[Federal Register Volume 77, Number 7 (Wednesday, January 11, 2012)]
[Proposed Rules]
[Pages 1658-1661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-388]


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FEDERAL MARITIME COMMISSION

46 CFR Part 515

[Docket No. 11-09]
RIN 3072-AC46


Adjustment of the Amount for the Optional Rider for Proof of 
NVOCC Financial Responsibility for Trade With the People's Republic of 
China

AGENCY: Federal Maritime Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Maritime Commission proposes to amend its rules 
regarding the amount of bond coverage required in its optional China 
Bond Rider for Non-Vessel-Operating Common Carriers (NVOCCs). The 
proposed rule is intended to provide NVOCCs with the ability to post a 
bond with the Commission that satisfies the equivalent of 800,000 
Chinese Renminbi, for which the equivalent dollar amount has fluctuated 
since the regulation was first adopted by the Commission.

DATES: Comments or suggestions are due on or before March 12, 2012.

ADDRESSES: Address all comments concerning this proposed rule to: Karen 
V. Gregory, Secretary, Federal Maritime Commission, 800 North Capitol 
Street NW., Washington, DC 20573-0001, Phone: (202) 523-5725.

SUPPLEMENTARY INFORMATION: Submit Comments: Submit an original and five 
(5) copies in paper form, and if possible, send a PDF of the document 
by email to <a href="/cdn-cgi/l/email-protection#bdced8decfd8c9dccfc4fddbd0de93dad2cb"><span class="__cf_email__" data-cfemail="8ffceaecfdeafbeefdf6cfe9e2eca1e8e0f9">[email protected]</span></a>. Include in the subject line: Docket No. 
11-09, Comments on Proposed Adjustment of the Amount for the FMC 
Optional China Bond Rider.

Background

    Under a Memorandum of Consultations pursuant to the 2003 bilateral 
Maritime Agreement between the United States and the People's Republic 
of China (China or the PRC), the PRC does not require U.S. Non-Vessel-
Operating Common Carriers (NVOCCs) to make a cash deposit in a Chinese 
bank as would otherwise be required by Chinese regulations, so long as 
the NVOCC:
    (1) Is a legal person registered by U.S. authorities;
    (2) Obtains an FMC license as an NVOCC; and
    (3) Provides evidence of financial responsibility in the total 
amount of Chinese Renminbi (RMB) 800,000 or U.S. $96,000.
    An FMC-licensed NVOCC that voluntarily provides an additional 
surety bond in the amount of $21,000 (denominated in USD or RMB), which 
by its conditions is available for potential claims of the MOT (as well 
as other Chinese agencies) for violations of the Chinese Regulations on 
International Maritime Transportation, may register in the PRC without 
paying the cash deposit otherwise required by Chinese law and 
regulation.
    In 2004, the Commission issued a Notice of Proposed Rulemaking 
(NPR) to explore mechanisms for NVOCCs to file proof of such additional 
financial responsibility. See 69 FR 4271 (January 29, 2004). On April 
1, 2004, the Commission issued a final rule that amended its 
regulations governing proof of financial responsibility for ocean 
transportation intermediaries to allow an optional rider to be filed 
with a licensed NVOCC's proof of financial responsibility to provide 
additional proof of financial responsibility for such carriers serving 
the U.S. oceanborne trade with the PRC. Docket No. 04-02, Optional 
Rider for Proof of Additional NVOCC Financial Responsibility, 30 S.R.R. 
179 (FMC 2004).
    On April 15, 2011, the Commission received a communication from the 
Maritime Administration, U.S. Department of Transportation, 
transmitting a request from the Ministry of Transport (MOT) of the PRC 
to revise the Commission's regulations at Appendix E to Subpart C of 
Part 515--Optional Rider for Additional NVOCC Financial Responsibility 
(Optional Rider to Form FMC 48) [Form 48A] (China Bond Rider). MOT 
requested that the Commission review its financial responsibility 
regulations set forth in 46 CFR part 515. MOT asserts that the exchange 
rate between the USD and the RMB has risen from 1:8.276 in 2003 to 
1:6.536 at present, an increase of approximately 21.02%. Consequently, 
MOT asserts, the amount of 96,000 USD is inadequate to meet 800,000 RMB 
at the current exchange rate. Specifically, MOT requests that the 
regulation be

[[Page 1659]]

revised to include a provision that would allow for adjustments to the 
USD amount required in a NVOCC optional bond rider covering 
transportation activities in the U.S./China trades when the USD and the 
RMB exchange rate fluctuates 20% higher or lower than that of the last 
adjustment. MOT also proposes that the adjustment be jointly approved 
by the U.S. and the PRC at the bilateral maritime consultative meeting 
of the same year. Finally, if this proposal is adopted, the MOT also 
proposes that the existing total required bond amount of 96,000 USD be 
increased to 122,000 USD, which, MOT asserts, is the equivalent amount 
of 800,000 RMB at the present exchange rate.

Comments

    The Commission issued a Notice of Inquiry soliciting public 
commentary on the proposal on June 10, 2011. The NOI sought general 
comments on the China Bond Rider, and also presented three questions 
for particular study:

    1. Describe how, and to what extent, the optional rider to the 
required NVOCC bond has impacted your company's business operations? 
Does this make for more certainty in your business operation? Has 
the optional rider to the required NVOCC bond impacted your overall 
business costs? If so, how?
    2. What do you see as the advantages and disadvantages of an 
adjustment to the current optional rider to the required NVOCC bond?
    3. Please explain whether, and if so, how significantly your 
business costs/operations would be affected by a provision that 
allows for adjustments to the U.S. Dollar amount required in a NVOCC 
optional China bond rider when the USD (U.S. Dollar) and the RMB 
(Renminbi) exchange rate fluctuates 20% higher or lower.

The Commission received three Comments, each of which is summarized 
below.
    Econocaribe Consolidators: John Abisch, the President of 
Econocaribe, did not appear to oppose the suggestion that the China 
Bond Rider be increased to cover currency valuations. Instead, the 
comment focused on the effect of the China Bond Rider and other rider 
requirements imposed on bondholders, such as the requirement that 
NVOCC's obtain an additional $10,000 in bond coverage for each branch 
office. Econocaribe noted that if a bondholder has five additional 
branch offices, the total coverage would be $125,000 ($75,000 base plus 
$50,000 for five branch offices). Econocaribe stated that ``[i]f the 
FMC can get the [Chinese Government] to `count' the entire bond 
currently posted, including the amount of the bond posted for the 
branch offices, even with the [Chinese Government] increasing the bond 
requirement, this would actually have a slight reduction in the cost of 
the bond[.]''
    Mohawk Global Logistics: Richard J. Roche submitted comments on 
behalf of Mohawk Global Logistics. Mohawk believes that the optional 
rider method of conducting business is ``a fair and equitable'' 
solution to the alternative of posting a cash bond in China. Mohawk 
prefers bond coverage to cash deposit because it allows Mohawk to 
``expand [its] offering in China without having to make a significant 
investment of cash.'' Similarly, Mohawk understands currency 
fluctuations, and ``agree[s] that an increase in demonstrated bond 
coverage is warranted due to the lower value of the U.S. dollar 
today.'' Mohawk did not identify disadvantages to the increase, other 
than the minor administrative burden of possibly prorating bonds in 
effect, addressing different bond premium dates, and the incremental 
increase in the cost of the China Bond Rider coverage. These 
disadvantages would be multiplied if the Commission added an automatic 
trigger based on a currency fluctuation of a defined percentage. If 
currencies fluctuated rapidly or drastically, it could cause additional 
administrative burdens on bondholders. Mohawk did not see this outcome 
as likely, and believed that an automatic trigger for additional 
coverage could prove workable. Mohawk also agreed with Econocaribe that 
many bondholders already demonstrate 800,000 RMB worth of coverage if 
one includes the aggregate amount posted for branch offices. In 
Mohawk's view:

    A more reasonable approach might be for China to set and 
exchange value as of a given date, and allow NVOCC's to offset the 
bond coverage based on total bond value, adding any additional 
coverage as might be required to make up any shortfall not already 
covered by multiple branch offices. This would limit the bond 
transactions significantly, while providing simplicity and stability 
for all involved.

    National Customs Brokers and Forwarders Association (NCBFAA): The 
NCBFAA notes in its comments the history of the China Bond rider 
provision, and the role that the NCBFAA played in Docket No. 04-02, 
Optional Bond Rider for Proof of Additional NVOCC Financial 
Responsibility. Like Mohawk, the NCBFAA believes that the China Bond 
Rider has been ``extremely successful,'' and has allowed U.S. companies 
to provide services in China that might otherwise be difficult if the 
companies were required to post cash with the Chinese Government. 
Though U.S.-licensed NVOCCs must register in China in order to conduct 
business, NCBFAA indicates that the process ``has not been unduly 
onerous,'' and ``has not heretofore unduly increased operating costs.''
    The NCBFAA also accepts that the respective currencies have 
fluctuated, and some justification exists for the Chinese Government's 
request to increase the amount of the Bond Rider. Additionally, 
although the NCBFAA does not object to the Commission's consideration 
of a Bond Rider adjustment any time the currency values fluctuate more 
than 20%, it does not believe that an automatic adjustment ``is 
necessary or appropriate.'' The NCBFAA also echoes the beliefs of 
Mohawk and Econocaribe that many NVOCCs already have an aggregate 
coverage of greater than $125,000 (which would surpass the adjusted 
China Bond Rider amount of $122,000). If the Chinese Government 
assented, NCBFAA posits that allowing the NVOCCs to count all bond 
coverage might actually decrease the cost for many U.S.-licensed NVOCCs 
who do business in China. The NCBFAA looks to the Annex to the 2003 
Bilateral Maritime Agreement for support, noting that it did not 
require a Bond Rider of a certain amount, but instead required evidence 
of financial responsibility of a certain total amount ($96,000). The 
Agreement left open how that total may be satisfied. The NCBFAA thus 
suggests that the Commission seek the Chinese Government's assent to 
accepting a total bond amount in addition to a Bond Rider in satisfying 
the $122,000 amount. Each NVOCC could thus determine whether it was 
more cost effective to procure a Bond Rider, or simply rely on its 
aggregate coverage amount that exceeded $122,000. This would reduce 
operating costs for some NVOCCs, but would still maintain adequate 
coverage.

Proposed Change

    In the 2003 Memorandum of Consultation between the U.S. and China, 
the two nations agreed that U.S. NVOCCs operating in trade with China 
would provide ``evidence of financial responsibility in the total 
amount of Chinese Renminbi (RMB) 800,000 or U.S. $96,000.'' The 
Memorandum specified an amount in both Chinese and U.S. currency, and 
did not provide for adjustment in exchange rates. Nevertheless, in 
recognition of the recent slight improvement in the value of the RMB 
against the dollar, and in the spirit of comity and good faith with our 
trading partner, the Commission is proposing to adjust its China bond 
rider so that total NVOCC financial responsibility will equal 800,000 
RMB

[[Page 1660]]

under current exchange rates. The Commission acknowledges that all the 
submitted comments see value in maintaining the optional China Bond 
Rider, and recognize the PRC's justification for adjusting the value 
based on exchange rate changes that have taken place since 2004. 
Therefore, based on the generally favorable comments, the Commission 
now proposes to amend its regulations in 46 CFR Part 515 to adjust the 
amount of surety available in the optional China Bond Rider provided in 
Appendices E and F to Subpart C of Part 515 (Form FMC-48A, OMB No. 
3072-0018), and provide a method for NVOCCs to demonstrate financial 
responsibility by aggregating the total bond coverage for all bonds.
    The proposed rule amends Appendix F to Subpart C of Part 515 (group 
bonds) to increase the amount specified from $21,000 to $50,000. In 
response to the comments the Commission received, the proposed rule 
amends Appendix E to Subpart C of Part 515 (individual NVOCC bonds) to 
remove pre-specified rider amounts to account for variances in NVOCCs' 
combined total surety levels maintained to meet the Commission's other 
financial responsibility requirements, including $10,000 in bond 
coverage that NVOCCs maintain for each of their branch offices pursuant 
to 46 CFR Sec.  515.21(a)(4). This recognition means that NVOCCs with 
branch offices may have rider amounts that vary to satisfy the level of 
coverage requested by the PRC, so long as their total coverage equals 
$125,000. The Commission seeks comments particularly on the feasibility 
of these proposed revisions.
    The Commission intends to review the value of the total coverage 
provided by the China bond rider periodically.

Certifications

    The Chairman of the Commission certifies, pursuant to section 
605(b) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., that 
the rule will not, if promulgated, have a significant economic impact 
on a substantial number of small entities. The Commission recognizes 
that the majority of businesses that would be affected by this rule 
qualify as small entities under the guidelines of the Small Business 
Administration. The rule, however, would encompass an optional 
provision for U.S. licensed NVOCCs, which may be used at their 
discretion. The rule would not pose an economic detriment to all NVOCCs 
regulated by the Commission. It would only impact those NVOCCs who 
choose to exercise the option, at this date approximately only 10% of 
the entire pool of all NVOCCs. Instead of applying to all NVOCCS (a 
majority of which are small entities), it adjusts the favored method of 
demonstrating financial responsibility for those NVOCCs who choose to 
use it. This method of demonstrating financial responsibility 
implements an agreement with the PRC that allows U.S. NVOCCs to avoid 
having to make a large cash deposit in a Chinese bank. As such, the 
rule would help continue to promote U.S. business interests in the PRC 
and facilitate U.S. foreign commerce.
    This rule is not a ``major rule'' under 5 U.S.C. 804(2).
    The collection of information requirements contained in this rule 
have been submitted to the Office of Management and Budget for review 
under section 3504(h) of the Paperwork Reduction Act of 1980, as 
amended. Public reporting burden for this collection of information is 
estimated to be 1.25 hours per response, including time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding the burden estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden, to Ronald D. Murphy, Managing 
Director, Federal Maritime Commission, 800 North Capitol Street NW., 
Washington, DC 20573; and to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: Desk Officer for 
the Federal Maritime Commission, Washington, DC 20503.

List of Subjects in 46 CFR Part 515

    Freight, Maritime carriers, Non-vessel-operating common carriers.

    For the reasons stated in the supplementary information, the 
Federal Maritime Commission proposes to amend 46 CFR part 515 as 
follows.

PART 515--LICENSING, FINANCIAL RESPONSIBILITY REQUIREMENTS, AND 
GENERAL DUTIES FOR OCEAN TRANSPORTATION INTERMEDIARIES

    1. The authority citation for part 515 continues to read as 
follows:

    Authority:  5 U.S.C. 553; 31 U.S.C. 9701; 46 U.S.C. 305, 40102, 
40104, 40501-40503, 40901-40904, 41101-41109, 41301-41302, 41305-
41307; Pub. L. 105-383, 112 Stat. 3411; 21 U.S.C. 862.

    2. Revise Appendix E to Subpart C of Part 515 to read as follows:

APPENDIX E TO SUBPART C OF PART 515--OPTIONAL RIDER FOR ADDITIONAL 
NVOCC FINANCIAL RESPONSIBILITY (OPTIONAL RIDER TO FORM FMC-48) [FORM 
48A]

FMC-48A, OMB No. [3072-0018, (04/06/04)]

    Optional Rider for Additional NVOCC Financial Responsibility 
[Optional Rider to Form FMC-48]

RIDER

    The undersigned [----], as Principal and [----], as Surety do 
hereby agree that the existing Bond No. [------------] to the United 
States of America and filed with the Federal Maritime Commission 
pursuant to section 19 of the Shipping Act of 1984 is modified as 
follows:
    1. The following condition is added to this Bond:
    a. An additional condition of this Bond is that $---- (payable 
in U.S. Dollars or Renminbi Yuan at the option of the Surety) shall 
be available to pay any fines and penalties for activities in the 
U.S.-China trades imposed by the Ministry of Communications of the 
People's Republic of China (``MOC'') or its authorized competent 
communications department of the people's government of the 
province, autonomous region or municipality directly under the 
Central Government or the State Administration of Industry and 
Commerce pursuant to the Regulations of the People's Republic of 
China on International Maritime Transportation and the Implementing 
Rules of the Regulations of the PRC on International Maritime 
Transportation promulgated by MOC Decree No. 1, January 20, 2003.
    b. The liability of the Surety shall not be discharged by any 
payment or succession of payments pursuant to section 1 of this 
Rider, unless and until the payment or payments shall aggregate the 
amount set forth in section 1a of this Rider. In no event shall the 
Surety's obligation under this Rider exceed the amount set forth in 
section 1a regardless of the number of claims.
    c. The total amount of coverage available under this Bond and 
all of its riders, available pursuant to the terms of section 1(a.) 
of this rider, equals $----. The total amount of aggregate coverage 
equals or exceeds $125,000.
    d. This Rider is effective the [----] day of [----], 20[----], 
and shall continue in effect until discharged, terminated as herein 
provided, or upon termination of the Bond in accordance with the 
sixth paragraph of the Bond. The Principal or the Surety may at any 
time terminate this Rider by written notice to the Federal Maritime 
Commission at its offices in Washington, DC, accompanied by proof of 
transmission of notice to MOC. Such termination shall become 
effective thirty (30) days after receipt of said notice and proof of 
transmission by the Federal Maritime Commission. The Surety shall 
not be liable for fines or penalties imposed on the Principal after 
the expiration of the 30-day period but such termination shall not 
affect the liability of the Principal and Surety for any fine or 
penalty imposed prior to the date when said termination becomes 
effective.

[[Page 1661]]

    2. This Bond remains in full force and effect according to its 
terms except as modified above.
    In witness whereof we have hereunto set our hands and seals on 
this [----] day of [----], 20[----],

[Principal], By:

[Surety], By:

* * * * *
    3. Revise paragraph 1.a. of Appendix F to Subpart C of Part 515 
to read as follows:
* * * * *
    1. * * *
    a. An additional condition of this Bond is that $ [----] 
(payable in U.S. Dollars or Renminbi Yuan at the option of the 
Surety) shall be available to any NVOCC enumerated in an Appendix to 
this Rider to pay any fines and penalties for activities in the 
U.S.-China trades imposed by the Ministry of Communications of the 
People's Republic of China (``MOC'') or its authorized competent 
communications department of the people's government of the 
province, autonomous region or municipality directly under the 
Central Government or the State Administration of Industry and 
Commerce pursuant to the Regulations of the People's Republic of 
China on International Maritime Transportation and the Implementing 
Rules of the Regulations of the PRC on International Maritime 
Transportation promulgated by MOC Decree No. 1, January 20, 2003. 
Such amount is separate and distinct from the bond amount set forth 
in the first paragraph of this Bond. Payment under this Rider shall 
not reduce the bond amount in the first paragraph of this Bond or 
affect its availability. The Surety shall indicate that $50,000 is 
available to pay such fines and penalties for each NVOCC listed on 
appendix A to this Rider wishing to exercise this option.
* * * * *

    By the Commission.
Rachel E. Dickon,
Assistant Secretary.

[FR Doc. 2012-388 Filed 1-10-12; 8:45 am]
BILLING CODE 6730-01-P


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