General Approval of Time Charters

AGENCY:

Maritime Administration, DOT.

ACTION:

Policy review with request for comments.

SUMMARY:

Section 9 of the Shipping Act of 1916 requires prior approval of the Secretary of Transportation of U.S. vessel charters to persons who are not U.S. citizens. In 1992, the Maritime Administration (MARAD, we, us, or our), which is charged with responsibility for administering section 9, issued regulations that granted general prior approval of time charters and other forms of temporary use agreements to persons who are not U.S. citizens.

Pursuant to this notice, we are requesting public comment on whether the policy of granting general approval of time charters should be changed.

DATES:

Interested parties are requested to submit comments on or before September 3, 2002.

ADDRESSES:

Comments should refer to docket number MARAD-2002-12842. Written comments may be submitted by mail to the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of Transportation, 400 7th St., SW., Washington, DC 20590-0001. You may also send comments electronically via the Internet at http://dmses.dot.gov/submit/. All comments will become part of this docket and will be available for inspection and copying at the above address between 10 a.m. and 5 p.m., E.T., Monday through Friday, except federal holidays.

FOR FURTHER INFORMATION CONTACT:

Edmund T. Sommer, Jr., Chief, Division of General and International Law, Office of the Chief Counsel, Maritime Administration, Department of Transportation, Room 7228, 400 7th Street SW., Washington, DC 20590, telephone (202) 366-5181.

Comments regarding this policy review should refer to the docket number that appears at the top of this document. Written comments may be submitted to the Docket Clerk, U.S. DOT Dockets, Room PL-401, 400 7th Street, SW., Washington, DC 20590. Comments may also be submitted by electronic means via the Internet at http://dmses.dot.gov/submit. All comments received will be available for examination at the above address between 10 a.m. and 5 p.m. E.T., Monday through Friday, except Federal holidays. An electronic version of this document is available on the World Wide Web at http://dms.dot.gov.

SUPPLEMENTARY INFORMATION:

Section 9 of the Shipping Act of 1916, 46 App U.S.C. 808, requires the approval of the Secretary of Transportation (MARAD) for, inter alia, the charter to noncitizens of documented vessels owned by citizens of the United States.

In 1989, as a result in substantial changes in the Ship Mortgage Act and amendments to section 9, MARAD began a rulemaking to amend our regulations at 46 CFR part 221—Regulated Transactions Involving Documented Vessels and other Maritime Interests.

In view of the significant changes in the statutory provisions to which the regulations in part 221 are addressed, the interim final rule published February 2, 1989, (54 FR 5382, amended at 54 FR 8195), adopted a conservative approach to interpretation and application of the new law, pending the opportunity to obtain comments from all interested parties. It therefore continued the preexisting requirement that time charters of vessels to noncitizens for 6 months or longer be submitted for review and approval.

After evaluation of the comments received on the first interim final rule, a number of amendments and clarifications of the rule appeared to be warranted. Mindful of Congress' admonition that MARAD should “temper the consideration of a transfer in interest or control to a [noncitizen] with a concern that the vessel may be needed in time of war or national emergency”, and in an attempt to balance this national security role with the desire of many that MARAD completely relinquish its regulatory role in these transactions, we proposed in an April 13, 1990, NPRM a regulation that would significantly relax regulation of the financing and transfer of documented vessels. One proposed change was that general approval for all charters (other than demise charters for operation in the coastwise trade) to noncitizens be granted for periods of up to five years, and that certain limited charters, such as space charters, slot charters, drilling contracts, and contracts of affreightment (except where a named vessel is dedicated to the contract), be granted general approval, regardless of their duration. Information copies of all charters granted general approval would have to be filed with MARAD.

In the April 13, 1990 NPRM (55 FR 14040), the views of interested parties were specifically invited with regard to further liberalization of the section which granted general approvals. One possibility on which we asked for comment was general approval for transactions involving transfers of an interest in or control of citizen-owned documented vessels to persons who are noncitizens for purposes of section 2, but who, nevertheless, are eligible to document a vessel pursuant to 46 U.S.C. 12102 (documentation citizens). Another possibility was general approval for transactions under section 9(c)(1) so as to place U.S. citizens on an exact par with documentation citizens, which need not apply for such approvals (section 9(c)(1) applies only to documented vessels owned by citizens of the United States, a section 2 test). In all events, we noted, bareboat/demise charters to non-section 2 citizens of vessels operating in coastwise trade would be excepted.

While there were many specific comments on certain issues, commenters generally agreed that MARAD should provide general approval for all transfers short of a change of registry. Their position was that MARAD should recognize the distinction between the two basic classes of section 9 transfer: (1) Those involving transfer of flag for operation (whether or not involving sale to new owners), and (2) other section 9 transactions in which the vessel remains under U.S. flag. In respect to national security, commenters suggested, the two classes present risks very different in kind and degree. In the one, there may be not only a foreign owner and a foreign crew, but a new sovereign whose national interests would have to be respected. As stated by one commenter, “[i]f the ship is certifiably of present or foreseeable importance for national defense, the case for refusing approval is evidently strong.” In the other class of transfers, even in the case of a sale, the owner will remain an American corporation subject to American law (including requisition authority in time of emergency), the vessel will and must remain documented under U.S. flag, and the officers and crew will still consist of American citizens. In this case, as was pointed out, national security interests are fully preserved regardless of the form or substance of the transaction. The commenter stated that “[t]his analysis suggests an order of supervision different for each of these classes (of transfer).”

Upon reexamination of the legislative history of Public Law 100-710 and analysis of the many comments received on this issue, we accepted the argument for different “order(s) of supervision” for the two distinct classes of transfer as not inconsistent with that legislative history or with MARAD's national security responsibilities under section 9. Accordingly, in a second interim final rule published July 3, 1991 (56 FR 30654), we provided general approval for all section 9 transactions other than transfer of registry except certain transfers to “Bowaters” corporations, sales for scrapping in a foreign country and bareboat charters of vessels operating in the coastwise trade. Consistent with MARAD's national security role, however, that general section 9 approval was not applicable during any period of national emergency nor would it apply to transactions involving certain named countries with whom trade is prohibited. The requirement that information copies of all charters be filed was eliminated, in favor of an “as requested” filing requirement.

With the endorsement of many and the objection of none (save those who favored further liberalization), the final rule, published June 3, 1992 (57 FR 23470), incorporated the above changes. Part 221 as now written grants general approval for the sale, mortgage, lease, charter, etc. (but not transfer of registry) of citizen-owned vessels to noncitizens, so long as the country is not at war, there is no Presidential declaration of national emergency invoking Section 37 of the Shipping Act and the noncitizen is not subject to the control of a country with whom trade is prohibited.

Reinstatement of a requirement for MARAD review and written approval of time charters to noncitizens of documented vessels would require a rulemaking proceeding to amend 46 CFR part 221.

Commenters are requested to specifically address the question of what, if any, economic impact a return to case by case review prior to approval of time charters would cause?