SUBCHAPTER VI—VESSEL OPERATING ASSISTANCE PROGRAMS
Subchapter Referred to in Other Sections
This subchapter is referred to in sections 1131, 1152, 1191, 1204, 1211, 1222, 1226, 1227, 1228, 1244 of this Appendix.
Part A—Operating-Differential Subsidy Program
Part Referred to in Other Sections
This part is referred to in sections 808, 1187a, 1222, 1223 of this Appendix.
§1171. Subsidy authorized for operation of vessels in foreign trade or in off-season cruises
(a) Application for subsidy; conditions precedent to granting
The Secretary of Transportation is authorized and directed to consider the application of any citizen of the United States for financial aid in the operation of a vessel or vessels, which are to be used in an essential service in the foreign commerce of the United States or in such service and in cruises authorized under section 1183 of this Appendix. In this subchapter VI the term "essential service" means the operation of a vessel on a service, route, or line described in section 1121(a) of this Appendix or in bulk cargo carrying service described in section 1121(b) of this Appendix. No such application shall be approved by the Secretary of Transportation unless he determines that (1) the operation of such vessel or vessels in an essential service is required to meet foreign-flag competition and to promote the foreign commerce of the United States except to the extent such vessels are to be operated on cruises authorized under section 1183 of this Appendix, and that such vessel or vessels were built in the United States, or have been documented under the laws of the United States not later than February 1, 1928, or actually ordered and under construction for the account of citizens of the United States prior to such date; (2) the applicant owns, or leases or can and will build or purchase, or lease, a vessel or vessels of the size, type, speed, and number, and with the proper equipment required to enable him to operate in an essential service, in such manner as may be necessary to meet competitive conditions, and to promote foreign commerce; (3) the applicant possesses the ability, experience, financial resources, and other qualifications necessary to enable him to conduct the proposed operations of the vessel or vessels as to meet competitive conditions and promote foreign commerce; (4) the granting of the aid applied for is necessary to place the proposed operations of the vessel or vessels on a parity with those of foreign competitors, and is reasonably calculated to carry out effectively the purposes and policy of this chapter. To the extent the application covers cruises, as authorized under section 1183 of this Appendix, the Secretary of Transportation may make the portion of this last determination relating to parity on the basis that any foreign flag cruise from the United States competes with any American flag cruise from the United States.
(b) Statements as to financial interests to accompany application; penalty for false statements
Every application for an operating-differential subsidy under the provisions of this subchapter shall be accompanied by statements disclosing the names of all persons having any pecuniary interest, direct or indirect, in such application, or in the ownership or use of the vessel or vessels, routes, or lines covered thereby, and the nature and extent of any such interest, together with such financial and other statements as may be required by the Secretary of Transportation. All such statements shall be under oath or affirmation and in such form as the Secretary of Transportation shall prescribe. Any person who, in an application for financial aid under this subchapter or in any statement required to be filed therewith, willfully makes any untrue statement of a material fact, shall be guilty of a misdemeanor.
(June 29, 1936, ch. 858, title VI, §601,
Amendments
1981—Subsec. (a).
Subsec. (b).
1970—Subsec. (a).
1961—Subsec. (a).
Transfer of Functions
For transfer of functions of United States Maritime Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
Section Referred to in Other Sections
This section is referred to in sections 1152, 1185a of this Appendix.
§1172. Determination of necessity of subsidy to meet competition
Except with respect to cruises authorized under section 1183 of this Appendix, no contract for an operating-differential subsidy shall be made by the Secretary of Transportation for the operation of a vessel or vessels to meet foreign competition, except direct foreign-flag competition, until and unless the Secretary of Transportation, after a full and complete investigation and hearing, shall determine that an operating-differential subsidy is necessary to meet competition of foreign-flag ships.
(June 29, 1936, ch. 858, title VI, §602,
Amendments
1981—
1970—
1961—
1938—Act June 23, 1938, substituted "operating-differential subsidy" for "operating subsidy".
§1173. Contracts for payment of subsidy
(a) Authorization of contracts
If the Secretary of Transportation approves the application, he may enter into a contract with the applicant for the payment of an operating-differential subsidy determined in accordance with the provisions of subsection (b) of this section, for the operation of such vessel or vessels in an essential service and in cruises authorized under section 1183 of this Appendix for a period not exceeding twenty years, and subject to such reasonable terms and conditions, consistent with this chapter, as the Secretary of Transportation shall require to effectuate the purposes and policy of this chapter, including a performance bond with approved sureties, if such bond is required by the Secretary of Transportation.
(b) Amount of subsidy
Such contract shall provide, except as the parties should agree upon a lesser amount, that the amount of the operating-differential subsidy for the operation of vessels in an essential service shall equal the excess of the subsidizable wage costs of the United States officers and crews, the fair and reasonable cost of insurance, subsistence of officers and crews on passenger vessels, as defined in section 1183 of this Appendix, maintenance, and repairs not compensated by insurance, incurred in the operation under United States registry of the vessel or vessels covered by the contract, over the estimated fair and reasonable cost of the same items of expense (after deducting therefrom any estimated increase in such items necessitated by features incorporated pursuant to the provisions of section 1151(b) of this Appendix) if such vessel or vessels were operated under the registry of a foreign country whose vessels are substantial competitors of the vessel or vessels covered by the contract: Provided, however, That the Secretary of Transportation may, with respect to any vessel in an essential bulk cargo carrying service as described in section 1121(b) of this Appendix, pay, in lieu of the operating-differential subsidy provided by this subsection (b), such sums as he shall determine to be necessary to make the cost of operating such vessel competitive with the cost of operating similar vessels under the registry of a foreign country. For any period during which a vessel cruises as authorized by section 1183 of this Appendix, operating-differential subsidy shall be computed as though the vessel were operating on the essential service to which the vessel is assigned: Provided, however, That if the cruise vessel calls at a port or ports outside of its assigned service, but which is served with passenger vessels (as defined in section 1183 of this Appendix) by another subsidized operator at an operating-differential subsidy rate for wages lower than the cruise vessel has on its assigned essential service, the operating-differential subsidy rates for each of the subsidizable items for each day (a fraction of a day to count as a day) that the vessel stops at such port shall be at the respective rates applicable to the subsidized operator regularly serving the area.
(c) "Collective bargaining costs", "base period costs", "base period", and "subsidizable wage costs of United States officers and crews" defined; determination of collective bargaining costs and establishment of new base periods; wage change index
(1) When used in this section—
(A) The term "collective bargaining costs" means the annual cost, calculated on the basis of the per diem rate of expense as of any date, of all items of expense required of the applicant through collective bargaining or other agreement, covering the employ of United States officers and crew of a vessel, including payments required by law to assure old-age pensions, unemployment benefits, or similar benefits and taxes or other governmental assessments on crew payrolls, but excluding subsistence of officers and crews on vessels other than passenger vessels as defined in section 1183 of this Appendix and costs relating to:
(i) the officers or members of the crew that the Secretary of Transportation has found, prior to the award of a contract for the construction or reconstruction of a vessel, to be unnecessary for the efficient and economical operation of such vessel: Provided, That the Secretary of Transportation shall afford representatives of the collective-bargaining unit or units responsible for the manning of the vessel an opportunity to comment on such finding prior to the effective date of such finding: And provided further, That in determining whether officers or members of the crew are necessary for the efficient and economical operation of such vessel, the Secretary of Transportation shall give due consideration to, but shall not be bound by, wage and manning scales and working conditions required by a bona fide collective-bargaining agreement, or
(ii) those officers or members of the crew that the Secretary of Transportation has found, prior to ninety days following October 21, 1970, to be unnecessary for the efficient and economical operation of the vessel.
(B) The term "base period costs" means for the base period beginning July 1, 1970, and ending June 30, 1971, the collective-bargaining costs as of January 1, 1971, less all other items of cost that have been disallowed by the Secretary of Transportation prior to ninety days following October 21, 1970, and not already excluded from collective-bargaining costs under subparagraph (A)(i) or (A)(ii) of this subsection. In any subsequent base period the term "base period costs" means the average of the subsidizable wage cost of United States officers and crews for the preceding annual period ending June 30 (calculated without regard to the limitation of the last sentence of paragraph (D) of this subdivision but increased or decreased by the increase or decrease in the index described in subdivision (3) of this subsection from January 1 of such annual period to January 1 of the base period), and the collective-bargaining costs as of January 1 of the base period: Provided, That in no event shall the base period cost be such that the difference between the base period cost and the collective-bargaining costs as of January 1 of any base period subsequent to the first base period exceeds five-fourths of 1 per centum of the collective-bargaining costs as of such January 1 multiplied by the number of years that have elapsed since the most recent base period.
(C) The term "base period" means any annual period beginning July 1, and ending June 30 with respect to which a base period cost is established.
(D) The term "subsidizable wage costs of United States officers and crews" in any period other than a base period means the most recent base period costs increased or decreased by the increase or decrease from January 1 of such base period to January 1 of such period in the index described in subdivision (3) hereof, and with respect to a base period means the base period cost. The subsidizable wage costs of United States officers and crews in any period other than a base period shall not be less than 90 per centum of the collective-bargaining costs as of January 1 of such period nor greater than 110 per centum of such collective-bargaining costs.
(2) The Secretary of Transportation shall determine the collective-bargaining costs on ships in subsidized operation as of January 1, 1971, and as of each January 1 thereafter, and shall as of intervals of not less than two years nor more than four years, establish a new base period cost, except that the Secretary shall not establish a new base period unless he announces his intention to do so prior to the December 31 that would be included in the new base period.
(3) The Bureau of Labor Statistics shall compile the index referred to in subdivision (1). Such index shall consist of the average annual change in wages and benefits placed into effect for employees covered by collective-bargaining agreements with equal weight to be given to changes affecting employees in the transportation industry (excluding the offshore maritime industry) and to changes affecting employees in private nonagricultural industries other than transportation. Such index shall be based on the materials regularly used by the Bureau of Labor Statistics in compiling its regularly published statistical series on wage and benefit changes arrived at through collective bargaining. Such materials shall remain confidential and not be subject to disclosure.
(d) Foreign wage computation; foreign manning
Each foreign wage cost computation shall be made after an opportunity is given to the contractor to submit in writing and in timely fashion all relevant data within his possession. In making the computation, the Secretary shall consider all relevant matter so presented and all foreign wage cost data collected at his request or on his behalf. Such foreign cost data shall be made available to an interested contractor, unless the Secretary shall find that disclosure of the data will prevent him from obtaining such data in the future. In determining foreign manning for purposes of this section, the foreign manning determined for any ship type with respect to any base period shall not be redetermined until the beginning of a new base period.
(e) Monthly payment of wage subsidy; procedures for calculation and payment of subsidy on certain expenses
The wage subsidy shall be payable monthly for the voyages completed during the month, upon the contractor's certification that the subsidized vessels were in authorized service during the month. The Secretary of Transportation shall prescribe procedures for the calculation and payment of subsidy on items of expense which are included in "collective-bargaining costs" but are not included in the daily rate because they are unpredictably timed.
(f) Monthly percentage payment of other than wage subsidy; security for refund of overpayments; payment of remainder after audit of voyage accounts
Ninety percent of the amount of the insurance and maintenance and repair and subsistence of officers and crews subsidy shall be payable monthly for the voyages completed during the month on the basis of the subsidy estimated to have accrued with respect to such voyages. Any such payment shall be made only after there has been furnished to the Secretary of Transportation such security as he deems to be reasonable and necessary to assure refund of any overpayment. The contractor and the Secretary of Transportation shall audit the voyage accounts as soon as practicable after such payment. The remaining 10 percent of such subsidy shall be payable after such audit.
(June 29, 1936, ch. 858, title VI, §603,
Amendments
1981—
1970—Subsec. (a).
Subsec. (b).
Subsecs. (c) to (e).
Subsec. (f).
1961—Subsec. (a).
Subsec. (b).
Subsec. (c).
1939—Subsec. (c). Act Aug. 4, 1939, permitted payment to the contractor of an additional 15 per centum.
Operating-Differential Subsidy Contracts; Amendment and Recapture Provisions
Section 40 of
"(a) The amendments made by this Act [see Short Title of 1970 Amendment note set out under section 1245 of this Appendix] shall not affect any contract with the Secretary of Commerce or his delegates that is in effect on the date of enactment of this Act [Oct. 21, 1970]. At the request of the other party to such operating-differential subsidy contract, the Secretary of Commerce shall amend such contract so as to be in accordance with all of the amendments made by this Act. No amendment made by this Act shall be incorporated in such contract unless all such amendments are incorporated in such contract, except that if the other party elects to continue under the "old fund" as provided in section 607 as amended by section 21 of this Act [section 1177 of this Appendix], such amendment need not be incorporated in such contract. Until such contract is amended or if such contract is not amended, it shall be administered in accordance with the provisions of the Merchant Marine Act, 1936 [this chapter] as they existed immediately prior to enactment of this Act. Nothing in section 16 of this Act amending section 603 of the Merchant Marine Act, 1936 [subsec. (b) of this section] or in the contracts made thereunder, shall be deemed to affect or to change existing law or contracts with respect to the proceedings now pending before the Secretary of Commerce relating to the payment of subsidy in respect of cargoes covered by section 901(b)(1) of the Merchant Marine Act, 1936 [section 1241(b)(1) of this Appendix],
"(b) If any operating-differential subsidy contract in existence on the date of enactment of this Act [Oct. 21, 1970] is amended by including all of the amendments made by this Act or all of the amendments made by this Act other than those made by section 21 [amending section 1177 of this Appendix], the operator may elect to terminate his recapture period as of the date of such contract amendment and have his recapture computed on the basis of the shortened period, or he may elect to continue his recapture period until the end of its ten-year term and continue his recapture obligations as provided by the Merchant Marine Act, 1936, prior to the enactment of this Act [see Short Title of 1970 Amendment note set out under section 1245 of this Appendix] until the end of such ten-year period. The amendments in either event shall provide that, with respect to seafaring personnel, in determining the rights and obligations of the contractor under such contract, the limitation of section 805(c) of the Merchant Marine Act, 1936 [section 1223(c) of this Appendix], as it existed immediately before the enactment of this Act [Oct. 21, 1970] shall not apply."
Section Referred to in Other Sections
This section is referred to in sections 1183, 1185a of this Appendix.
§1174. Additional subsidy; when authorized
If in the case of any particular foreign-trade route the Secretary of Transportation shall find after consultation with the Secretary of State, that the subsidy provided for in this subchapter is in any respect inadequate to offset the effect of governmental aid paid to foreign competitors, he may grant such additional subsidy as he determines to be necessary for that purpose.
(June 29, 1936, ch. 858, title VI, §604,
Amendments
1981—
1939—Act Aug. 4, 1939, reduced requirement in proviso from unanimous vote to vote of four commissioners.
1938—Act June 23, 1938, authorized additional subsidies only where the Commission (which had reference to United States Maritime Commission) by unanimous vote finds after consultation with the Secretary of State that the subsidy is inadequate.
Transfer of Functions
For transfer of functions of United States Maritime Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
§1175. Vessels excluded from subsidy
(a) Vessels engaged in coastwise or intercoastal trade; vessels on inland waterways
No operating-differential subsidy shall be paid for the operation of any vessel on a voyage on which it engages in coastwise or intercoastal trade: Provided, however, That such subsidy may be paid on a round-the-world voyage or a round voyage from the west coast of the United States to a European port or ports or a round voyage from the Atlantic coast to the Orient which includes intercoastal ports of the United States or a voyage in foreign trade on which the vessel may stop at the State of Hawaii, or an island possession or island territory of the United States, and if the subsidized vessel earns any gross revenue on the carriage of mail, passengers, or cargo by reason of such coastal or intercoastal trade the subsidy payment for the entire voyage shall be reduced by an amount which bears the same ratio to the subsidy otherwise payable as such gross revenue bears to the gross revenue derived from the entire voyage. No vessel operating on the inland waterways of the United States shall be considered for the purposes of this chapter to be operating in foreign trade.
(b) Vessels more than 25 years old
No operating-differential subsidy shall be paid for the operation of a vessel after the calendar year the vessel becomes 25 years of age, unless the Secretary of Transportation has determined, before October 8, 1996, that it is in the public interest to grant such financial aid for the operation of such vessel.
(c) Vessels to be operated in an essential service served by citizens of United States
No contract shall be made under this subchapter with respect to a vessel to be operated in an essential service served by citizens of the United States which would be in addition to the existing service, or services, unless the Secretary of Transportation shall determine after proper hearing of all parties that the service already provided by vessels of United States registry is inadequate, and that in the accomplishment of the purposes and policy of this chapter additional vessels should be operated thereon; and no contract shall be made with respect to a vessel operated or to be operated in an essential service served by two or more citizens of the United States with vessels of United States registry, if the Secretary of Transportation shall determine the effect of such a contract would be to give undue advantage or be unduly prejudicial, as between citizens of the United States, in the operation of vessels in such essential service unless following public hearing, due notice of which shall be given to each operator serving such essential service, the Secretary of Transportation shall find that it is necessary to enter into such contract in order to provide adequate service by vessels of United States registry. The Secretary of Transportation in determining for the purposes of this section whether services are competitive, shall take into consideration the type, size, and speed of the vessels employed, whether passenger or cargo, or combination passenger and cargo, vessels, the ports or ranges between which they run, the character of cargo carried, and such other facts as he may deem proper.
(June 29, 1936, ch. 858, title VI, §605,
Amendments
1996—Subsec. (b).
1981—Subsecs. (b), (c).
1970—Subsec. (a).
Subsec. (b).
Subsec. (c).
1965—Subsec. (b).
1960—Subsec. (b).
1959—Subsec. (a).
1952—Subsec. (b). Act July 17, 1952, permitted the recomputation of the life-expectancy of a reconstructed or reconditioned vessel in use under an operating differential-subsidy contract, and provided for recomputation of depreciation changes.
Effective Date of 1960 Amendment
Amendment by
Revision of Contract, Commitments To Insure Mortgages, Mortgages, and Mortgage Insurance Contracts Entered Into Prior to June 12, 1960
For provisions authorizing revision, see section 8(c) of
Commercial Expectancy or Period of Depreciation of Tankers and Other Liquid Bulk Carriers
Nothing in any amendment made by
Section Referred to in Other Sections
This section is referred to in sections 1183, 1185a, 1213 of this Appendix.
§1176. Readjustments; change in service; withdrawal from service; payment of excess profits; wages, etc.; American materials
Every contract for an operating-differential subsidy under this subchapter shall provide (1) that the amount of the future payments to the contractor shall be subject to review and readjustment from time to time, but not more frequently than once a year, at the instance of the Secretary of Transportation or of the contractor. If any such readjustment cannot be reached by mutual agreement, the Secretary of Transportation, on his own motion or on the application of the contractor, shall, after a proper hearing, determine the facts and make such readjustment in the amount of such future payments as he may determine to be fair and reasonable and in the public interest. The testimony in every such proceeding shall be reduced to writing and filed in the office of the Secretary of Transportation. His decision shall be based upon and governed by the changes which may have occurred since the date of the said contract, with respect to the items theretofore considered and on which such contract was based, and other conditions affecting shipping, and shall be promulgated in a formal order, which shall be accompanied by a report in writing in which the Secretary of Transportation shall state his findings of fact; (2) that the compensation to be paid under it shall be reduced, under such terms and in such amounts as the Secretary of Transportation shall determine, for any periods in which the vessel or vessels are laid up; (3) that if the Secretary of Transportation shall determine that a change in an essential service, which is receiving an operating-differential subsidy under this subchapter, is necessary in the accomplishment of the purposes of this chapter, it may make such change upon such readjustment of payments to the contractor as shall be arrived at by the method prescribed in clause (1) of these conditions; (4) that if at any time the contractor receiving an operating-differential subsidy claims that he cannot maintain and operate his vessels in such an essential service, with a reasonable profit upon his investment, and applies to the Secretary of Transportation for a modification or rescission of his contract to maintain such essential service, and the Secretary of Transportation determines that such claim is proved the Secretary of Transportation shall modify or rescind such contract and permit the contractor to withdraw such vessels from such essential service upon a date fixed by the Secretary of Transportation, and upon the date of such withdrawal the further payment of the operating differential subsidy shall cease and the contractor be discharged from any further obligation under such contract; (5) that the contractor shall conduct his operations with respect to essential services and any services authorized under section 1183 of this Appendix, covered by his contract in an economical and efficient manner, and (6) that whenever practicable, an operator who receives subsidy with respect to subsistence of officers and crews shall use as such subsistence items only articles, materials, and supplies of the growth, production, and manufacture of the United States, as defined in section 1155 of this Appendix, except when it is necessary to purchase supplies outside the United States to enable such vessel to continue and complete her voyage, and an operator who receives subsidy with respect to repairs shall perform such repairs within any of the United States or the Commonwealth of Puerto Rico, except in an emergency.
(June 29, 1936, ch. 858, title VI, §606,
Amendments
1981—
1970—
Cl. (1).
Cl. (3).
Cl. (4).
Cl. (5).
Cls. (6), (7).
1961—Cl. (6).
1960—
1956—Cl. (5). Act May 10, 1956, provided that termination of subsidy contract shall not end the 10-year recapture period if subsidized operations continue under a new, or consecutive, contract.
1952—Cl. (5). Act July 17, 1952, substituted "life expectancy of the subsidized vessel determined as provided in section 1177(b) of this Appendix" for "twenty-year life expectancy of the subsidized vessels".
1938—Cl. (5). Act June 23, 1938, substituted "ten-year period" for "five-year period" in three places, and inserted provisions to permit computation of net profits without regard to capital gains and losses.
Amendment of Contract
Section 2 of act May 10, 1956, provided that: "Each operating-differential subsidy contract in force on the date of enactment of this act [May 10, 1956] shall, if the subsidized contractor consents, be amended to conform to the provisions of section 606 of the Merchant Marine Act, 1936 [this section], as amended by section 1 of this act."
Section Referred to in Other Sections
This section is referred to in section 1177 of this Appendix; title 26 section 7518.
§1177. Capital construction fund
(a) Agreement rules; persons eligible; replacement, additional, or reconstructed vessels for prescribed trade and fishery operations; amount of deposits, annual limitation; conditions and requirements for deposits and withdrawals
Any citizen of the United States owning or leasing one or more eligible vessels (as defined in subsection (k)(1) of this section) may enter into an agreement with the Secretary under, and as provided in, this section to establish a capital construction fund (hereinafter in this section referred to as the "fund") with respect to any or all of such vessels. Any agreement entered into under this section shall be for the purpose of providing replacement vessels, additional vessels, or reconstructed vessels, built in the United States and documented under the laws of the United States for operation in the United States foreign, Great Lakes, or noncontiguous domestic trade or in the fisheries of the United States and shall provide for the deposit in the fund of the amounts agreed upon as necessary or appropriate to provide for qualified withdrawals under subsection (f) of this section. The deposits in the fund, and all withdrawals from the fund, whether qualified or nonqualified, shall be subject to such conditions and requirements as the Secretary may by regulations prescribe or are set forth in such agreement; except that the Secretary may not require any person to deposit in the fund for any taxable year more than 50 percent of that portion of such person's taxable income for such year (computed in the manner provided in subsection (b)(1)(A) of this section) which is attributable to the operation of the agreement vessels.
(b) Ceiling on deposits; lessees; "agreement vessel" defined
(1) The amount deposited under subsection (a) of this section in the fund for any taxable year shall not exceed the sum of:
(A) that portion of the taxable income of the owner or lessee for such year (computed as provided in
(B) the amount allowable as a deduction under section 167 of the Internal Revenue Code of 1986 [
(C) if the transaction is not taken into account for purposes of subparagraph (A), the net proceeds (as defined in joint regulations) from (i) the sale or other disposition of any agreement vessel, or (ii) insurance or indemnity attributable to any agreement vessel, and
(D) the receipts from the investment or reinvestment of amounts held in such fund.
(2) In the case of a lessee, the maximum amount which may be deposited with respect to an agreement vessel by reason of paragraph (1)(B) for any period shall be reduced by any amount which, under an agreement entered into under this section, the owner is required or permitted to deposit for such period with respect to such vessel by reason of paragraph (1)(B).
(3) For purposes of paragraph (1), the term "agreement vessel" includes barges and containers which are part of the complement of such vessel and which are provided for in the agreement.
(c) Investment requirements; depositories; fiduciary requirements; interest-bearing securities; stock: percentage for domestic issues, listing and registration, prudent acquisitions, value and percentage equilibrium, and treatment of preferred issues
Amounts in any fund established under this section shall be kept in the depository or depositories specified in the agreement and shall be subject to such trustee and other fiduciary requirements as may be specified by the Secretary. They may be invested only in interest-bearing securities approved by the Secretary; except that, if the Secretary consents thereto, an agreed percentage (not in excess of 60 percent) of the assets of the fund may be invested in the stock of domestic corporations. Such stock must be currently fully listed and registered on an exchange registered with the Securities and Exchange Commission as a national securities exchange, and must be stock which would be acquired by prudent men of discretion and intelligence in such matters who are seeking a reasonable income and the preservation of their capital. If at any time the fair market value of the stock in the fund is more than the agreed percentage of the assets in the fund, any subsequent investment of amounts deposited in the fund, and any subsequent withdrawal from the fund, shall be made in such a way as to tend to restore the fund to a situation in which the fair market value of the stock does not exceed such agreed percentage. For purposes of this subsection, if the common stock of a corporation meets the requirements of this subsection and if the preferred stock of such corporation would meet such requirements but for the fact that it cannot be listed and registered as required because it is nonvoting stock, such preferred stock shall be treated as meeting the requirements of this subsection.
(d) Nontaxability of deposits; eligible deposits
(1) For purposes of the Internal Revenue Code of 1986—
(A) taxable income (determined without regard to this section and section 7518 of such Code [
(B) gain from a transaction referred to in subsection (b)(1)(C) of this section, shall not be taken into account if an amount equal to the net proceeds (as defined in joint regulations) from such transaction is deposited in the fund,
(C) the earnings (including gains and losses) from the investment and reinvestment of amounts held in the fund shall not be taken into account,
(D) the earnings and profits of any corporation (within the meaning of section 316 of such Code [
(E) in applying the tax imposed by section 531 of such Code [
(2) Paragraph (1) shall apply with respect to any amount only if such amount is deposited in the fund pursuant to the agreement and not later than the time provided in joint regulations.
(e) Accounts within fund: capital account, capital gain account, and ordinary income account; limitation on capital losses
For purposes of this section—
(1) Within the fund established pursuant to this section three accounts shall be maintained:
(A) the capital account,
(B) the capital gain account, and
(C) the ordinary income account.
(2) The capital account shall consist of—
(A) amounts referred to in subsection (b)(1)(B) of this section,
(B) amounts referred to in subsection (b)(1)(C) of this section other than that portion thereof which represents gain not taken into account by reason of subsection (d)(1)(B) of this section,
(C) the percentage applicable under section 243(a)(1) of the Internal Revenue Code of 1986 [
(D) interest income exempt from taxation under section 103 of such Code [
(3) The capital gain account shall consist of—
(A) amounts representing capital gains on assets held for more than 6 months and referred to in subsection (b)(1)(C) or (b)(1)(D) of this section reduced by
(B) amounts representing capital losses on assets held in the fund for more than 6 months.
(4) The ordinary income account shall consist of—
(A) amounts referred to in subsection (b)(1)(A) of this section,
(B)(i) amounts representing capital gains on assets held for 6 months or less and referred to in subsection (b)(1)(C) or (b)(1)(D) of this section, reduced by—
(ii) amounts representing capital losses on assets held in the fund for 6 months or less,
(C) interest (not including any tax-exempt interest referred to in paragraph (2)(D)) and other ordinary income (not including any dividend referred to in subparagraph (E)) received on assets held in the fund,
(D) ordinary income from a transaction described in subsection (b)(1)(C) of this section, and
(E) the portion of any dividend referred to in paragraph (2)(C) not taken into account under such paragraph.
(5) Except on termination of a fund, capital losses referred to in paragraph (3)(B) or in paragraph (4)(B)(ii) shall be allowed only as an offset to gains referred to in paragraph (3)(A) or (4)(B)(i), respectively.
(f) Purposes of qualified withdrawals; nonqualified withdrawal treatment for nonfulfillment of substantial obligations
(1) A qualified withdrawal from the fund is one made in accordance with the terms of the agreement but only if it is for:
(A) the acquisition, construction, or reconstruction of a qualified vessel,
(B) the acquisition, construction, or reconstruction of barges and containers which are part of the complement of a qualified vessel, or
(C) the payment of the principal on indebtedness incurred in connection with the acquisition, construction or reconstruction of a qualified vessel or a barge or container which is part of the complement of a qualified vessel.
Except to the extent provided in regulations prescribed by the Secretary, subparagraph (B), and so much of subparagraph (C) as relates only to barges and containers, shall apply only with respect to barges and containers constructed in the United States.
(2) Under joint regulations, if the Secretary determines that any substantial obligation under any agreement is not being fulfilled, he may, after notice and opportunity for hearing to the person maintaining the fund, treat the entire fund or any portion thereof as an amount withdrawn from the fund in a nonqualified withdrawal.
(g) Tax treatment of qualified withdrawals; basis: reduction
(1) Any qualified withdrawal from a fund shall be treated—
(A) first as made out of the capital account,
(B) second as made out of the capital gain account, and
(C) third as made out of the ordinary income account.
(2) If any portion of a qualified withdrawal for a vessel, barge, or container is made out of the ordinary income account, the basis of such vessel, barge, or container shall be reduced by an amount equal to such portion.
(3) If any portion of a qualified withdrawal for a vessel, barge, or container is made out of the capital gain account, the basis of such vessel, barge, or container shall be reduced by an amount equal to such portion.
(4) If any portion of a qualified withdrawal to pay the principal on any indebtedness is made out of the ordinary income account or the capital gain account, then an amount equal to the aggregate reduction which would be required by paragraphs (2) and (3) if this were a qualified withdrawal for a purpose described in such paragraphs shall be applied,in the order provided in joint regulations, to reduce the basis of vessels, barges, and containers owned by the person maintaining the fund. Any amount of a withdrawal remaining after the application of the preceding sentence shall be treated as a nonqualified withdrawal.
(5) If any property the basis of which was reduced under paragraph (2), (3), or (4) is disposed of, any gain realized on such disposition, to the extent it does not exceed the aggregate reduction in the basis of such property under such paragraphs, shall be treated as an amount referred to in subsection (h)(3)(A) of this section which was withdrawn on the date of such disposition. Subject to such conditions and requirements as may be provided in joint regulations, the preceding sentence shall not apply to a disposition where there is a redeposit in an amount determined under joint regulations which will, insofar as practicable, restore the fund to the position it was in before the withdrawal.
(h) Tax treatment of nonqualified withdrawals; FIFO and LIFO bases; interest rate; amounts not withdrawn after 25 years; highest marginal rate of tax
(1) Except as provided in subsection (i) of this section, any withdrawal from a fund which is not a qualified withdrawal shall be treated as a nonqualified withdrawal.
(2) Any nonqualified withdrawal from a fund shall be treated—
(A) first as made out of the ordinary income account,
(B) second as made out of the capital gain account, and
(C) third as made out of the capital account.
For purposes of this section, items withdrawn from any account shall be treated as withdrawn on a first-in-first-out basis; except that (i) any nonqualified withdrawal for research, development, and design expenses incident to new and advanced ship design, machinery and equipment, and (ii) any amount treated as a nonqualified withdrawal under the second sentence of subsection (g)(4) of this section, shall be treated as withdrawn on a last-in-first-out basis.
(3) For purposes of the Internal Revenue Code of 1986—
(A) any amount referred to in paragraph (2)(A) shall be included in income as an item of ordinary income for the taxable year in which the withdrawal is made,
(B) any amount referred to in paragraph (2)(B) shall be included in income for the taxable year in which the withdrawal is made as an item of gain realized during such year from the disposition of an asset held for more than 6 months, and
(C) for the period on or before the last date prescribed for payment of tax for the taxable year in which this withdrawal is made—
(i) no interest shall be payable under section 6601 of such Code [
(ii) interest on the amount of the additional tax attributable to any item referred to in subparagraph (A) or (B) shall be paid at the applicable rate (as defined in paragraph (4)) from the last date prescribed for payment of the tax for the taxable year for which such item was deposited in the fund, and
(iii) no interest shall be payable on amounts referred to in clauses (i) and (ii) of paragraph (2) or in the case of any nonqualified withdrawal arising from the application of the recapture provision of section 1176(5) of this Appendix as in effect on December 31, 1969.
(4) For purposes of paragraph (3)(C)(ii), the applicable rate of interest for any nonqualified withdrawal—
(A) made in a taxable year beginning in 1970 or 1971 is 8 percent, or
(B) made in a taxable year beginning after 1971, shall be determined and published jointly by the Secretary of the Treasury and the Secretary and shall bear a relationship to 8 percent which the Secretaries determine under joint regulations to be comparable to the relationship which the money rates and investment yields for the calendar year immediately preceding the beginning of the taxable year bear to the money rates and investment yields for the calendar year 1970.
(5)
(A)
(B)
(C)
(D)
(E)
(6)
(A)
(i) by excluding such withdrawal from gross income, and
(ii) by increasing the tax imposed by
With respect to the portion of any nonqualified withdrawal made out of the capital gain account during a taxable year to which section 1(h) or 1201(a) of such Code [
(B)
(i) such portion shall not be taken into account under subparagraph (A), and
(ii) an amount equal to such portion shall be treated as allowed as a deduction under section 172 of such Code [
(C)
(i) Corporate reorganizations and partnership changes
Under joint regulations—
(1) a transfer of a fund from one person to another person in a transaction to which section 381 of the Internal Revenue Code of 1986 [
(2) a similar rule shall be applied in the case of a continuation of a partnership (within the meaning of subchapter K 1 of such Code [
(j) Treatment of existing funds; relation of old to new fund
(1) Any person who was maintaining a fund or funds (hereinafter in this subsection referred to as "old fund") under this section (as in effect before the enactment of this subsection) may elect to continue such old fund but—
(A) may not hold moneys in the old fund beyond the expiration date provided in the agreement under which such old fund is maintained (determined without regard to any extension or renewal entered into after April 14, 1970),
(B) may not simultaneously maintain such old fund and a new fund established under this section, and
(C) if he enters into an agreement under this section to establish a new fund, may agree to the extension of such agreement to some or all of the amounts in the old fund.
(2) In the case of any extension of an agreement pursuant to paragraph (1)(C), each item in the old fund to be transferred shall be transferred in a nontaxable transaction to the appropriate account in the new fund established under this section. For purposes of subsection (h)(3)(C) of this section, the date of the deposit of any item so transferred shall be July 1, 1971, or the date of the deposit in the old fund, whichever is the later.
(k) Definitions
For purposes of this section—
(1) The term "eligible vessel" means any vessel—
(A) constructed in the United States and, if reconstructed, reconstructed in the United States,
(B) documented under the laws of the United States, and
(C) operated in the foreign or domestic commerce of the United States or in the fisheries of the United States.
Any vessel which (i) was constructed outside of the United States but documented under the laws of the United States on April 15, 1970, or (ii) constructed outside the United States for use in the United States foreign trade pursuant to a contract entered into before April 15, 1970, shall be treated as satisfying the requirements of subparagraph (A) of this paragraph and the requirements of subparagraph (A) of paragraph (2).
(2) The term "qualified vessel" means any vessel—
(A) constructed in the United States and, if reconstructed, reconstructed in the United States,
(B) documented under the laws of the United States, and
(C) which the person maintaining the fund agrees with the Secretary will be operated in the United States foreign, Great Lakes, or noncontiguous domestic trade or in the fisheries of the United States.
(3) The term "agreement vessel" means any eligible vessel or qualified vessel which is subject to an agreement entered into under this section.
(4) The term "United States", when used in a geographical sense, means the continental United States including Alaska, Hawaii, and Puerto Rico.
(5) The term "United States foreign trade" includes (but is not limited to) those areas in domestic trade in which a vessel built with construction-differential subsidy is permitted to operate under the first sentence of section 1156 of this Appendix.
(6) The term "joint regulations" means regulations prescribed under subsection (l) of this section.
(7) The term "vessel" includes cargo handling equipment which the Secretary determines is intended for use primarily on the vessel. The term "vessel" also includes an ocean-going towing vessel or an ocean-going barge or comparable towing vessel or barge operated on the Great Lakes.
(8) The term "noncontiguous trade" means (i) trade between the contiguous forty-eight States on the one hand and Alaska, Hawaii, Puerto Rico and the insular territories and possessions of the United States on the other hand, and (ii) trade from any point in Alaska, Hawaii, Puerto Rico, and such territories and possessions to any other point in Alaska, Hawaii, Puerto Rico, and such territories and possessions.
(9) The term "Secretary" means the Secretary of Commerce with respect to eligible or qualified vessels operated or to be operated in the fisheries of the United States, and the Secretary of Transportation with respect to all other vessels.
(l) Records; reports; rules and regulations; termination of agreement upon changes in regulations with substantial effect on rights or obligations
Each person maintaining a fund under this section shall keep such records and shall make such reports as the Secretary or the Secretary of the Treasury shall require. The Secretary of the Treasury and the Secretary shall jointly prescribe all rules and regulations, not inconsistent with the foregoing provisions of this section, as may be necessary or appropriate to the determination of tax liability under this section. If, after an agreement has been entered into under this section, a change is made either in the joint regulations or in the regulations prescribed by the Secretary under this section which could have a substantial effect on the rights or obligations of any person maintaining a fund under this section, such person may terminate such agreement.
(m) Departmental reports and certification
(1) In general
For each calendar year, the Secretaries shall each provide the Secretary of the Treasury, within 120 days after the close of such calendar year, a written report with respect to those capital construction funds that are under their jurisdiction.
(2) Contents of reports
Each report shall set forth the name and taxpayer identification number of each person—
(A) establishing a capital construction fund during such calendar year;
(B) maintaining a capital construction fund as of the last day of such calendar year;
(C) terminating a capital construction fund during such calendar year;
(D) making any withdrawal from or deposit into (and the amounts thereof) a capital construction fund during such calendar year; or
(E) with respect to which a determination has been made during such calendar year that such person has failed to fulfill a substantial obligation under any capital construction fund agreement to which such person is a party.
(June 29, 1936, ch. 858, title VI, §607,
References in Text
The Internal Revenue Code of 1986, referred to in subsecs. (d)(1) and (h)(3), is classified generally to Title 26, Internal Revenue Code.
Section 103, referred to in subsec. (e)(2)(D), which related to interest on certain governmental obligations was amended generally by
Amendments
1997—Subsec. (h)(6)(A).
1990—Subsec. (h)(6)(A).
1988—Subsec. (h)(6)(A).
1986—Subsec. (b)(1)(A), (B).
Subsec. (d)(1).
Subsec. (d)(1)(A), (D).
Subsec. (e)(2)(C).
Subsec. (e)(4)(E).
Subsec. (g)(3).
"(A) Five-eighths of such portion, in the case of a corporation (other than an electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954, or
"(B) One-half of such portion, in the case of any other person."
Subsec. (h)(3).
Subsec. (h)(5), (6).
Subsec. (i)(1).
Subsec. (m).
1981—Subsecs. (a), (c), (f), (h)(4).
Subsec. (k).
Subsec. (l).
1973—Subsec. (k)(8).
1970—
Subsec. (a), a capital construction fund, agreement rules, persons eligible, replacement, additional, or reconstructed vessels for prescribed trade and fishery operations, amount of deposits, annual limitation, and conditions and requirements for deposits and withdrawals, subsec. (a) formerly permitting a 10 percent distribution of net profits;
Subsec. (b), ceiling on deposits, deposits of lessees, and definition of "agreement vessel", subsec. (b) formerly providing for a capital reserve fund, deposits, and allowable disbursements;
Subsec. (c), investment requirements, depositories, fiduciary requirements, investment in interest-bearing certificates (formerly provided in former subsec. (d)(2) of this section), stock investments, including common stock treatment of preferred issues, percentage for domestic issues, listing and registration, prudent man acquisitions (provisions formerly covered in former subsec. (d)(3)(A) of this section), and value and percentage equilibrium, subsec. (c) formerly providing for creation of a special reserve fund, deposits, and allowable disbursements;
Subsec. (d), nontaxability of deposits and eligible deposits, subsec. (d) formerly providing rules and regulations for administration of reserve funds and investment of funds, now covered in subsec. (c) of this section;
Subsec. (e), capital account, capital gain account, and ordinary income account within the capital construction fund and limitation on losses, subsec. (e) formerly providing for withdrawals from capital reserve fund to meet needs due to operating losses;
Subsec. (f), purposes of qualified withdrawals and nonqualified withdrawal treatment for nonfulfillment of substantial obligations, subsec. (f) formerly providing for title to reserve funds on termination of contract;
Subsec. (g), tax treatment of qualified withdrawals and reduction of basis, subsec. (g) formerly providing for increase and transfer of reserve funds and interest on overpayment of taxes;
Subsec. (h), tax treatment of nonqualified withdrawals, FIFO and LIFO bases, and interest rate, subsec. (h) formerly providing for exemption of reserve funds from taxation, in effect a tax deferral;
Subsec. (i), corporate reorganizations and partnership changes;
Subsec. (j), treatment of existing funds and relation of old to new funds;
Subsec. (k), definitions; and
Subsec. (l), records, reports, rules, and regulations, and termination of agreement upon changes in regulations with substantial effect on rights or obligations.
1961—Subsec. (b).
1960—Subsec. (b).
1958—Subsec. (d).
1952—Subsec. (b). Act July 17, 1952, §17, permitted recomputation of life-expectancy of a reconstructed or reconditioned vessel in use under an operating-differential subsidy contract, and provided for recomputation of depreciation changes.
Subsec. (d). Act July 17, 1952, §18, substituted "as provided for in section 1177(b) of this Appendix" after "life of the vessel" for "being twenty years".
Subsec. (g). Act July 17, 1952, §19, barred payment of interest by Government on overpayment of taxes resulting from voluntary deposits of earnings.
1939—Subsec. (c)(3). Act Aug. 4, 1939, permitted payment from the capital reserve fund, and authorized payment from other assets of the contractor if assets have not been repaid to the reserve funds, or if prepayments of amounts not due before one year after the date of termination of the contract have been made from the capital reserve funds.
1938—Subsec. (b). Act June 23, 1938, §§23, 24, substituted "insurance and indemnities" for "insurance indemnities" in first par., and inserted provisions requiring deposit of proceeds of any sale or other disposition of a vessel in the capital reserve funds, and to permit the contractor to pay from the fund any sums owing but not yet due on notes secured by mortgages on subsidized vessels.
Subsec. (c). Act June 23, 1938, §25, substituted "If the profits, without regard to capital gains and capital losses, earned by the business of the subsidized vessels and services incident thereto exceed 10 per centum per annum and exceed the percentage of profits deposited in the capital reserve fund, as provided in subsection (b) of this section, the contractor shall deposit annually such excess profits in this reserve fund" for "In this reserve fund, the contractor shall deposit annually the profits earned by the business of the subsidized vessels and services incident thereto in excess of 10 per centum per annum and in excess of the percentage of profits deposited in the capital reserve fund, as provided in subsection (b) of this section", in second par.
Subsec. (c)(2). Act June 23, 1938, §26, substituted "will be made up" for "will not be made up".
Subsecs. (f), (g). Act June 23, 1938, §27, added subsecs. (f) and (g). Former subsec. (f) redesignated (h).
Subsec. (h). Act June 23, 1938, §28, redesignated former subsec. (f) as subsec. (h) and made earnings withdrawn from the special reserve fund taxable as if earned during the year of withdrawal from the fund.
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 261(d), (e) of
Effective Date of 1970 Amendment
Section 21(b) of
Effective Date of 1960 Amendment
Amendment by
Merchant Marine Capital Construction Funds
For coordination of application of Internal Revenue Code of 1986 with capital construction program under this chapter, see section 261(a) of
Deposits Into Capital Reserve Fund
Rate of Depreciation for Vessels Delivered by Shipbuilder On or After January 1, 1946, and Before January 1, 1960
For provisions relating to computation of depreciation with respect to vessels delivered by the shipbuilder on or after Jan. 1, 1946, and before Jan. 1, 1960, see section 8(b) of
Revision of Contracts, Commitments To Insure Mortgages, Mortgages, and Mortgage Insurance Contracts Entered Into Prior to June 12, 1960
For provisions authorizing revision, see section 8(c) of
Commercial Expectancy or Period of Depreciation of Tankers and Other Liquid Bulk Carriers
Nothing in any amendment made by
Section Referred to in Other Sections
This section is referred to in sections 1177–1, 1185, 1244 of this Appendix; title 26 sections 56, 139, 543, 7518; title 42 section 9141.
1 So in original. Probably should be followed by "of
§1177–1. Small fishing vessel construction reserves
In addition to any other vessel which may be deemed an "eligible vessel" and a "qualified vessel" under section 1177 of this Appendix, a commercial fishing vessel under five net tons but not under two net tons—
(1) which is constructed in the United States and, if reconstructed, is reconstructed in the United States;
(2) which is owned by a citizen of the United States;
(3) which has a home port in the United States; and
(4) which is operated in the commercial fisheries of the United States,
shall be considered to be an "eligible vessel" and a "qualified vessel" for the purposes of such section 1177 of this Appendix.
(
Codification
Section was not enacted as part of the Merchant Marine Act, 1936, which comprises this chapter.
§1177a. Deposits in special reserve fund; excusal; tax treatment
On and after June 13, 1957, to the extent that the operating-differential subsidy accrual (computed on the basis of parity) is represented on the operator's books by a contingent accounts receivable item against the United States as a partial or complete offset to the recapture accrual, the operator (1) shall be excused from making deposits in the special reserve fund, and (2) as to the amount of such earnings the deposit of which is so excused shall be entitled to the same tax treatment as though it had been deposited in said special reserve fund. To the extent that any amount paid to the operator by the United States reduces the balance in the operator's contingent receivable account against the United States, such amount shall forthwith be deposited in the special reserve fund of the operator.
(
Codification
Section was not enacted as part of the Merchant Marine Act, 1936, which comprises this chapter.
§1178. Sale or assignment of contract; consent of Secretary; purchaser subject to terms of contract; rescinding contract on transfer without consent
No contract executed under this subchapter or any interest therein shall be sold, assigned, or transferred, either directly or indirectly, or through any reorganization, merger, or consolidation, nor shall any agreement or arrangement be made by the holder whereby the maintenance, management, or operation of the service, route, line, vessel, or vessels is to be performed by any other person, without the written consent of the Secretary of Transportation. If he consents to such agreement or arrangement, the agreement or arrangement shall make provision whereby the person undertaking such maintenance, management, or operation agrees to be bound by all of the provisions of the contract and of this chapter applicable thereto, and the rules and regulations prescribed pursuant to this chapter. If the holder of any such contract shall voluntarily sell such contract or any interest therein, or make such assignment, transfer, agreement, or arrangement whereby the maintenance, management, or operation of the service, route, line, vessel, or vessels is to be performed by any other person, without the consent of the Secretary of Transportation, or if the operation of the service, route, line, or vessel, shall pass out of the direct control of the holder of such contract by reason of any voluntary or involuntary receivership or bankruptcy proceedings, the Secretary of Transportation shall have the right to modify or rescind such contract, without further liability thereon by the United States, and is vested with exclusive jurisdiction to determine the purposes for which any payments made by him under such contract shall be expended.
(June 29, 1936, ch. 858, title VI, §608,
Amendments
1981—
Transfer of Functions
For transfer of functions of United States Maritime Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
§1179. Withholding payment to defaulting contractor
The Secretary of Transportation shall withhold the payment of operating-differential subsidy while any contractor therefor is in default in any payments due on account of construction-loan, ship-sales mortgage notes, or any other obligation due the United States, and shall apply the amount so withheld to the satisfaction of such debt.
(June 29, 1936, ch. 858, title VI, §609,
Amendments
1981—
1938—Act June 23, 1938, repealed subsec. (b) which related to cancellation or modification of a contract where a contractor filed bankruptcy or was in default of payments.
Transfer of Functions
For transfer of functions of United States Maritime Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
§1180. Vessels eligible to subsidy
An operating-differential subsidy shall not be paid under authority of this subchapter on account of the operation of any vessel which does not meet the following requirements: (1) The vessel shall be of steel or other acceptable metal, shall be propelled by steam or motor, shall be as nearly fireproof as practicable, shall be built in a domestic yard or shall have been documented under the laws of the United States not later than February 1, 1928, or actually ordered and under construction for the account of citizens of the United States prior to such date, and shall be documented under the laws of the United States, during the entire life of the subsidy contract; and (2) if the vessel shall be constructed after June 29, 1936 it shall be either a vessel constructed according to plans and specifications approved by the Secretary of Transportation and the Secretary of the Navy, with particular reference to economical conversion into an auxiliary naval vessel, or a vessel approved by the Secretary of Transportation and the Navy Department as otherwise useful to the United States in time of national emergency.
(June 29, 1936, ch. 858, title VI, §610,
Amendments
1981—
Transfer of Functions
For transfer of functions of United States Maritime Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
Section Referred to in Other Sections
This section is referred to in section 1152 of this Appendix.
§1181. Transfer of vessels to foreign registry on default of United States
(a) Application; hearing; grant or denial
The contractor, upon compliance with the provisions of this section, may transfer to foreign registry the vessels covered by any operating-differential subsidy contract held by him, in the event that the United States defaults upon such contract or cancels it without just cause. Any contractor desiring to transfer any such vessel to foreign registry upon such default or cancelation shall file an application in writing with the Secretary of Transportation setting forth its contentions with respect to the lack of just cause or lawful grounds for such default or cancelation. The Secretary of Transportation shall afford the contractor an opportunity for a hearing within twenty days after such contractor files written application therefor, and after the testimony, if any, in such hearing has been reduced to writing and filed with the Secretary of Transportation, he shall, within a reasonable time, grant or deny the application by order.
(b) Appeal from denial of application
If any such application is denied, the contractor may obtain a review of the order of denial in the United States Court of Appeals for the District of Columbia, by filing in such court, within twenty days after the entry of such order, a written petition praying that the order of the Secretary of Transportation be set aside. A copy of such petition shall be forthwith transmitted by the clerk of the court to the Secretary of Transportation or any officer designated by him for that purpose, and thereupon the Secretary of Transportation shall file in the court the record upon which the order complained of was entered, as provided in
(c) Effectiveness of transfer
No transfer of vessels to foreign registry under this section shall become effective until any indebtedness to the Government or to any citizen of the United States, secured by such vessels, has been paid or discharged, and until after the expiration of ninety days from the date of final determination of the application or the appeal, if any. Within such ninety-day period the Secretary of Transportation may (1) with the consent of the contractor purchase the vessels at cost to the contractor plus cost of capital improvements thereon, less 4 per centum annual depreciation upon such vessel, and the actual depreciated costs of capital improvements thereon, or (2) reinstate the contract and adjust or settle the default found by the Secretary of Transportation or the court to exist.
(June 29, 1936, ch. 858, title VI, §611, as added June 23, 1938, ch. 600, §30,
Amendments
1981—Subsec. (a).
Subsec. (b).
Subsec. (c).
1960—Subsec. (c).
1958—Subsec. (b).
Effective Date of 1960 Amendment
Amendment by
Transfer of Functions
For transfer of functions of United States Maritime Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
Rate of Depreciation for Vessels Delivered by Shipbuilder On or After January 1, 1946, and Before January 1, 1960
For provisions relating to computation of depreciation with respect to vessels delivered by the shipbuilder on or after Jan. 1, 1946, and before Jan. 1, 1960, see section 8(b) of
Revision of Contracts, Commitments To Insure Mortgages, Mortgages, and Mortgage Insurance Contracts Entered Into Prior to June 12, 1960
For provisions authorizing revision, see section 8(c) of
Commercial Expectancy or Period of Depreciation of Tankers and Other Liquid Bulk Carriers
Nothing in any amendment made by
Section Referred to in Other Sections
This section is referred to in section 808 of this Appendix.
§1183. Off-season cruises by passenger vessels
(a) "Passenger vessel" defined
In this section, "passenger vessel" means a vessel which (1) is of not less than ten thousand gross tons, and (2) has accommodations for not less than one hundred passengers.
(b) Authorization for payment of subsidy
If the Secretary of Transportation finds that the operation of any passenger vessel with respect to which a contract for the payment of an operating-differential subsidy has been entered into under section 1173 of this Appendix effective before January 2, 1960, is not required for all of each year, in order to furnish adequate service on the service, route, or line covered by such contract, he may amend such contract to agree to pay an operating-differential subsidy for operation of the vessel (1) on such service, route, or line for some part or no part of each year, and (2) on cruises for all or part of each year if such specific cruise is approved by the Secretary of Transportation under subsection (e) of this section: Provided, however, That no such vessel may cruise for more than seven months of each year to ports which are regularly served by another United States-flag passenger vessel pursuant to an operating-differential subsidy contract.
(c) Authorization for payment of subsidy to passenger vessels providing domestic service
The Secretary of Transportation may authorize passenger vessels under operating-differential subsidy contracts to provide domestic service between specified ports while the vessels are on voyages in an essential service in the foreign commerce of the United States without reduction of operating-differential subsidy and the partial payback of construction-differential subsidy for operating in the domestic trades, if he finds that such domestic service will not result in a substantial deviation from the service, route, or line for which operating-differential subsidy is paid and will not adversely affect service on such service, route, or line.
(d) Conditions for cruises or domestic service while on voyages in an essential service in foreign commerce
When a vessel is being operated on cruises or has been authorized under this section to provide domestic passenger services while on voyages in an essential service in foreign commerce of the United States—
(1) except as provided in subdivision (4) of this subsection, it shall carry no mail unless required by law, or cargo except passengers' luggage, except between those ports between which it may carry mail and cargo on its regular service assigned by contract;
(2) it may not carry one-way passengers between those ports served by another United States carrier on its regular service assigned by contract, without the consent of such carrier, except between those ports between which it may carry one-way passengers on its own regular service assigned by contract;
(3) it shall stop at other domestic ports only for the same time and the same purpose as is permitted with respect to a foreign-flag vessel which is carrying passengers who embarked at a domestic port, except that a cruise may end at a different port or coast from that where it began and may embark or disembark passengers at other domestic ports, either when not involving transportation in the domestic offshore trade in competition with a United States-flag passenger vessel offering berth service therein, or, if involving such transportation, with the consent of such carrier: Provided, however, That nothing herein shall be construed to repeal or modify section 1223(a) of this Appendix.
(4) Any other provisions of this chapter or of the Shipping Act, 1916 [46 App. U.S.C. 801 et seq.], to the contrary notwithstanding, with the approval of the Secretary of Transportation, it may carry cargo and mail between ports to the extent such carriage is not in direct competition with a carrier offering United States-flag berth service between those ports, or, if such carriage is in direct competition with one or more carriers offering United States-flag berth service between such ports, with the consent of the next scheduled United States-flag carrier, which consent shall not be unreasonably withheld in the judgment of the Maritime Administrator.
Section 1175(c) of this Appendix shall not apply to cruises authorized under this section. Notwithstanding the applicable provisions of sections 1175(a) and 1156 of this Appendix requiring the reduction of operating differential subsidy and the partial payback of construction differential subsidy for operating in the domestic trades, such reduction of operating subsidy and partial payback of construction subsidy under sections 1175(a) and 1156, respectively, of this Appendix, shall not apply to cruises or domestic services authorized under this section.
(e) Application for approval of cruise; notice to other American flag operators
Upon the application of any operator for approval of a specific cruise, the Secretary of Transportation, after notice to all other American flag operators who may be affected and after affording all such operators an opportunity to submit written data, views or arguments, with or without opportunity to present the same orally in any manner, and after consideration of all relevant matter presented, shall approve the proposed cruise, if he determines that the proposed cruise will not substantially adversely affect an existing operator's service performed with passenger vessels of United States registry. Such approval shall not be given more than two years in advance of the beginning of the cruise.
(June 29, 1936, ch. 858, title VI, §613, as added
References in Text
The Shipping Act, 1916, referred to in subsec. (d)(4), is act Sept. 7, 1916, ch. 451,
Amendments
1981—Subsec. (b).
Subsec. (c).
Subsec. (d)(4).
Subsec. (e).
1972—Subsec. (b).
Subsec. (d).
Subsec. (e).
1970—Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (e).
1968—Subsec. (b).
Subsecs. (d) to (f).
Transfer of Functions
For transfer of functions of Federal Maritime Board, see Reorg. Plan No. 7 of 1961, set out under section 1111 of this Appendix.
Section Referred to in Other Sections
This section is referred to in sections 865a, 1171, 1172, 1173, 1176, 1183a of this Appendix.
§1183a. Off-season cruises additional to right of operator to make voyages on regular service, route, or line, including approved deviations
The cruises authorized by section 1183 of this Appendix shall be in addition to and not in derogation of the right of an operator to make voyages on his regular service, route or line, including approved deviations within the general area of his essential service. There shall be no adjustment of subsidy in the event of such deviations if they are without prejudice to the adequacy of service.
(
Codification
Section was not enacted as part of the Merchant Marine Act, 1936, which comprises this chapter.
§1184. Suspension of operating differential subsidy contracts by operator recipients
(a) Any operator receiving operating differential subsidy funds may elect, for all or a portion of its ships, to suspend its operating differential subsidy contract with all attendant statutory and contractual restrictions, except as to those pertaining to the domestic intercoastal or coastwise service, including any agreement providing for the replacement of vessels, if—
(1) the vessel is less than ten years of age;
(2) the suspension period is not less than twelve months;
(3) the operator's financial condition is maintained at a level acceptable to the Secretary of Commerce; and
(4) the owner agrees to pay to the Secretary, upon such terms and conditions as he may prescribe, an amount which bears the same proportion to the construction differential subsidy paid by the Secretary as the portion of the suspension period during which the vessel is operated in any preference trade from which a subsidized vessel would otherwise be excluded by law or contract bears to the entire economic life of the vessel.
(b) Any operator making an election under this section is entitled to full reinstatement of the suspended contract on request. The Secretary of Commerce may prescribe rules and regulations consistent with the purpose of this section.
(June 29, 1936, ch. 858, §614, as added
§1185. Construction, reconstruction, or acquisition of vessels over five thousand deadweight tons in foreign shipyards; preconditions
(a) The Secretary of Commerce may, until September 30, 1983, authorize an operator receiving or applying for operating differential subsidy under this subchapter to construct, reconstruct, or acquire its vessels of over five thousand deadweight tons in a foreign shipyard if the Secretary finds and certifies in writing that such operator's application for construction differential subsidy cannot be approved due to the unavailability of funds in the construction differential subsidy account. Vessels constructed, reconstructed, or modified pursuant to this section shall be deemed to have been United States built for the purposes of this subchapter, section 1241(b) of this Appendix, and
(b) The provisions of this section shall be effective for fiscal year 1983 only if the President in his annual budget message for that year requests at least $100,000,000 in construction differential subsidy or proposes an alternate program that would create equivalent merchant shipbuilding activity in privately owned United States shipyards and the Secretary reports to Congress on the effect such action will have on the shipyard mobilization base at least thirty days prior to making the certification referred to in subsection (a) of this section.
(June 29, 1936, ch. 858, §615, as added
Codification
In subsec. (a), "
§1185a. Wind-up of program
(a) In general
After October 8, 1996, the Secretary of Transportation shall not enter into any new contract for operating-differential subsidy under this part.
(b) Existing subsidy contracts
Notwithstanding any other provision of this chapter, any operating-differential subsidy contract in effect under this subchapter on the day before October 8, 1996, shall continue in effect and terminate as set forth in the contract, unless voluntarily terminated at an earlier date by the parties (other than the United States Government) to the contract.
(c) Essential service and port equity requirements
The essential service requirements of section 1 1171(a) and 1173(b) of this Appendix, and the provisions of sections 1175(c) and 1213(a) of this Appendix, shall not apply to the operating-differential subsidy program under this part effective upon the earlier of—
(1) the date that a payment is made, under the Maritime Security Program established by part B of this subchapter to a contractor under that part who is not party to an operating-differential subsidy contract under this part, with the Secretary to cause notice of the date of such payment to be published in the Federal Register as soon as possible; or
(2) with respect to a particular contractor under the operating-differential subsidy program, the date that contractor enters into a contract with the Secretary under the Maritime Security Program established by part B of this subchapter.
(d) Transfer and registration of vessel
(1) Notwithstanding any other provision of law, a vessel may be transferred and registered under an effective United States-controlled foreign flag if—
(A) the operator of the vessel receives an operating-differential subsidy pursuant to a contract under this part which is in force on October 1, 1994, and the Secretary approves the replacement of such vessel with a comparable vessel, or
(B) the vessel is covered by an operating agreement under part B of this subchapter, and the Secretary approves the replacement of such vessel with a comparable vessel for inclusion in the Maritime Security Fleet established under part B of this subchapter.
(2) Any such vessel may be requisitioned by the Secretary of Transportation pursuant to section 1242 of this Appendix.
(June 29, 1936, ch. 858, title VI, §616, as added
1 So in original. Probably should be "sections".
Part B—Maritime Security Fleet Program
Part Referred to in Other Sections
This part is referred to in sections 808, 1185a, 1222, 1704 of this Appendix; title 46 section 12102.
§1187. Establishment of Fleet
(a) In general
The Secretary of Transportation shall establish a fleet of active, militarily useful, privately-owned vessels to meet national defense and other security requirements and maintain a United States presence in international commercial shipping. The Fleet shall consist of privately owned, United States-flag vessels for which there are in effect operating agreements under this part, and shall be known as the Maritime Security Fleet.
(b) Vessel eligibility
A vessel is eligible to be included in the Fleet if the vessel is self-propelled and—
(1)(A) is operated by a person as an ocean common carrier;
(B) whether in commercial service, on charter to the Department of Defense, or in other employment, is either—
(i) a roll-on/roll-off vessel with a carrying capacity of at least 80,000 square feet or 500 twenty-foot equivalent units; or
(ii) a lighter aboard ship vessel with a barge capacity of at least 75 barges; or
(C) any other type of vessel that is determined by the Secretary to be suitable for use by the United States for national defense or military purposes in time of war or national emergency;
(2)(A)(i) is a United States-documented vessel; and
(ii) on the date an operating agreement covering the vessel is entered into under this part, is—
(I) a LASH vessel that is 25 years of age or less; or
(II) any other type of vessel that is 15 years of age or less;
except that the Secretary of Transportation may waive the application of clause (ii) if the Secretary, in consultation with the Secretary of Defense, determines that the waiver is in the national interest; or
(B) it is not a United States-documented vessel, but the owner of the vessel has demonstrated an intent to have the vessel documented under
(3) the Secretary of Transportation determines that the vessel is necessary to maintain a United States presence in international commercial shipping or, after consultation with the Secretary of Defense, determines that the vessel is militarily useful for meeting the sealift needs of the United States with respect to national emergencies; and
(4) at the time an operating agreement for the vessel is entered into under this part, the vessel will be eligible for documentation under
(June 29, 1936, ch. 858, title VI, §651, as added
Regulations
Section 8 of
"(a)
"(b)
Trust Charterers
"(1) the person chartering the vessel from a trust under section 12102(d)(2) of that title is a citizen of the United States under section 2 of the Shipping Act, 1916 (46 App. U.S.C. 802); and
"(2)(A) the vessel—
"(i) is delivered by a shipbuilder, following completion of construction, on or after May 1, 1995 and before January 31, 1996; or
"(ii) is owned by a citizen of the United States under section 2 of the Shipping Act, 1916 on September 1, 1996, or is a replacement for such a vessel; or
"(B) payments have been made with respect to the vessel under subtitle B of title VI of the Merchant Marine Act, 1936 for at least 1 year."
Indirect Vessel Owners
"(1) Any vessel constructed under a shipbuilding contract signed on December 21, 1995, and having hull number 3077, 3078, 3079, or 3080.
"(2) Any vessel delivered by a shipbuilder, following completion of construction, on or after May 1, 1995, and before January 31, 1996.
"(3) Any vessel owned on September 1, 1996, by a person that is a citizen of the United States under section 2 of the Shipping Act, 1916, or a replacement for such a vessel.
"(4) Any vessel with respect to which payments have been made under subtitle B of title VI of the Merchant Marine Act, 1936 for at least 1 year."
Vessel Standards
"(a)
"(1) the vessel is classed by and designed in accordance with the rules of the American Bureau of Shipping or another classification society accepted by the Secretary;
"(2) the vessel complies with applicable international agreements and associated guidelines, as determined by the country in which the vessel was documented immediately before becoming a documented vessel (as defined in that section); and
"(3) that country has not been identified by the Secretary as inadequately enforcing international vessel regulations as to that vessel.
"(b)
"(c)
"(1)
"(2)
"(A) to the extent that the government of the foreign country in which the society is headquartered provides access on a reciprocal basis to the American Bureau of Shipping; and
"(B) if the foreign classification society has offices and maintains records in the United States."
Section Referred to in Other Sections
This section is referred to in sections 808, 1187a, 1187c of this Appendix.
§1187a. Operating agreements
(a) In general
The Secretary of Transportation shall require, as a condition of including any vessel in the Fleet, that the owner or operator of the vessel enter into an operating agreement with the Secretary under this section. Notwithstanding subsection (g) of this section, the Secretary may enter into an operating agreement for, among other vessels that are eligible to be included in the Fleet, any vessel which continues to operate under an operating-differential subsidy contract under part A of this subchapter or which is under charter to the Department of Defense.
(b) Requirements for operation
An operating agreement under this section shall require that, during the period a vessel is operating under the agreement—
(1) the vessel—
(A) shall be operated exclusively in the foreign trade or in mixed foreign and domestic trade allowed under a registry endorsement issued under
(B) shall not otherwise be operated in the coastwise trade; and
(2) the vessel shall be documented under
(c) Regulatory relief
A contractor of a vessel included in an operating agreement under this part may operate the vessel in the foreign commerce of the United States without restriction, and shall not be subject to any requirement under section 1211, 1226, 1213, or 1227 of this Appendix. Participation in the program established by this part shall not subject a contractor to section 1223 of this Appendix or to any provision of part A of this subchapter. The restrictions of section 1241(b)(1) of this Appendix concerning the building, rebuilding, or documentation of a vessel in a foreign country shall not apply to a vessel for any day the operator of that vessel is receiving payments under an operating agreement under this part.
(d) Effectiveness and annual payment requirements of operating agreements
(1) Effectiveness
The Secretary of Transportation may enter into an operating agreement under this part for fiscal year 1996. The agreement shall be effective only for 1 fiscal year, but shall be renewable, subject to the availability of appropriations, for each subsequent fiscal year through the end of fiscal year 2005.
(2) Annual payment
An operating agreement under this part shall require, subject to the availability of appropriations and the other provisions of this section, that the Secretary of Transportation pay each fiscal year to the contractor, for each vessel that is covered by the operating agreement, an amount equal to $2,300,000 for fiscal year 1996 and $2,100,000 for each fiscal year thereafter in which the agreement is in effect. The amount shall be paid in equal monthly installments at the end of each month. The amount shall not be reduced except as provided by this section.
(e) Certification required for payment
As a condition of receiving payment under this section for a fiscal year for a vessel, the contractor for the vessel shall certify, in accordance with regulations issued by the Secretary of Transportation, that the vessel has been and will be operated in accordance with subsection (b)(1) of this section for at least 320 days in the fiscal year. Days during which the vessel is drydocked, surveyed, inspected, or repaired shall be considered days of operation for purposes of this subsection.
(f) Operating agreement is obligation of United States Government
An operating agreement under this part constitutes a contractual obligation of the United States Government to pay the amounts provided for in the agreement to the extent of actual appropriations.
(g) Limitations
The Secretary of Transportation shall not make any payment under this part for a vessel with respect to any days for which the vessel is—
(1) subject to an operating-differential subsidy contract under part A of this subchapter or under a charter to the United States Government, other than a charter pursuant to section 1187b of this Appendix;
(2) not operated or maintained in accordance with an operating agreement under this part; or
(3) more than 25 years of age, except that the Secretary may make such payments for a LASH vessel for any day for which the vessel is more than 25 years of age if that vessel—
(A) is modernized after January 1, 1994,
(B) is modernized before it is 25 years of age, and
(C) is not more than 30 years of age.
(h) Payments
With respect to payments under this part for a vessel covered by an operating agreement, the Secretary of Transportation—
(1) except as provided in paragraph (2), shall not reduce any payment for the operation of a vessel to carry military or other preference cargoes under
(2) shall not make any payment for any day that a vessel is engaged in transporting more than 7,500 tons of civilian bulk preference cargoes pursuant to section 1241(a), 1241(b), or 1241f of this Appendix that is bulk cargo; and
(3) shall make a pro rata reduction in payment for each day less than 320 in a fiscal year that a vessel covered by an operating agreement is not operated in accordance with subsection (b)(1) of this section, with days during which the vessel is drydocked or undergoing survey, inspection, or repair considered to be days on which the vessel is operated.
(i) Priority for awarding agreements
Subject to the availability of appropriations, the Secretary shall enter into operating agreements according to the following priority:
(1) Vessels owned by citizens
(A) Priority
First, for any vessel that is—
(i) owned and operated by persons who are citizens of the United States under sections 802 and 803 of this Appendix; or
(ii) less than 10 years of age and owned and operated by a corporation that is—
(I) eligible to document a vessel under
(II) affiliated with a corporation operating or managing for the Secretary of Defense other vessels documented under that chapter, or chartering other vessels to the Secretary of Defense.
(B) Limitation on number of operating agreements
The total number of operating agreements that may be entered into by a person under the priority in subparagraph (A)—
(i) for vessels described in subparagraph (A)(i), may not exceed the sum of—
(I) the number of United States-documented vessels the person operated in the foreign commerce of the United States (except mixed coastwise and foreign commerce) on May 17, 1995; and
(II) the number of United States-documented vessels the person chartered to the Secretary of Defense on that date; and
(ii) for vessels described in subparagraph (A)(ii), may not exceed 5 vessels.
(C) Treatment of related parties
For purposes of subparagraph (B), a related party with respect to a person shall be treated as the person.
(2) Other vessels owned by citizens and Government contractors
To the extent that amounts are available after applying paragraph (1), any vessel that is owned and operated by a person who is—
(A) a citizen of the United States under sections 802 and 803 of this Appendix, that has not been awarded an operating agreement under the priority established under paragraph (1); or
(B)(i) eligible to document a vessel under
(ii) affiliated with a corporation operating or managing other United States-documented vessels for the Secretary of Defense or chartering other vessels to the Secretary of Defense.
(3) Other vessels
To the extent that amounts are available after applying paragraphs (1) and (2), any other eligible vessel.
(j) Transfer of operating agreements
A contractor under an operating agreement may transfer the agreement (including all rights and obligations under the agreement) to any person eligible to enter into that operating agreement under this part after notification of the Secretary in accordance with regulations prescribed by the Secretary, unless the transfer is disapproved by the Secretary within 90 days after the date of that notification. A person to whom an operating agreement is transferred may receive payments from the Secretary under the agreement only if each vessel to be covered by the agreement after the transfer is an eligible vessel under section 1187(b) of this Appendix.
(k) Reversion of unused authority
The obligation of the Secretary to make payments under an operating agreement under this part shall terminate with respect to a vessel if the contractor fails to engage in operation of the vessel for which such payment is required—
(1) within one year after the effective date of the operating agreement, in the case of a vessel in existence on the effective date of the agreement, or
(2) within 30 months after the effective date of the operating agreement, in the case of a vessel to be constructed after that effective date.
(l) Procedure for considering application; effective date for certain vessels
(1) Procedures
No later than 30 days after October 8, 1996, the Secretary shall accept applications for enrollment of vessels in the Fleet, and within 90 days after receipt of an application for enrollment of a vessel in the Fleet, the Secretary shall enter into an operating agreement with the applicant or provide in writing the reason for denial of that application.
(2) Effective date
Unless an earlier date is requested by the applicant, the effective date for an operating agreement with respect to a vessel which is, on the date of entry into an operating agreement, either subject to a contract under part A of this subchapter or on charter to the United States Government, other than a charter under section 1187b of this Appendix, shall be the expiration or termination date of the contract under part A of this subchapter or of the Government charter covering the vessel, respectively, or any earlier date the vessel is withdrawn from that contract or charter.
(m) Early termination
An operating agreement under this part shall terminate on a date specified by the contractor if the contractor notifies the Secretary, by not later than 60 days before the effective date of the termination, that the contractor intends to terminate the agreement. Vessels covered by an operating agreement terminated under this subsection shall remain documented under
(n) Nonrenewal for lack of funds
If, by the first day of a fiscal year, sufficient funds have not been appropriated under the authority provided by section 1187d of this Appendix for that fiscal year, the Secretary of Transportation shall notify the Congress that operating agreements authorized under this part for which sufficient funds are not available will not be renewed for that fiscal year if sufficient funds are not appropriated by the 60th day of that fiscal year. If funds are not appropriated under the authority provided by section 1187d of this Appendix for any fiscal year by the 60th day of that fiscal year, then each vessel covered by an operating agreement under this part for which funds are not available is thereby released from any further obligation under the operating agreement, and the vessel owner or operator may transfer and register such vessel under a foreign registry deemed acceptable by the Secretary of Transportation, notwithstanding any other provision of law. If section 1242 of this Appendix is applicable to such vessel after registration of the vessel under such a registry, the vessel is available to be requisitioned by the Secretary of Transportation pursuant to section 1242 of this Appendix.
(o) Award of operating agreements
(1) In general
The Secretary of Transportation, subject to paragraph (4), shall award operating agreements within each priority under subsection (i)(1), (2), and (3) of this section under regulations prescribed by the Secretary.
(2) Number of agreements awarded
Regulations under paragraph (1) shall provide that if appropriated amounts are not sufficient for operating agreements for all vessels within a priority under subsection (i)(1), (2), or (3) of this section, the Secretary shall award to each person submitting a request a number of operating agreements that bears approximately the same ratio to the total number of vessels in the priority, as the amount of appropriations available for operating agreements for vessels in the priority bears to the amount of appropriations necessary for operating agreements for all vessels in the priority.
(3) Treatment of related parties
For purposes of paragraph (2), a related party with respect to a person shall be treated as the person.
(4) Preference for United States-built vessels
In awarding operating agreements for vessels within a priority under subsection (i)(1), (2), or (3) of this section, the Secretary shall give preference to a vessel that was constructed in the United States, to the extent such preference is consistent with establishment of a fleet described in the first sentence of section 1187(a) of this Appendix (taking into account the age of the vessel, the nature of service provided by the vessel, and the commercial viability of the vessel).
(p) Notice to United States shipbuilders required
The Secretary shall include in any operating agreement under this part a requirement that the contractor under the agreement shall, by not later than 30 days after soliciting any bid or offer for the construction of any vessel in a foreign shipyard and before entering into a contract for construction of a vessel in a foreign shipyard, provide notice of the intent of the contractor to enter into such a contract to each shipyard in the United States that is capable of constructing the vessel.
(June 29, 1936, ch. 858, title VI, §652, as added
Amendments
1997—Subsec. (c).
Section Referred to in Other Sections
This section is referred to in sections 1187b, 1187c of this Appendix.
§1187b. National security requirements
(a) Emergency Preparedness Agreement
(1) Requirement to enter Agreement
The Secretary of Transportation shall establish an Emergency Preparedness Program under this section that is approved by the Secretary of Defense. Under the program, the Secretary of Transportation shall include in each operating agreement under this part a requirement that the contractor enter into an Emergency Preparedness Agreement under this section with the Secretary. The Secretary shall negotiate and enter into an Emergency Preparedness Agreement with each contractor as promptly as practicable after the contractor has entered into an operating agreement under this part.
(2) Terms of Agreement
An Emergency Preparedness Agreement under this section shall require that upon a request by the Secretary of Defense during time of war or national emergency, or whenever determined by the Secretary of Defense to be necessary for national security (including any natural disaster, international peace operation, or contingency operation (as that term is defined in
(3) Participation after expiration of operating agreement
Except as provided by section 1187a(m) of this Appendix, the Secretary may not require, through an Emergency Preparedness Agreement or operating agreement, that a contractor continue to participate in an Emergency Preparedness Agreement when the operating agreement with the contractor has expired according to its terms or is otherwise no longer in effect. After expiration of an Emergency Preparedness Agreement, a contractor may volunteer to continue to participate in such an agreement.
(b) Resources made available
The commercial transportation resources to be made available under an Emergency Preparedness Agreement shall include vessels or capacity in vessels, intermodal systems and equipment, terminal facilities, intermodal and management services, and other related services, or any agreed portion of such nonvessel resources for activation as the Secretary may determine to be necessary, seeking to minimize disruption of the contractor's service to commercial shippers.
(c) Compensation
(1) In general
The Secretary of Transportation shall provide in each Emergency Preparedness Agreement for fair and reasonable compensation for all commercial transportation resources provided pursuant to this section.
(2) Specific requirements
Compensation under this subsection—
(A) shall not be less than the contractor's commercial market charges for like transportation resources;
(B) shall include all the contractor's costs associated with provision and use of the contractor's commercial resources to meet emergency requirements;
(C) in the case of a charter of an entire vessel, shall be fair and reasonable;
(D) shall be in addition to and shall not in any way reflect amounts payable under section 1187a of this Appendix; and
(E) shall be provided from the time that a vessel or resource is diverted from commercial service until the time that it reenters commercial service.
(3) Approval of amount by Secretary of Defense
No compensation may be provided for a vessel under this subsection unless the amount of the compensation is approved by the Secretary of Defense.
(d) Temporary replacement vessels
Notwithstanding any other provision of this part or of other law to the contrary—
(1) a contractor or other person that commits to make available a vessel or vessel capacity under the Emergency Preparedness Program or another primary sealift readiness program approved by the Secretary of Defense may, during the activation of that vessel or capacity under that program, operate or employ in foreign commerce a foreign-flag vessel or foreign-flag vessel capacity as a temporary replacement for the activated vessel or capacity; and
(2) such replacement vessel or vessel capacity shall be eligible during the replacement period to transport preference cargoes subject to
(e) Redelivery and liability of United States for damages
(1) In general
All commercial transportation resources activated under an Emergency Preparedness Agreement shall, upon termination of the period of activation, be redelivered to the contractor in the same good order and condition as when received, less ordinary wear and tear, or the Government shall fully compensate the contractor for any necessary repair or replacement.
(2) Limitation on liability of United States
Except as may be expressly agreed to in an Emergency Preparedness Agreement, or as otherwise provided by law, the Government shall not be liable for disruption of a contractor's commercial business or other consequential damages to a contractor arising from activation of commercial transportation resources under an Emergency Preparedness Agreement.
(3) Limitation on application of other requirements
Sections 1242 and 1248 of this Appendix shall not apply to a vessel while it is covered by an Emergency Preparedness Agreement under this part. Any Emergency Preparedness Agreement entered into by a contractor shall supersede any other agreement between that contractor and the Government for vessel availability in time of war or national emergency.
(June 29, 1936, ch. 858, title VI, §653, as added
Amendments
1997—Subsec. (d)(1).
Section Referred to in Other Sections
This section is referred to in sections 1187a, 1222 of this Appendix.
§1187c. Definitions
In this part:
(1) Bulk cargo
The term "bulk cargo" means cargo that is loaded and carried in bulk without mark or count.
(2) Contractor
The term "contractor" means an owner or operator of a vessel that enters into an operating agreement for the vessel with the Secretary of Transportation under section 1187a of this Appendix.
(3) Ocean common carrier
The term "ocean common carrier" means a person holding itself out to the general public to operate vessels to provide transportation by water of passengers or cargo between the United States and a foreign country for compensation, that—
(A) assumes responsibility for the transportation from the port or point of receipt to the port or point of destination, and
(B) utilizes, for all or part of that transportation, a vessel operating on the high seas or the Great Lakes between a port in the United States and a port in a foreign country, except that the term does not include a common carrier engaged in ocean transportation by ferry boat, ocean tramp, or chemical parcel-tanker. As used in this paragraph, "chemical parcel-tanker" means a vessel whose cargo-carrying capability consists of individual cargo tanks for bulk chemicals that are a permanent part of the vessel, that have segregation capability with piping systems to permit simultaneous carriage of several bulk chemical cargoes with minimum risk of cross-contamination, and that has a valid certificate of fitness under the International Maritime Organization Code for the Construction and Equipment of Ships Carrying Dangerous Chemicals in Bulk.
(4) Fleet
The term "Fleet" means the Maritime Security Fleet established pursuant to section 1187(a) of this Appendix.
(5) LASH vessel
The term "LASH vessel" means a lighter aboard ship vessel.
(6) United States-documented vessel
The term "United States-documented vessel" means a vessel documented under
(June 29, 1936, ch. 858, title VI, §654, as added
§1187d. Authorization of appropriations
There are authorized to be appropriated for operating agreements under this part, to remain available until expended, $100,000,000 for fiscal year 1996 and such sums as may be necessary, not to exceed $100,000,000, for each fiscal year thereafter through fiscal year 2005.
(June 29, 1936, ch. 858, title VI, §655, as added
Section Referred to in Other Sections
This section is referred to in section 1187a of this Appendix.
§1187e. Noncontiguous domestic trades
(a) In general
(1) Except as otherwise provided in this section, no contractor or related party shall receive payments pursuant to this part during a period when it participates in a noncontiguous domestic trade, except upon written permission of the Secretary of Transportation. Such written permission shall also be required for any material change in the number or frequency of sailings, the capacity offered, or the domestic ports called by a contractor or related party in a noncontiguous domestic trade. The Secretary may grant such written permission pursuant to written application of such contractor or related party unless the Secretary finds that—
(A) existing service in that trade is adequate; or
(B) the service sought to be provided by the contractor or related party—
(i) would result in unfair competition to any other person operating vessels in such noncontiguous domestic trade, or
(ii) would be contrary to the objects and policy of this chapter.
(2) For purposes of this subsection, "written permission of the Secretary" means permission which states the capacity offered, the number and frequency of sailings, and the domestic ports called, and which is granted following—
(A) written application containing the information required by paragraph (e)(1) by a person seeking such written permission, notice of which application shall be published in the Federal Register within 15 days of filing of such application with the Secretary;
(B) holding of a hearing on the application under
(C) final decision on the application by the Secretary within 120 days following conclusion of such hearing.
(b) Exceptions
(1) Subsection (a) of this section shall not apply in any way to provision by a contractor of service within the level of service provided by that contractor as of the date established by subsection (c) of this section or to provision of service permitted by subsection (d) of this section.
(2) Subsection (a) of this section shall not apply to operation by a contractor of a self-propelled tank vessel in a noncontiguous domestic trade, or to ownership by a contractor of an interest in a self-propelled tank vessel that operates in a noncontiguous domestic trade.
(c) Date of level of service
The date referred to in subsection (b) of this section shall be August 9, 1995: Provided however, That with respect to tug and barge service to Alaska the date referred to in subsection (b) of this section shall be July 1, 1992.
(d) Increase in real gross product of noncontiguous State or Commonwealth
A contractor may provide service in a trade in addition to the level of service provided as of the applicable date established by subsection (c) of this section in proportion to the annual increase in real gross product of the noncontiguous State or Commonwealth served since the applicable date established by subsection (c) of this section.
(e) Application
(1) A person applying for award of an agreement under this part shall include with the application a description of the level of service provided by that person in each noncontiguous domestic trade served as of the date applicable under subsection (c) of this section. The application also shall include, for each such noncontiguous domestic trade: a list of vessels operated by that person in such trade, their container carrying capacity expressed in twenty-foot equivalent units (TEUs) or other carrying capacity, the itinerary for each such vessel, and such other information as the Secretary may require by regulation. Such description and information shall be made available to the public. Within 15 days of the date of an application for an agreement by a person seeking to provide service pursuant to subsections (b) and (c) of this section, the Secretary shall cause to be published in the Federal Register notice of such description, along with a request for public comment thereon. Comments on such description shall be submitted to the Secretary within 30 days of publication in the Federal Register. Within 15 days after receipt of comments, the Secretary shall issue a determination in writing either accepting, in whole or part, or rejecting use of the applicant's description to establish the level of service provided as of the date applicable under subsection (c) of this section: Provided, That notwithstanding the provisions of this subsection, processing of the application for an award of an agreement shall not be suspended or delayed during the time in which comments may be submitted with respect to the determination or during the time prior to issuance by the Secretary of the required determination: Provided further, That if the Secretary does not make the determination required by this paragraph within the time provided by this paragraph, the description of the level of service provided by the applicant shall be deemed to be the level of service provided as of the applicable date until such time as the Secretary makes the determination.
(2) No contractor shall implement the authority granted in subsection (d) of this section except as follows:
(A) An application shall be filed with the Secretary which shall state the increase in capacity sought to be offered, a description of the means by which such additional capacity would be provided, the basis for applicant's position that such increase in capacity would be in proportion to or less than the increase in real gross product of the relevant noncontiguous State or Commonwealth since the applicable date established by subsection (c) of this section, and such information as the Secretary may require so that the Secretary may accurately determine such increase in real gross product of the relevant noncontiguous State or Commonwealth.
(B) Such increase in capacity sought by applicant and such information shall be made available to the public.
(C) Within 15 days of the date of an application pursuant to this paragraph the Secretary shall cause to be published in the Federal Register notice of such application, along with a request for public comment thereon.
(D) Comments on such application shall be submitted to the Secretary within 30 days of publication in the Federal Register.
(E) Within 15 days after receipt of comments, the Secretary shall issue a determination in writing either accepting, in whole or part, or rejecting, the increase in capacity sought by the applicant as being in proportion to or less than the increase in real gross product of the relevant noncontiguous State or Commonwealth since the applicable date established by subsection (c) of this section: Provided, That, notwithstanding the provisions of this section, if the Secretary does not make the determination required by this paragraph within the time provided by this paragraph, the increase in capacity sought by applicant shall be permitted as being in proportion to or less than such increase in real gross product until such time as the Secretary makes the determination.
(f) Denial of payments
With respect to provision by a contractor of service in a noncontiguous domestic trade not authorized by this section, the Secretary shall deny payments under the operating agreement with respect to the period of provision of such service but shall deny payments only in part if the extent of provision of such unauthorized service was de minimis or not material.
(g) Temporary service
Notwithstanding any other provision of this part, the Secretary may issue temporary permission for any United States citizen, as that term is defined in sections 802 and 803 of this Appendix, to provide service to a noncontiguous State or Commonwealth upon the request of the Governor of such noncontiguous State or Commonwealth, in circumstances where an Act of God, a declaration of war or national emergency, or any other condition occurs that prevents ocean transportation service to such noncontiguous State or Commonwealth from being provided by persons currently providing such service. Such temporary permission shall expire 90 days from date of grant, unless extended by the Secretary upon written request of the Governor of such State or Commonwealth.
(h) Definitions
As used in this section:
(1) The term "level of service provided by a contractor" in a trade as of a date means—
(A) with respect to service other than service described in (B), the total annual capacity provided by the contractor in that trade for the 12 calendar months preceding that date: Provided, That, with respect to unscheduled, contract carrier tug and barge service between points in Alaska south of the Arctic Circle and points in the contiguous 48 States, the level of service provided by a contractor shall include 100 percent of the capacity of the equipment dedicated to such service on the date specified in subsection (c) of this section and actually utilized in that service in the two-year period preceding that date, excluding service to points between Anchorage, Alaska and Whittier, Alaska, served by common carrier service unless such unscheduled service is only for carriage of oil or pursuant to a contract with the United States military: Provided further, That, with respect to scheduled barge service between the contiguous 48 States and Puerto Rico, such total annual capacity shall be deemed as such total annual capacity plus the annual capacity of two additional barges, each capable of carrying 185 trailers and 100 automobiles; and
(B) with respect to service provided by container vessels, the overall capacity equal to the sum of—
(i) 100 percent of the capacity of vessels operated by or for the contractor on that date, with the vessels' configuration and frequency of sailing in effect on that date, and which participate solely in that noncontiguous domestic trade; and
(ii) 75 percent of the capacity of vessels operated by or for the contractor on that date, with the vessels' configuration and frequency of sailing in effect on that date, and which participate in that noncontiguous domestic trade and in another trade, provided that the term does not include any restriction on frequency, or number of sailings, or on ports called within such overall capacity.
(2) The level of service set forth in paragraph (1) shall be described with the specificity required by subsection (e)(1) of this section and shall be the level of service in a trade with respect to the applicable date established by subsection (c) of this section only if the service is not abandoned thereafter, except for interruptions due to military contingency or other events beyond the contractor's control.
(3) The term "participates in a noncontiguous domestic trade" means directly or indirectly owns, charters, or operates a vessel engaged in transportation of cargo between a point in the contiguous 48 states and a point in Alaska, Hawaii, or Puerto Rico, other than a point in Alaska north of the Arctic Circle.
(4) The term "related party" means—
(A) a holding company, subsidiary, affiliate, or associate of a contractor who is a party to an operating agreement under this part; and
(B) an officer, director, agent, or other executive of a contractor or of a person referred to in subparagraph (A).
(June 29, 1936, ch. 858, title VI, §656, as added
Amendments
1997—Subsec. (b).