose sanctions of up to $1,000,000 per voyage.

Prior to that rule's April effective date, our two governments negotiated an agreement whereby the Japanese agreed to achieve certain reforms by the end of July. This prompted the Commission to postpone sanctions. But when the Japanese failed to meet their commitments, the final rule went into effect, with the Japanese carriers' first fee payments due October 15. To our surprise, the Japanese carriers refused to make these payments, and the FMC took the next step.

As authorized by statute, the Commission voted to request U.S. Customs to deny clearance of Japanese-flag vessels and the Coast Guard to detain them in port. At that point, government negotiations at the highest levels went on literally nonstop. Subsequently, an agreement was reached that called for concrete steps to eliminate the barriers that impede Japan's harbor services industry. The FMC compromised the fee and accepted a payment totaling $1.5 million from the Japanese carriers. It, therefore, never became necessary for the Commission to officially transmit its detention letters to Customs and the Coast Guard. However, both Customs and Coast Guard were in constant contact with us and were fully prepared to carry out the vessel detention.

Throughout this period, the process dictated by U.S. law worked as envisioned. The executive agencies responsible for conducting U.S. foreign policy handled all negotiations and established our nation's bargaining position. And the imposition of sanctions by an independent FMC was instrumental in bringing about an agreement. Our interaction with the U.S. negotiating team was extremely effective and productive. We sought the same objective, and our continual focus on it enabled the U.S. to speak with one voice. As a result, a mechanism was established that can have a very positive impact on the flow of commerce with Japan.

Unfortunately, the prior consultation problems and terminal service restrictions still exist. Everyone recognized that effectuation of a new operating system at Japan's ports would not be easy; however, it appears that insufficient progress has been made to date. While the Commission has not received any formal notification from the U.S. executive agencies, we are aware of the general situation and are actively monitoring it. We have reason to believe that considerable challenges remain before full implementation of the government agreement reached last October can be achieved. Progress was delayed recently due to the annual spring Japanese labor offensive known as "Shunto." Inaction by the Japanese government during this sensitive time is understandable. Nonetheless, the Shunto ended in early April, and the time has come for implementation of those changes that the Japanese government agreed to. I must tell you that my impression is that current prospects are not promising.

The Commission, for its part, stands prepared to act if necessary. Our rule which proposed sanctions was not discontinued, but merely suspended. Barring satisfactory resolution of this matter, it can be reinstituted in quick fashion. I do not mean to raise alarms or pose false threats at this time. However, I do wish to make it clear that the Commission will initiate whatever action it believes appropriate to address these barriers to free trade.

I thank you for listening to me today and I wish you all a pleasant conference. Thanks again.