REMARKS BY

THE HONORABLE HAROLD J. CREEL, JR.
CHAIRMAN
FEDERAL MARITIME COMMISSION

BEFORE THE

MARITIME TRADES DEPARTMENT
AMERICAN FEDERATION OF LABOR AND CONGRESS OF
INDUSTRIAL ORGANIZATIONS

NEW ORLEANS, LOUISIANA
FEBRUARY 10, 2000

It is a pleasure to appear before you today - not only because New Orleans is one of my favorite places to visit, especially just before Mardi Gras, but also because this is my first opportunity to address a labor organization since passage of the Ocean Shipping Reform Act of 1998 ("OSRA"). This act, which went into effect on May 1, 1999, significantly altered the Shipping Act of 1984, the primary statute used by the Federal Maritime Commission to oversee the ocean transportation industry.

During the course of consideration of OSRA, there were several proposals to abolish the FMC, to merge us with the Surface Transportation Board, or to place us in the Department of Transportation. Thanks in no small part to you in labor, I stand before you today as chairman of a strong, independent FMC. I believe that most knowledgeable transportation people are pleased with this result, and I thank you for your efforts.

As most of you know, OSRA has dramatically changed the way business is conducted in the ocean transportation industry. An increasing amount of cargo is moving under service contracts which are being negotiated between individual ocean carriers and shippers. And certain terms of these contracts, particularly the rate charged, are no longer public knowledge. Indeed, carriers and shippers can agree to keep their deals confidential from their competitors. Moreover, conferences cannot restrict or prohibit their members from entering into service contracts on their own. Although ocean carriers have retained the right to obtain antitrust immunity for certain concerted activities, it appears that in many trades rate-setting conferences are becoming a thing of the past, replaced by discussion agreements.

I share your concerns about the cutthroat nature of competition in the international maritime industry and in particular, the measures that some countries feel are necessary to protect or enhance their own maritime industries. I would like to discuss the Commission's tools to address unfair or discriminatory practices of foreign governments and to give you some examples of recent actions we have taken.

But before embarking on that discussion, I would like to note one development that may affect how the Commission approaches foreign shipping restrictions in the future. This is, of course, the recent acquisition by foreign companies of several traditional U.S. carriers. As you know, American President Lines was recently purchased by Neptune Orient Lines, Sea-Land Service by Maersk, and certain of Crowley's operations by Hamburg-Sud. As an aside, I note that it is ironic that it took the infusion of foreign capital to retain these carriers under the U.S.-flag. Nonetheless, I further note that the maintenance of a strong U.S.-flag fleet continues to be a top priority for national security and defense purposes.

As the Persian Gulf War revealed, there is an important role to be played by U.S.-flag container vessels during the sustainment phase of a military sealift operation. And there is a continuing and increasingly critical concern about how we will assure the availability of sufficient numbers of skilled American seamen to respond to future crises. That pool has traditionally come from U.S.-flag lines. It seems clear then that the U.S.-flag requirement and the programs that support it remain critical. The importance of a viable U.S.-flag fleet is not dependent on what country the stockholders live in, but whether American seamen and U.S.-flag vessels will be available when their country needs them. In this regard, I would note that one of the Commission's policy mandates, unchanged by OSRA, is to encourage the development of an economically sound and efficient U.S.-flag liner fleet capable of meeting national security needs.

The Commission has the authority to address restrictive or unfair foreign shipping practices under section 19 of the Merchant Marine Act, 1920; the Foreign Shipping Practices Act of 1988, or the "FSPA"; and the Controlled Carrier Act of 1978. Section 19 empowers the Commission to make rules or regulations to address conditions unfavorable to shipping in our foreign trades; the FSPA allows the Commission to address adverse conditions affecting U.S. carriers in our foreign trades, that do not exist for foreign carriers in the U.S. And, under the Controlled Carrier Act, the Commission can review the rates of foreign government controlled carriers to ensure that they are not below a level that is just and reasonable.

As I mentioned earlier, almost all U.S.-flag container ships are now used in services operated by large foreign-owned carriers. This will obviously impact the way that the Commission analyzes foreign shipping restrictions in the future, but the Commission's role will continue to be an important one.

Under Section 19, the Commission is charged with protecting the interests of U.S. shipping generally - not just the U.S.-flag fleet. The term "shipping" covers a wide range of U.S. interests including the U.S.-flag fleet, U.S. importers and exporters, and other U.S. companies involved in trade, including non-vessel-operating common carriers ("NVOCCs") and ocean freight forwarders. In the future, when looking at foreign practices under Section 19, we will carefully identify and weigh the U.S. interests involved. For example, if a carrier shows that restrictive practices undermine the competitiveness and growth of the U.S.-flag fleet, FMC action would be warranted, regardless of what carrier is operating those ships. Similarly, if U.S. shippers show that their interests are harmed by foreign restrictive practices, there would again be a strong basis for FMC action, regardless of what carriers or what flag vessels are involved.

In addition, I believe that shipping disputes will become increasingly complex in the future. For example, a particular Asian restriction might impact U.S.-flag vessels, European-owned carriers, and shippers from around the globe. Nonetheless, the FMC will remain a strong advocate and defender of any particular U.S. interest at stake in these disputes.

In August 1998, the Commission initiated a proceeding to investigate whether the laws, rules or policies of the Government of the People's Republic of China might have an adverse impact on U.S. shipping and warrant action under section 19 or the FSPA. The Commission sought information from interested parties including shippers, ocean transportation intermediaries, vessel operators, and others in the ocean transportation industry on Chinese policies and practices regarding port access, the licensing of multi-modal transport operations, and the establishment of representative and branch offices.

The responses indicated that Chinese laws and regulations discriminate against and disadvantage U.S. carriers and other non-Chinese shipping lines. For example, non-Chinese carriers are barred from opening wholly-owned companies or branch offices in China in areas where the carriers' vessels do not make monthly calls; they are barred from performing a number of vessel agency services for themselves; there are restrictions on their freight forwarding services; they must obtain governmental permission before beginning or changing vessel services. Also, proposed rules under consideration could result in the disclosure of confidential service contract terms and further restrict non-Chinese carriers' ability to offer multi-modal transport services in China. Recently, the Commission issued further information demand orders to two more parties: China Shipping Container Lines, a new Chinese government carrier in our trades, and A.P. Moller Maersk, which just took over Sea-Land's substantial U.S.-flag China services. In addition, it is our understanding that many of these issues will be included in maritime discussions between the Maritime Administration and the State Department and China to be held in Beijing later this month. The Commission will continue to assess this situation and will take appropriate action as necessary.

Recent activities of the Government of Brazil also raised serious concerns with the Commission. A Brazilian law appeared to provide unfair tax and duty exemptions to vessels enrolled in its second register and, in late 1998, U.S. ocean carriers were denied access to Brazilian Government reserved cargoes and subject to discriminatory duties. The FMC signaled that it was preparing to take action during the course of several meetings and press releases. Subsequently, as a result of favorable maritime consultations between the U.S. and Brazil, Brazil agreed to take corrective action to address the Commission's concerns. The unfair tax benefits for the second registry are now being phased out and the application of laws restricting access to government reserved cargo and levying discriminatory duties were suspended. The Commission is naturally pleased that our efforts were helpful in attaining a prompt resolution to this crisis.

Perhaps one of the most highly-publicized Commission actions in recent years involved restrictive port practices in Japan. I know this was probably the first and last time that the FMC appeared in the evening news with Dan Rather. In any event, the Commission took action under section 19 against a series of restrictive conditions in the harbor services industry in Japan, including a system that required carriers to receive permission before making any operational changes, that disrupted business operations, required the payment of unwarranted fees, and imposed burdensome operational restrictions. As a result of these conditions, both U.S. carriers and U.S. trade were burdened with unreasonably high costs and inefficiencies.

The Commission ultimately issued a final rule imposing a fee of $100,000 per voyage on Japanese ocean common carriers entering U.S. ports. The FMC subsequently compromised on fines after government negotiators reached an accord on a timetable for Japan to change its system, as we hoped. Our purpose in imposing the fines was not to create further disruptions and impediments in the trade, but rather to motivate Japan to improve its system, with the adoption of written rules, more open decisionmaking and arbitration processes, and the possibility of licenses for new terminal companies. As the Washington Post said in an editorial praising the FMC efforts, sometimes it takes a sledgehammer to capture the attention of foreign government officials. In May 1999, the Commission issued a notice removing the final rule, but imposing semiannual reporting requirements on U.S. and Japanese lines to keep us apprised of the process. The first of these reports was received in August 1999. The Commission will continue to closely monitor developments in Japan that affect our shipping interests.

As mentioned earlier, under the Controlled Carrier Act, the Commission can review the rates of government owned or controlled companies to ensure that they are just and reasonable and are not used in a predatory manner. In fact, OSRA recently "beefed-up" this provision by removing the loophole which allowed these carriers to flag out and avoid FMC scrutiny. OSRA also expanded coverage of the Controlled Carrier Act to the bilateral trades.

The continued need for this authority is underscored by the recent entry into our trades of a new player - China Shipping Container Lines. This carrier, controlled by the government of China, launched one trans-pacific service in December and plans another in April. According to news reports, its parent company has announced plans to build eight 5,500-TEU container ships and time-charter four similar sized ships. When controlled carriers make decisions on investment, pricing and services, they are not answerable to private shareholders or lenders; rather, they may be responding to the directives of government officials. We can't assume that these companies will behave like private firms and must continually oversee their pricing practices to ensure that they don't act in ways that could threaten the stability of the market or the viability of their privately-owned competitors.

In March of 1999, China Ocean Shipping Company ("COSCO") petitioned the Commission for an exemption from the Controlled Carrier Act to enable it to reduce its tariff rates with immediate effect. The statute requires that there be a 30-day waiting period before a controlled carrier may lower any tariff rate, although service contract rates can be lowered with no delay. COSCO's petition and the comments thereto are currently before the Commission and should be acted upon in the near future, probably after the latest round of maritime talks between China and the United States.

One aspect of OSRA that might be of particular interest to you is what we refer to as the "labor provision." Thanks to the efforts of hard-working labor representatives in Washington, a provision was inserted in the service contract section of the 1984 Act that allows labor organizations to obtain information from ocean common carriers pertaining to who is responsible for certain work at dock areas and within port areas in the United States. Ocean carriers must disclose such information if they are subject to a lawful collective bargaining agreement and must provide the information within a reasonable time.

In its rulemakings implementing OSRA, the Commission proposed regulations dealing with ocean common carriers' duty to disclose information to labor organizations. In response to comments, the Commission defined a "reasonable period of time" as two days if cargo is due to arrive in less than five days, but four days if it was due to arrive more than five days from receipt of the requests. The Commission declined to adopt special procedural rules in this area and will instead rely upon the affected parties to bring any problems to our attention. To date, we have not received any complaints, formal or informal, concerning a carrier's refusal to respond to a request. We can only assume that, if requests are being made for such information, the exchanges are occurring smoothly. If not, the Commission stands ready to address any problems.

In conclusion, I would like to touch on one area that may heat up in the very near future - antitrust immunity for ocean common carriers. As you know, when Congress enacted OSRA it consciously chose to continue to permit ocean common carriers to obtain antitrust immunity for certain concerted activities among themselves, subject to FMC filing and review. Congressman Henry Hyde, the Chairman of the House Judiciary Committee, has introduced a bill that would do away with antitrust immunity for ocean common carriers, thereby subjecting them to the full reach of the antitrust laws. The bill has the support of some NVOCCs upset with their inability to offer service contracts to their customers. It is likely that Chairman Hyde will hold a hearing on his bill sometime late in March. We expect that all segments of the ocean transportation industry will be invited to testify and we will stand ready to offer our views, if requested.