[Federal Register Volume 65, Number 244 (Tuesday, December 19, 2000)]
[Notices]
[Pages 79451-79457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32160]
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DEPARTMENT OF TRANSPORTATION
Maritime Administration
[Docket No. MARAD-2000-8517]
Pacific Knight; Applicability of Ownership and Control
Requirements for Fishery Endorsement
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Invitation for public comments on a petition requesting MARAD
to issue a determination that the ownership and control requirements of
the American Fisheries Act of 1998 and 46 CFR part 356 are in conflict
with an international investment agreement.
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SUMMARY: The Maritime Administration (MARAD, we, our, or us) is
soliciting public comments on a petition from the owners of the vessel
PACIFIC KNIGHT, Official Number 561771 (Vessel), for a ruling that the
requirements of MARAD's regulations at 46 CFR part 356 and the American
Fisheries Act of 1998 (AFA), Title II, Division C, Pub. L. 105-277, do
not apply with respect to the Vessel. The petition is submitted
pursuant to 46 CFR 356.53 and section 213(g) of the AFA, which provide
that the requirements of the AFA and the implementing regulations will
not apply to the owners or mortgagees of a U.S.-flag vessel documented
with a fishery endorsement to the extent that the provisions of the AFA
conflict with an existing international agreement relating to foreign
investment to which the United States is a party. This notice sets
forth the provisions of the international agreement that the Petitioner
alleges are in conflict with the AFA and 46 CFR part 356 and the
arguments submitted by the Petitioner in support of its request. If
MARAD determines that the AFA and MARAD's implementing regulations
conflict with the bilateral investment treaty, the requirements of 46
CFR part 356 will be determined not to apply the Vessel to the extent
of the inconsistency. Accordingly, interested parties are invited to
submit their views on this petition and whether there is a conflict
between the international agreement and the requirements of both the
AFA and 46 CFR part 356. In addition to receiving the views of
interested parties, MARAD will consult with other Departments and
Agencies within the Federal Government that have responsibility or
expertise related to the interpretation of or application of
international investment agreements.
DATES: You should submit your comments early enough to ensure that
Docket Management receives them not later than January 18, 2001.
ADDRESSES: Comments should refer to the docket number that appears at
the top of this document. Written comments may be submitted by mail to
the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of
Transportation, 400 7th St., SW., Washington, DC 20590-0001. You may
also send comments electronically via the Internet at http://smses.dot.gov/submit. All comments will become part of this docket and
will be available for inspection and copying at the above address
between 10 a.m. and 5 p.m., E.T., Monday through Friday, except Federal
holidays. An electronic version of this document and all documents
entered into this docket is available on the World Wide Web at http://dms.dot.gov.
FOR FURTHER INFORMATION CONTACT: John T. Marquez, Jr., of the Office of
Chief Counsel at (202) 366-5320. You may send mail to John T. Marquez,
Jr., Maritime Administration, Office of Chief Counsel, Room 7228, MAR-
222, 400 Seventh St., SW., Washington, DC 20590-0001 or you may send e-
mail to ``[email protected]''.
SUPPLEMENTARY INFORMATION:
Background
The AFA, Title II, Division C, Public Law 105-277, was enacted in
1998 to give U.S. interests a priority in the harvest of U.S.-fishery
resources by increasing the requirements for U.S. citizen ownership,
control and financing of U.S.-flag vessels documented with a fishery
endorsement. MARAD was charged with promulgating implementing
regulations for fishing vessels of 100 feet or greater in registered
length while the Coast Guard retains responsibility for vessels under
100 feet.
Section 202 of the AFA, raises, with some exceptions, the U.S.-
Citizen ownership and control standards for U.S.-flag vessels that are
documented
[[Page 79452]]
with a fishery endorsement and operating in U.S.-waters. The ownership
and control standard was increased from the controlling interest
standard (greater than 50%) of Sec. 2(b) of Shipping Act, 1916, as
amended (1916 Act), to the standard contained in Sec. 2(c) of the 1916
Act which requires that 75 percent of the ownership and control in a
vessel owning entity be vested in U.S. Citizens. In addition, Sec. 202
of the AFA establishes new requirements to hold a preferred mortgage on
a vessel with a fishery endorsement. State or federally chartered
financial institutions must now comply with the controlling interest
standard of Sec. 2(b) of the 1916 Act in order to hold a preferred
mortgage on a vessel with a fishery endorsement. Entities other than
state or federally chartered financial institutions must either meet
the 75% ownership and control requirements of Sec. 2(c) of the 1916 Act
or utilize an approved U.S.-Citizen Trustee that meets the 75%
ownership and control requirements to hold the preferred mortgage for
the benefit of the non-citizen lender.
Section 213(g) of the AFA provides that if the new ownership and
control provisions are determined to be inconsistent with an existing
international agreement relating to foreign investment to which the
United States is a party, such provisions of the AFA shall not apply to
the owner or mortgagee on October 1, 2001, with respect to the
particular vessel and to the extent of the inconsistency. MARAD's
regulations at 46 CFR Sec. 356.53 set forth a process wherein owners or
mortgagees may petition MARAD, with respect to a specific vessel, for a
determination that the implementing regulations are in conflict with an
international investment agreement. Petitions must be noticed in the
Federal Register with a request for comments. The Chief Counsel of
MARAD, in consultation with other Departments and Agencies within the
Federal Government that have responsibility or expertise related to the
interpretation of or application of international investment
agreements, will review the petitions and, absent extenuating
circumstances, render a decision within 120 days of the receipt of a
fully completed petition.
The Petitioners
Maruha Corporation (Maruha), its subsidiaries, Westward Seafoods,
Inc. (WSI) and Westward Alaska Fisheries, Inc. (WAI), Pyramid Fishing
Co. (Pyramid), and Western Alaska Investment Co. (WACO) (hereinafter
collectively referred to as ``Petitioner'' or ``Petitioners'') together
with Pacific Knight, LLC (Owner) have filed a petition with MARAD
pursuant to 46 CFR Sec. 356.53 for exemption from the provisions of 46
CFR part 356 for the vessel PACIFIC KNIGHT, Official Number 561771
(Vessel), on the grounds that a conflict exists between the Treaty of
Friendship, Commerce and Navigation Between the United States of
America and Japan, signed at Tokyo, on 2 April 1953 (the ``FCN Treaty''
or the ``Treaty''), 4 UST 2063; TIAS 2863; 206 UNTS 143, and both the
AFA and 46 CFR part 356. Maruha is a Japanese Corporation. WSI and WSA
are wholly owned subsidiaries of Maruha and are not considered U.S.-
citizens. Both Pyramid and WACO, the members of the direct owner of the
vessel, Pacific Knight, LLC, are U.S.-corporations that are indirectly
owned by Maruha but that qualify as documentation citizens.
The Petitioners became the indirect owner of the Vessel when it was
purchased on June 7, 1996. The Petitioner states that it was encouraged
to invest in the Alaska shoreside fishing industry as part of the U.S.
``Fish and Chips'' policy. Petitioner and its subsidiaries own
processing facilities in Kodiak and Dutch Harbor Alaska and are
involved in a joint venture that owns a processing facility in Dutch
Harbor, Alaska. Due to substantial investment in shore based
processing, Petitioner states that it recognized that it needed to
ensure access to sources of a steady supply of fish. In part at the
urging of independent fishermen and in part due to business necessity,
Petitioner maintains that it made a variety of investments in fishing
vessels that deliver to its shore based facilities in Alaska.
The Vessel at issue was acquired by Petitioners and is indirectly
wholly owned by Petitioners through Pacific Knight, LLC. Because the
Vessel is indirectly owned by non-citizens, it would not qualify for
documentation with a fishery endorsement under the new ownership and
control requirements of the AFA and 46 CFR part 356. The Petitioners
note, however, that the Vessel was ``grandfathered'' under the savings
clause of the Anti-Reflagging Act of 1987, 46 App. U.S.C. 12102 note
(1998), and thus was not required to comply with the ownership and
control provisions of Sec. 2(b) of the 1916 Act to which most vessels
were subjected in order to obtain a fishery endorsement prior to the
passage of the AFA . Vessels ``grandfathered'' under the savings clause
of the Anti-Reflagging Act are only required to be owned by a
documentation citizen in order to be eligible for documentation with a
fishery endorsement. If MARAD issues a ruling that the AFA and 46 CFR
part 356 do not apply to the Vessel, the Vessel must comply with the
law as it existed prior to the enactment of the AFA. Therefore, the
Petitioners imply that if MARAD determines that there is a conflict
between the FCN Treaty and both the AFA and 46 CFR part 356, the
``grandfathered'' Vessel would only be subject to the requirement that
it be owned by a documentation citizen as it was required to do prior
to the enactment of the AFA.
The FCN Treaty
The entire text of the FCN Treaty is available on MARAD's internet
site at http://www.marad.dot.gov. Following are the provisions of the
Treaty that Petitioners allege are in conflict with the AFA and 46 CFR
part 356.
Article V
1. Neither Party shall take unreasonable or discriminatory measures
that would impair the legally acquired rights or interests within its
territories of nationals and companies of the other Party in the
enterprises which they have established, in their capital, or in the
skills, arts or technology which they have supplied; nor shall either
Party unreasonable impede nationals and companies of the other Party
from obtaining on equitable terms the capital, skills, arts and
technology it needs for its economic development.
Article VI, Paragraphs 2 and 3
2. The provisions of Article VI, paragraph 3, providing for the
payment of compensation shall extend to interests held directly or
indirectly by nationals and companies of either Party in property which
is taken within the territories of the other Party.
3. Property of nationals and companies of either Party shall not be
taken within the territories of the other Party except for a public
purpose, nor shall it be taken without the prompt payment of just
compensation. Such compensation shall be in an effectively realizable
form and shall represent the full equivalent of the property taken; and
adequate provision shall have been made at or prior to the time of
taking for the determination and payment thereof.
Article VII
1. Nationals and companies of either Party shall be accorded
national treatment with respect to engaging in all types of commercial,
industrial, financial and other business activities within the
territories of the other Party, whether directly or by agent or through
the medium of any form of lawful juridical entity. Accordingly, such
[[Page 79453]]
nationals and companies shall be permitted within such territories: (a)
To establish and maintain branches, agencies, offices, factories and
other establishments appropriate to the conduct of their business; (b)
to organize companies under the general company laws of such other
Party, and to acquire majority interests in companies of such other
Party; and (c) to control and manage enterprises which they have
established or acquired. Moreover, enterprises which they control,
whether in the form of individual proprietorships, companies or
otherwise, shall, in all that relates to the conduct of the activities
thereof, be accorded treatment no less favorable than that accorded
like enterprises controlled by nationals and companies of such other
Party.
2. Each Party reserves the right to limit the extent to which
aliens may within its territories establish, acquire interests in, or
carry on public utilities enterprises or enterprises engaged in
shipbuilding, air or water transport, banking involving depository or
fiduciary functions, or the exploitation of land or other natural
resources. However, new limitations imposed by either Party upon the
extent to which aliens are accorded national treatment, with respect to
carrying on such activities within its territories, shall not be
applied as against enterprises which are engaged in such activities
therein at the time such new limitations are adopted and which are
owned or controlled by nationals and companies of the other Party.
Moreover, neither Party shall deny to transportation, communications
and banking companies of the other Party the right to maintain branches
and agencies to perform functions necessary for essentially
international operations in which they are permitted to engage.
3. The provisions of paragraph 1 of the present Article shall not
prevent either Party from prescribing special formalities in connection
with the establishment of alien-controlled enterprises within its
territories; but such formalities may not impair the substance of the
rights set forth in said paragraph.
4. Nationals and companies of either Party, as well as enterprises
controlled by such nationals and companies, shall in any event be
accorded most-favored-nation treatment with reference to the matters
treated in the present article.
Article IX
2. Nationals and companies of either Party shall be accorded within
the territories of the other Party national treatment and most-favored
national treatment with respect to acquiring, by purchase, lease, or
otherwise, and with respect to owning and possessing, movable property
of all kinds, both tangible and intangible. However, either Party may
impose restrictions on alien ownership of materials dangerous from the
standpoint of public safety and alien ownership of interests in
enterprises carrying on the activities listed in the first sentence of
paragraph 2 of Article VII, but only to the extent that this can be
done without impairing the rights and privileges secured by Article VII
or by other provisions of the present Treaty.
Petitioners' Description of the Conflict Between the FCN Treaty and 46
CFR Part 356
MARAD's regulations require at 46 CFR 356.53(b)(3) require
Petitioners to submit a detailed description of how the provisions of
the international investment agreement or treaty and the implementing
regulations are in conflict. The remainder of this notice is the
Petitioners' description of how the regulations and the FCN Treaty are
in conflict. This information forms the basis on which the Petitioners
request that the Chief Counsel issue a ruling that 46 CFR part 356 does
not apply to Petitioners with respect to the Vessel.
``(a) Background: The Pre-AFA State of the Law and Fisheries Industry
``In 1976, Congress passed the Fishery Conservation and Management
Act, Pub. L. 94-265, 90 Stat. 331 (1976). Known colloquially as the
Magnuson-Stevens Act, the legislation was a comprehensive statute
addressing a variety of issues related to the fisheries. Four years
later, Congress amended various provisions of the Magnuson-Stevens Act
when it passed the American Fisheries Promotion Act of 1980, Pub. L.
96-561, 94 Stat. 3275 (1980). The 1980 amendments instituted a policy
referred to as the ``Fish and Chips'' policy, which resulted in a phase
out of direct foreign fishing and fish processing. Foreign owned
processing companies that wished to continue participation in U.S.
fishing activity, principally activity located in the United States
Exclusive Economic Zone (``EEZ'') off of Alaska, were required to
invest in U.S. flag vessels or U.S. shore based processing facilities.
See generally W. McLean & S. Sucharitkul, Fisheries Management and
Development in the EEZ: The North South and Southwest Experience, 63
NOTRE DAME L. REV. 492 (1988). More specifically, ``Fish and Chips''
provided that the allocation of surplus fish resources to various
foreign nations (including Japan) was to be based on, among other
things, the extent to which a particular foreign nation entered into
joint business ventures in the United States. See 16 U.S.C.
Sec. 1821(e)(1)(E)(v). These new factors were then included in the
several Governing International Fishery Agreements that the United
States concluded with each of the nations engaged in fishing activities
in the U.S. EEZ. In particular, the United States urged Japan to
contribute to the development of the then-underutilized Alaska pollock
fisheries by entering into joint ventures with United States companies.
``As part of the ``Fish and Chips'' policy, half of Japan's annual
fish quota allocation in the U.S. EEZ was withheld for later
allocation, depending on economic cooperation. In the summer of 1982,
the United States Department of State refused to allocate a substantial
portion of Japan's allotment until Japan ``responded in a more positive
manner to U.S. goals and agreed to more appropriate levels of joint
ventures with U.S. fishermen.'' Remarks of Ambassador Theodore G.
Kronmiller, U.S. Dep't of State, Seattle, Washington, Oct. 15, 1982. As
a consequence of these policies and actions, Petitioners began
investments in shoreside facilities in Alaska for the processing of
Alaska pollock into surimi and other byproducts.
``In 1987, Congress passed the Commercial Fishing Industry Vessel
Anti-Reflagging Act of 1987, Pub. L. 100-239, 101 Stat. 1778 (1987)
(the ``Anti-Reflagging Act''). The Anti-Reflagging Act required that
United States citizens own the controlling interest, at each tier of
ownership, in any entity that owns a U.S. fishing vessel. ``Controlling
interest'' includes a majority of each class of stock or other equity
interest in the vessel owner. Under the Anti-Reflagging Act, foreign
investors were thus permitted to hold a minority (up to 49%) of the
equity in a vessel-owning entity at each tier of ownership. Because the
Anti-Reflagging Act permitted foreign investors to hold 49% of the
equity ``at each tier of ownership,'' indirect foreign ownership could
exceed 50% under the Anti-Reflagging Act. In addition, the Anti-
Reflagging Act contained an ``ownership grandfather'' provision, which
permitted certain fishing vessels, including Vessel, to be 100%
indirectly owned by a non-citizen. See Southeast Shipyard Ass'n v.
United States., 979 F. 2d 1541 (D.C. Cir. 1992).
(b) The AFA and Section 213(g)
``The AFA will impose new foreign ownership and control
restrictions
[[Page 79454]]
effective October 1, 2001. Under the AFA, foreign nationals may not own
or control more than a 25% interest in any U.S. fishing vessel. This
new restriction applies both ``at each tier of ownership'' and ``in the
aggregate.'' In addition, long term marketing agreements with non-
citizens as well as loans from non-citizens are subject to regulation
under the AFA. See 46 CFR Secs. 356.43, 356.45.
The AFA's new ownership and control restrictions are to apply
retroactively to existing foreign investments and business
arrangements. See Pub. L. No. 105-277, Secs. 202-04, 112 Stat. 2681-636
(1998).
``Section 213(g) of the AFA, however, provides that the foreign
ownership and control restrictions are not to apply to the extent that
those restrictions are ``determined to be inconsistent with an existing
international agreement relating to foreign investment to which the
United States is a party.'' Pub. L. No. 105-277, Sec. 213(g), 112 Stat.
2681-636 (1998). The FCN Treaty is an ``international agreement
relating to foreign investment.'' As explained in greater detail below,
applying the Act's ownership and control restrictions so as to preclude
the Petitioners' ownership of, or control over, the Vessel would result
in an inconsistency with the FCN Treaty. As a matter of statutory
interpretation, then, Section 213(g) prohibits the application of those
restrictions to Petitioners' interests in the Vessel.
(c) The U.S.-Japan FCN Treaty in Context
``The substantive background of the FCN Treaty makes clear that one
of its central purposes was to protect precisely the type of interests
at issue here. The U.S.-Japan FCN Treaty was modeled on a ``standard''
State Department treaty text, which formed the basis of more than a
dozen FCN treaties that the United States entered into in the period
immediately following World War II. All of these treaties, including
the U.S.-Japan FCN Treaty, were part of the broader goal of the United
States to encourage and protect foreign investment. As described by
Herman Walker, Jr., who was responsible for the formulation of the
postwar form of the FCN treaties and was also one of the chief FCN
treaty negotiators, the FCN treaties are ``concerned with the
protection of persons, natural and juridical, and of the property and
interests of such persons.'' Herman Walker, Jr., Modern Treaties of
Friendship. Commerce and Navigation, 42 Minn L. Rev. 805, 806 (1858)
[hereinafter ``Modern Treaties''].
``Central to the structure of all of these treaties was the
national-treatment principle, the notion that nationals of one Party
should be treated like nationals of the other Party. As put by Walker,
``The right of corporations to engage in business on a national-
treatment basis may be said to constitute the heart of the treaty.''
Herman Walker, Jr., The Post-War Commercial Treaty Program of the
United States, 73 Pol. Sci. Q. 57, 67 (1958). The United States Supreme
Court has likewise noted, in a case involving the interpretation of the
U.S.-Japan FCN Treaty, that the purpose of the FCN treaties was ``to
assure [foreign corporations] the right to conduct business on an equal
basis without suffering discrimination based on their alienage.''
Sumitomo Shoji America v. Avadiano, 457 U.S. 176, 187-88 (1982).
Indeed, according to the preamble of the U.S.-Japan FCN Treaty,
ensuring that nationals of each Party be accorded ``national * * *
treatment unconditionally'' by the other Party is one of the two
general principles upon which the FCN Treaty was concluded. The word
``unconditionally'' is of course clear: it demonstrates the drafters''
intent that departures from the general principle of ``national
treatment'' had to be articulated clearly. Indeed, in some instances,
the Treaty does contain specific and limited exceptions to the
national-treatment principle. See, e.g., FCN Treaty Protocol, para. 6
(parties may impose restrictions on introduction of foreign capital in
order to protect monetary reserves). Based simply on the preamble,
then, the fact that the Treaty does not have such an exception for the
forced divestiture of investments such as those at issue in the AFA
strongly suggests, without more, that the Treaty meant to preclude
application of such restrictions A more detailed look at the Treaty's
substantive provisions, as set forth below, only reinforces that
conclusion.
``Moreover, because the U.S.-Japan FCN Treaty shares language with
many of the other post-war FCN treaties, the State Department has been
called upon to interpret that language on many occasions. In the early
1980s, two studies commissioned by the State Department surveyed both
the background of the treaties as well as the Department's subsequent
interpretations. As explained in greater detail below, these two
reports (known colloquially as the Jones Study and the Sullivan Study,
after their respective primary authors) confirm the inconsistencies
between the AFA's ownership and control restrictions and several
provisions of the U.S.-Japan FCN Treaty, including in particular the
national-treatment provisions.
``It is also worth noting that, as in most bilateral treaties, the
relevant terms of the FCN Treaty are reciprocal--that is, the principle
of ``national treatment'' applies not only to investment by Japanese
nationals in the United States but also to investment by U.S. nationals
in Japan. The Chief Counsel should thus consider the reciprocal
implications of interpreting the FCN Treaty; that interpretation will
effectively bind the United States government in situations involving
American nationals that might wish to invest in Japanese businesses,
both now and in the future. A cramped interpretation of the Treaty
could thus hamper American foreign investment in unforeseen ways.
Moreover, the State Department has interpreted FCN treaties broadly in
the past, including the provisions articulating the national-treatment
principle. See generally State Dep't Practices Under U.S. Treaties of
Friendship Commerce and Navigation (1981) [hereinafter ``Jones
Study'']. Consistency with the State Department's historical practice
would thus also militate towards a liberal interpretation of the Treaty
so as to protect the settled expectations of foreign investors.
``Finally, when interpreting the FCN Treaty, it is worth recalling
the historical backdrop against which the Treaty was negotiated and
adopted, because understanding that context puts perspective on the
important role the Treaty plays in U.S.-Japan relations. The FCN Treaty
was signed on April 2, 1953, less than a year after the end of the
Allied military occupation of Japan (the legal conclusion of the state
of war). Indeed, the FCN Treaty was an extension of one part of the
1951 Treaty of Peace with Japan, Article 12 of which declared Japan's
``readiness to enter into negotiations'' to conclude a treaty with the
U.S. that would ``place [the two countries'] commercial relations on a
stable and friendly basis.'' Signing the FCN Treaty so soon after the
post-war restoration of Japanese national sovereignty was a significant
step for both countries and was an implicit recognition that
transnational investment and commerce are important elements in
``strengthening the bonds of peace and friendship.'' See FCN Treaty,
preamble. Those bonds were built on, and continue to rest on, the
principles of fairness and nondiscriminatory conduct embedded in the
FCN Treaty and its national-treatment principles.
[[Page 79455]]
(d) Article VII--National Treatment in Commercial/Business Activities
``Article VII is ``the heart of the treaty. It is central to the
basic treaty objective of providing rules of fair and equitable
treatment. * * * The rule it embodies is national treatment.'' State
Dep't. Standard Draft--Treaty of Friendship, Commerce, and Navigation
124 (undated) [hereinafter ``Sullivan Study'']. The relevant portions
of Article VII have a three-part structure: (1) Article VII, paragraph
1, provides a broad grant of national treatment for all business
activities; (2) the first sentence of Article VII, paragraph 2,
provides for a few exceptions for certain sensitive activities,
including one of relevance here; and (3) the second sentence of Article
VII, paragraph 2, provides that, notwithstanding those exceptions, a
Party may not impose new restrictions on entities of the other Party
that were already participating in the activities in question. Article
VII is thus inconsistent with the ownership and control restrictions of
the AFA, as those restrictions impose new constraints on Maruha, an
enterprise that has been involved in the U.S. fishing industry for over
35 years.
``Article VII(1) of the FCN Treaty requires the United States to
give to ``[n]ationals and companies'' of Japan ``national treatment
with respect to engaging in all types of commercial, industrial,
financial and other business activities [in the U.S.], whether directly
or by agent or through the medium of any form of lawful juridical
entity.'' FCN Treaty, Art. VII(l) (emphases added). Article XXII(1)
defines ``national treatment'' as ``treatment accorded within the
territories of a Party upon terms no less favorable than the treatment
accorded therein, in like situations, to nationals, companies,
products, vessels or other objects, as the case may be, of such
Party.'' FCN Treaty, Art. XXII(1) (emphasis added). This grant of
national treatment includes the right of Japanese-controlled
enterprises to be ``accorded treatment no less favorable than that
accorded like enterprises controlled by nationals and companies of [the
U.S.]'' FCN Treaty, Art. VII(1); see also Sumitomo, 457 U.S. at 188
n.18 (``[N]ational treatment of corporations means equal treatment with
domestic corporations.''); Modern Treaties, 42 Minn L. Rev. at 811
(''[T]he objective [of the ``national treatment'' provisions] is to
secure non-discrimination or equality of treatment * * * as compared
with citizens of the [U.S.] and national things.''). As applied to
Petitioners' interests in the Vessel, the AFA clearly treats
enterprises controlled by Japanese nationals and corporations ``less
favorabl[y] than [the treatment] accorded like enterprises controlled
by nationals and companies of [the U.S.]'' and is thus inconsistent
with Article VII(1).
The national-treatment provision of Article VII, paragraph 1, is
limited by the first sentence of Article VII, paragraph 2, which
reserves for each nation ``the right to limit the extent to which
aliens may within its territories establish, acquire interests in, or
carry on * * * enterprises engaged in * * * the exploitation of * * *
natural resources.'' Article VII(2) provides the parties to the Treaty
with what is known as a ``screening'' right, the right to ``screen''
foreign investments in ``certain sensitive lines of business, specially
affected with a public interest.'' See Modern Treaties, 42 Minn. L.
Rev. at 818. As fisheries are generally considered a ``natural
resource,'' this provision would appear to permit the United States to
impose foreign ownership and control restrictions on fishing industry
vessels under this exception, notwithstanding the national-treatment
requirement in Article VII, paragraph 1.
``The very next sentence of Article VII, paragraph 2, however,
places limits on the ``screening'' exception to the national-treatment
principle. It makes clear that any such restrictions shall not be
imposed on any enterprise that was engaged in the fishing industry
prior to promulgation of the AFA. Article VII(2) states, ``[N]ew
limitations imposed by either Party upon the extent to which aliens are
accorded national treatment, with respect to carrying on [the
activities described in the first sentence of Article VII(2)] within
its territories, shall not be applied as against enterprises which are
engaged in such activities therein at the time such new limitations are
adopted and which are owned or controlled by nationals and companies of
the other Party.'' FCN Treaty, Art. VII(2) (emphases added). In effect,
then, this sentence requires that any such ownership or control
restrictions grandfather those companies, such as Petitioners, that
were engaged in the fishing industry prior to promulgation of the AFA.
In short, the ability to ``screen'' foreign investments prior to their
being made does not bring with it the right to restrict those Japanese
nationals, like Maruha, that have already made investments in the
industry.
``This plain text interpretation of the language of the second
sentence of Article VII(2) also comports with past State Department
practice. See Jones Study at 57 (noting that pursuant to this sentence,
``protection is afforded to any privilege granted * * * prior to a
change in national treatment; hence, at a minimum these foreign
enterprises are guaranteed the maintenance of their existing
operations''); see also id. at 107 (``[R]egulations that force
divestiture of interests already acquired or established prior to the
promulgation of such regulation[s] * * * raise Art. VII questions.'');
cf. also Modern Treaties, 42 Minn. L. Rev. at 809 (recognizing that
exceptions to national treatment principle were necessary, but noting
that ``[t]he aim is to * * * guarantee duly established investors
against subsequent discrimination. The failure to find a welcome as to
entry is of much less importance than would be a failure, once having
entered and invested in good faith, to be protected against subsequent
harsh treatment.''). It also comports with the clear intent of the
drafters. In describing the import of the phrase ``new limitations,''
the State Department's Sullivan Study states,
``The net effect [of the second sentence of Article VII(2)] is
that, although [the United States is not] obligated to allow alien
interests to become established in those fields of activity, rights
which have been extended in the past shall be respected and exempted
from the application of new restrictions.''
Sullivan Study at 149 (emphasis added).
``More even than the national-treatment principle, the prohibition
on the imposition of new limitations on foreign entities already
engaged in a particular industry is a matter of basic fairness. See
Sullivan Study at 148 (``The second sentence of Article VII(2) is a
grandfather clause intended in the interest of fairness to protect
legitimately established alien enterprises against retroactive
impairment.''). Here, not only were Maruha, WSI and WAF each ``engaged
in'' the fishing business prior to the AFA's promulgation, but their
investments in that industry were actively encouraged by the ``Fish and
Chips'' policy of the United States government. The concerns of the
Treaty's drafters are thus doubly implicated.
``Article VII, then, completely precludes application of the AFA's
ownership and control restrictions to Petitioners since Petitioners had
interests in vessels with fishery endorsements prior to the AFA's
adoption. As the language of the second sentence of Article VII,
paragraph 2, makes clear, the Treaty protects enterprises engaged in
the restricted activities (i.e., commercial fishing) rather than
protecting simply the particular property interests related to
[[Page 79456]]
those activities (such as the fishing vessels themselves). Cf. Sullivan
Study at 137 (noting that the term ``enterprises'' was used ``to
designate a business entity or undertaking irrespective of the
particular form it has for legal purposes''). Its purpose was to ensure
that foreign-owned or foreign-controlled companies already engaged in a
particular industry were given full national treatment--that is,
treated like U. S. nationals--and were permitted to compete against
their domestic competitors without any impediments not suffered by
those domestic companies. Since Petitioners were clearly ``engaged in *
* * the exploitation of * * * natural resources'' prior to the AFA's
adoption, the Treaty, if applied as its language mandates, would
completely preclude application of the AFA's foreign ownership and
control restrictions to any of Petitioners' activities.
``Section 213(g) makes clear, however, that as a matter of
statutory--as opposed to treaty--interpretation, the AFA's ownership
and control provisions are not to be applied retroactively, although
they may be applied prospectively. The provisions are not to be applied
to the extent that a foreign owner's or mortgagee's interest in a
vessel precedes October 1, 2001. The first sentence of section 213(g)
provides that, if any of the ownership and control provisions are
determined to be inconsistent with the treaty, those provisions ``shall
not apply * * * to the extent of any such inconsistency.'' The second
sentence of section 213(g), however, allows them to be applied
prospectively, stating that the ownership and control provisions
shall apply to all subsequent owners and mortgagees of such vessel,
and shall apply, notwithstanding the previous sentence, to the owner
on October 1, 2001 of such vessel if any ownership interest in that
owner is transferred to or otherwise acquired by a foreign
individual or entity after such date.
Pub. L. No. 105-277, Sec. 213(g), 112 Stat. 2681-616, 2681-637 (1998).
Thus, since Petitioners' interests in the Vessel predates October 1,
2001, those interests are protected under the explicit language of the
statute.
(e) Article IX(2)--National Treatment in Owning/Possessing Movable
Property
``Article IX(2) of the FCN Treaty is another national-treatment
provision that conflicts with the AFA, and the analysis of that
conflict mimics that of Article VII, described above. The first
sentence of Article IX(2) states that the United States must accord
``[n]ationals and companies'' of Japan ``national treatment * * * with
respect to owning and possessing[] movable property of all kinds, both
tangible and intangible.'' Just as they conflict with Article VIPs
mandate of national treatment with respect to business activities, the
AFA's ownership and control restrictions obviously impair Petitioners'
ability to ``own[] [or] possess[] movable property''--namely, the
Vessel--in ways that American-owned companies are not affected.
Petitioners are thus not being ``accorded * * * national treatment * *
* with respect to owning and possessing[]'' U.S. flag vessels.
The second sentence of Article IX(2) then says,
However, either Party may impose restrictions on * * * alien
ownership of interests in enterprises carrying on the activities
listed in the first sentence of paragraph 2 of Article VII, but only
to the extent that this can be done without impairing the rights and
privileges secured by Article VII or by other provisions of the
present Treaty.
``In effect, then, the second sentence of Article IX(2) subjects
the ``national treatment for owning immovable property'' provision of
the first sentence of Article IX(2) to the same constraints as Article
VII(1): The United States may impose limitations on the acquisition of
interests in the exploitation of natural resources (such as fish), but
may not impose new restrictions on enterprises such as Petitioners that
were engaged in the fishing business prior to the adoption of those
restrictions. The AFA's ownership and control restrictions are thus
inconsistent with Article IX(2) of the FCN Treaty.
(f) Article VI(3)--No Takings Without Just Compensation
``The first sentence of Article VI, paragraph 3, of the FCN Treaty
states that ``[p]roperty of nationals and companies of either Party
shall not be taken within the territories of the other Party except for
a public purpose, nor shall it be taken without the prompt payment of
just compensation.'' This is in effect a ``takings clause'' which
precludes expropriations and other measures that substantially impair a
Japanese national's property rights. Applying the AFA's ownership or
control restrictions to prohibit Petitioners from maintaining their
pre-existing interests in the Vessel would effectively render
Petitioners' interests in the Vessel nearly worthless and would thus
violate Article VI(3) of the Treaty.
``First, the term ``property'' includes not simply direct equity
stakes in property but also a wide variety of property interests, such
as those that Petitioners have in the Vessel. The Protocol to the FCN
Treaty explicitly states that ``[t]he provisions of Article VI,
paragraph 3, * * * shall extend to interests held directly or
indirectly by nationals and companies of either Party in property which
is taken within the territories of the other Party.'' FCN Treaty
Protocol, para. 2 (emphasis added). As the United States delegates made
clear during the negotiation of the Treaty, the phrase ``interests held
directly or indirectly'' ``is intended to extend to every type of right
or interest in property which is capable of being enjoyed as such, and
upon which it is practicable to place a monetary value. These direct
and indirect interests in property include not only rights of
ownership, but [also] * * * lease hold interest[s], easements,
contracts, franchises, and other tangible and intangible property
rights.'' See Memorandum of Conversation dated April 15, 1952, at 3. In
short, ``all property interests are contemplated by the provision.''
Id. This necessarily includes not only the indirect equity stake
Petitioners have in the Vessel but also the other contracts that might
indicate some level of ``control'' within the meaning of the AFA.
``Second, the concept of a taking in this context is broad and ``is
considered as covering, in addition to physical seizure, a wide variety
of whole or partial sequestrations and other impairments of interests
in or uses of property.'' See Sullivan Study at 116 (emphasis added).
Therefore, the fact that applying the AFA's ownership and control
restrictions to Petitioners' interests in the Vessel would effectively
result in a forced sale of the Vessel at a bargain basement price is a
sufficient impairment of rights to constitute a violation of Article
VI(3).
``Third, the Treaty requires that the taking be for a ``public
purpose,'' and it is doubtful whether application of the AFA's
ownership or control restrictions to Petitioners' interests in the
Vessel would implicate a ``public purpose'' within the meaning of the
FCN Treaty, given that the primary result would simply be a windfall to
private U.S. nationals. Even if the AFA's putative goal of
Americanization of the fishing industry could be characterized as a
``public purpose,'' the AFA makes no provision for the ``prompt payment
of just compensation,'' as required by the Treaty. Indeed, more than
the Takings Clause of the United States Constitution's Fifth Amendment,
Article VI(3) of the FCN Treaty details the payment procedures with
which a government must comply in the event of a taking. After the
first sentence, quoted above, Article VI(3) goes on to say,
[[Page 79457]]
``Such compensation shall be in an effectively realizable form and
shall represent the full equivalent of the property taken; and adequate
provision shall have been made at or prior to the time of taking for
the determination and payment thereof.'' The fact that the AFA and 46
CFR part 356 both fail to provide any compensation scheme--let alone,
``adequate provision * * * at or prior to the time of taking''--thus
renders any application of those ownership or control restrictions to
Petitioners' interests in the Vessel inconsistent with Article VI,
paragraph 3, of the FCN Treaty.
(g) Article V--Prohibition on Discriminatory Measures
``Article V of the FCN Treaty prohibits the United States from
``tak[ing] unreasonable or discriminatory measures that would impair
the legally acquired rights or interests * * * of [Japanese] nationals
and companies in the enterprises which they have established.'' This is
a catch-all provision that reinforces both the national-treatment
principles in Articles VII and IX(2) and the property-rights principles
in Article VI(3). The term ``discriminatory'' in this clause includes
``denials of * * * national * * * treatment,'' Sullivan Study at 115,
such as that which would be occasioned by application of the AFA's
ownership and control provisions to Petitioners' interests in the
Vessel. Moreover, there is no question that the phrase ``legally
acquired rights or interests'' means exactly what it says and includes
interests such as those Petitioners have in the Vessel. See id.
(``[T]he intent is to protect against retroactive impairment of vested
rights if the acquisition of such rights was lawful.'').
(h) Article XIX(6)--National Fisheries Clause
``As discussed above, application of the AFA's ownership and
control restrictions to Petitioners' interests in the Vessel clearly
conflict with several provisions of the FCN Treaty. Article XIX(6)
deals specifically with fisheries issues, and although it might at
first appear to support a different result, it does not undermine the
conclusion that the Treaty is inconsistent with the ownership and
control restrictions in both the AFA and 46 CFR part 356.
``Article XIX, paragraph 6, of the Treaty states, ``Notwithstanding
any other provision of the present Treaty, each Party may reserve
exclusive rights and privileges to its own vessels with respect to the
* * * national fisheries * * *'' Though a cursory reading of this
language might lead one to believe this provision permits foreign
ownership or control restrictions with respect to fishing vessels,
there are two reasons why Article XIX(6) does not permit application of
the AFA's foreign ownership and control restrictions to Petitioners'
interests in the Vessel.
``First, Article XIX, paragraph 7, defines the term ``vessel'' to
exclude ``fishing vessels'' for the purposes of Article XIX(6). Thus,
by its terms, Article XIX(6) simply does not apply to vessels such as
the Vessel, because any vessel seeking a fishery endorsement is quite
clearly a ``fishing vessel.''
``Second, even if Article XIX(6) were to apply to ``fishing
vessels,'' it would be irrelevant to foreign ownership and investment
restrictions. The Treaty's text and negotiating history, along with
subsequent State Department practice, support this view. The text makes
clear that Article XIX(6) simply permits the United States to reserve
fishing rights and privileges to ``its own vessels''--that is, U.S.
flag vessels. It says nothing about a Party's right to restrict foreign
investment in, or ownership of, that Party's ``own vessels'' and thus
cannot be read to exempt such restrictions from the Treaty's
requirement of national treatment.
``The historical record of the negotiations provides further
evidence of this straightforward textual reading. At one point, the
Japanese negotiators proposed rewriting Article XIX(6) so as
effectively to add the words ``nationals,'' and ``companies'' to the
reference to ``vessels.'' The Japanese sought language that would have
stated that the Treaty was not to be construed to extend to
``nationals, companies and vessels of the other Party any special
privileges reserved to national fisheries.'' See Memorandum of
Conversation dated April 3, 1952, at 5. The State Department understood
this as an attempt by the Japanese to seek a blanket exception from the
entire Treaty for national fisheries. See U.S. Dep't of State, Outgoing
Airgram to U.S. Embassy in Tokyo (June 12, 1952), at 1-2 (noting that a
clearer way to effect the Japanese intent was with a single
comprehensive exception stating that ``[t]he provisions of the present
Treaty shall not apply with respect to the national fisheries of either
Party, or to the products of such fisheries''). The Japanese proposal
was not adopted, and the language of Article XIX(6) remained unchanged,
limiting its scope to vessels of the other Party, thereby underscoring
the fact that Article XIX(6) applies only to Japanese-flag vessels and
not to Japanese citizens or companies.
``Subsequent practice of the State Department also confirms this
reading of Article XIX(6). In 1964, the State Department reaffirmed the
narrow nature of the exclusion in Article XIX(6) in a letter to the
House Committee on Merchant Marine and Fisheries. The letter makes
clear that the provision merely permits the United States to reserve
the right to catch or land fish to U.S. flag vessels. See Jones Study
at 80-81.
``This reading of the U.S.-Japan FCN Treaty also comports with the
State Department's reading of this same language in other FCN treaties
to which the U.S. is a party. The Sullivan Study explicitly states that
``[t]he crucial element in Article XIX is that it relates to the
treatment of vessels and to the treatment of their cargoes. It is not
concerned with the treatment of the enterprises which own the vessels
and the cargoes.'' See Sullivan Study at 284 (emphasis added).
``Thus, the text, negotiating history and subsequent practice and
understanding explicitly confirm that Article XIX(6) is irrelevant to,
and thus does not exempt from the Treaty's other provisions, laws
restricting foreign ownership and control of the entities that own U.S.
flag vessels seeking fishery endorsements. As a result, Article XIX(6)
does not exempt the AFA's ownership and control restrictions from
Articles V, VI(3), VII, and IX(2), each of which bars application of
those restrictions to Petitioners' interests in the Vessel.
Conclusion
``Applying the AFA's ownership and control restrictions so as to
preclude Petitioners from maintaining their interests in the Vessel
violates both the spirit and the text of the FCN Treaty, which
guarantees nationals of one Party ``national treatment'' by the other
and precludes the imposition of measures that effectively strip a
Japanese national of its legally-acquired property rights.''
This concludes the analysis submitted by Petitioner for
consideration.
Dated: December 12, 2000.
By Order of the Maritime Administrator.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 00-32160 Filed 12-18-00; 8:45 am]
BILLING CODE 4910-81-P