U.S. and Hong Kong (2002)

Federal Maritime Commission Seeks to Improve Port Security

Following is the text of Creel's remarks, as prepared for delivery:

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Remarks of Harold J. Creel
Chairman, Federal Maritime Commission

The 2nd International Gwangyang Port Forum
Gwangyang, Korea

April 25, 2002

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I would like to turn, for a moment, to another important statutory Authority of the Federal Maritime Commission. One of the Commission's Unique authorities is contained in Section 19 of the Merchant Marine Act of 1920. If the laws or regulations of a foreign country create Conditions unfavorable to shipping in the U.S. foreign trade for any Carrier in that trade -- not just U.S. carriers -- then the FMC may Take action against vessels of the offending country. I would like to Emphasize that there can be no preference shown for U.S. carriers over Non-U.S. carriers. So, for example, if Hanjin were to encounter Problems in shipping between China and the U.S. because of Restrictions placed on them by Chinese laws, then Hanjin may come to The Commission and seek help in addressing those restrictions that Create unfavorable shipping conditions. The object of the law is to Keep trade to and from the United States free and open.

The Commission's sanction authority is very broad and may include Limiting sailings or types of cargo carried, suspension of tariffs or Service contracts, the imposition of fees or any other measure Necessary. This is a very powerful authority in that it is solely Within the FMC's discretion whether such action should be taken -- Approval by the President is not necessary. However, the Commission May consult with other Government agencies. In carrying out these Duties, the FMC has instituted two proceedings here in Asia in recent Years with which I am sure you must be familiar.

In 1996, the Commission issued an order which required that reports be Filed by Japanese and U.S. carriers on restrictive port practices in Japan. We were concerned at that time particularly with a system under Which even the simplest carrier operation activities required Negotiation and pre-approval of the Japan Harbor Transportation Association. The Commission found that this system suppressed Competition and resulted in unreasonably high costs and Inefficiencies. In September of 1997, after attempts at diplomatic Resolution, the Commission took retaliatory action and imposed Sanctions on Japanese liner operators of $100,000 per voyage. When Japanese carriers refused to pay, the Commission announced its intent to bar or detain Japanese vessels at U.S. ports. Extensive bilateral negotiations followed, and Japan soon made a far-reaching commitment to reform Japanese port practices. The FMC continues to monitor port practices and regulations in Japan, and recently ordered carriers to report on the effects of changes to Japanese law and regulations which went into effect in November 2000.

In August of 1998, the Commission issued demands for information to vessel-operating carriers of the U.S. and China for information on Chinese policies and practices regarding port access, the licensing of multimodal transport operations, and the establishment of representative and branch offices there. Responses to the FMC inquiries indicated that Chinese laws and regulations discriminate against and disadvantage U.S. carriers and other non-Chinese shipping lines with regard to a variety of maritime-related services. For example, non-Chinese carriers are barred from opening wholly-owned companies or branch offices in the PRC in locations where carriers' vessels do not make monthly calls; thus, non-Chinese carriers must rely on Chinese agents (who are affiliates of the state-owned Chinese shipping lines) to solicit business, book space, accept goods, and perform other functions in many port cities and inland locales. Non-Chinese carriers also are subject to high minimum capital requirements, and are barred by Chinese law from performing a number of vessel agency services for themselves, such as arranging for entry, departure, customs clearance, consignment, transshipment and multimodal transport.

The Commission also expressed concerns at that time about: Chinese restrictions on non-Chinese carriers' freight forwarding operations; requirements that ocean carriers obtain governmental permission before beginning or changing international vessel services; and proposed rules that could require the disclosure of confidential service contract rates or terms, and further restrict non-Chinese carriers' ability to offer multimodal transport services in China.

To address these restrictions, the FMC directed its staff to prepare a formal proposal for action under section 19 of the Merchant Marine Act of 1920. As I discussed earlier, the Commission has the authority to take actions including: limitations on sailings; suspension of tariffs; suspension of regulated agreements; imposition of fees not to exceed $1,100,000 per voyage, or any other measure necessary and appropriate to address the unfavorable conditions.

The Commission continues to supplement the record in this proceeding as the Chinese market and Chinese laws continue to evolve. The Commission has recently learned that the PRC issued a new law effective January 1, 2002, and is expected very soon to promulgate implementing regulations for operators in international shipping generally. The new law and regulations may significantly affect the Commission's review of potentially restrictive practices. It appears that U.S. ocean transportation intermediaries, or OTIs, carriers and other providers of transportation services may face serious restrictions in obtaining the necessary licenses and permissions to do business in China. Indeed, it appears that wholly foreign-owned NVOCCs continue to be completely barred from engaging in a number of commercial activities, such as offering through transportation as an NVOCC. Other types of services may be permitted, but only if a foreign firm enters a joint venture with a Chinese entity.

A U.S. delegation met with the Chinese Authorities at the end of March and we now have indications that the new law may not be as troublesome as it seems upon its face. However, we will continue to monitor closely the Chinese implementation of this new law. We have sent requests for information to carriers and OTIs operating in the U.S./China trade asking them about the effect of the new regulation on their operations. And we are dedicated to ensuring that U.S. and other non-Chinese carriers are not subject to discrimination in China.

The slowdown in the U.S. economy and fluctuations in the global economy since the terrorist attacks of September 11th have had a significant impact on the shipping world, as well as the Federal Maritime Commission's fiscal year. As most of you already know, the weak conditions present in many trades before 9/11 were made worse by the events of that day. Reduced U.S. consumer spending on imports has had far-reaching consequences for carriers. Particularly, carriers in the transatlantic and transpacific trades are facing a situation in which there is excess vessel capacity combined with depressed and decreasing freight rates. Industry analysts predict further carrier consolidation resulting from another round of mergers, acquisitions and possible bankruptcies.

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The U.S. Commissioner of Customs has proposed a container security initiative which would pre-screen containers before shipment, identify high-risk containers, use technology to pre-screen high-risk containers, and require the use of "smart and secure" containers. He proposes concentrating first on the "mega-ports" of the world, including Hong Kong, Singapore, Rotterdam, Bremerhaven, Tokyo, Genoa, and yes, Pusan, to begin to build, in his words, "a new international security standard for sea containers." His concept is to push the border outward to ensure that cargo is secure from the point of origin, and to have complete information about incoming vessels long before they enter port.

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