[Federal Register Volume 70, Number 183 (Thursday, September 22, 2005)]
[Rules and Regulations]
[Pages 55581-55597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18678]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 296

[Docket No. MARAD-2004-18489]
RIN 2133-AB62


Maritime Security Program

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Final rule.

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SUMMARY: This rule revises and adopts as final the interim final rule 
published in the Federal Register on July 20, 2004. The Maritime 
Administration (MARAD) is issuing this final rule to implement 
provisions of the National Defense Authorization Act for Fiscal Year 
2004, the Maritime Security Act of 2003 (MSA 2003). The MSA 2003 
authorizes the creation of a new Maritime Security Program (MSP) that 
establishes a fleet of active, commercially viable, privately owned 
vessels to meet national defense and other security requirements and to 
maintain a United States presence in international commercial shipping.

DATES: Effective Date: This final rule is effective November 21, 2005.

FOR FURTHER INFORMATION CONTACT: Taylor E. Jones II, Director, Office 
of Sealift Support, Maritime Administration, Telephone 202-366-2323. 
For legal questions, call Murray Bloom, Chief, Division of Maritime 
Programs, Maritime Administration, 202-366-5320.

SUPPLEMENTARY INFORMATION:

Background

    On October 8, 1996, the President signed the Maritime Security Act 
of 1996 establishing the Maritime Security Program (MSP) for FYs 1996 
through 2005 to provide financial assistance of up to $2.1 million per 
vessel per year to operators of U.S.-flag vessels with approved MSP 
Operating Agreements. The MSP is funded at $98.7 million per year for 
each year from FY 1996 through

[[Page 55582]]

FY 2005, which covers a maximum of 47 vessels.
    On November 24, 2003, the President signed the National Defense 
Authorization Act for Fiscal Year 2004, which contained the MSA 2003 
creating a new MSP for FY 2006 through FY 2015. This program also 
provides financial assistance to operators of U.S.-flag vessels that 
meet certain qualifications. The MSA 2003 requires that the Secretary 
of Transportation, in consultation with the Secretary of Defense, 
establish a fleet of active, commercially viable, militarily useful, 
privately-owned vessels to meet national defense and other security 
requirements. Section 53111 of the MSA 2003 authorizes $156 million 
annually for FYs 2006, 2007, and 2008; $174 million annually for FYs 
2009, 2010, and 2011; and $186 million annually for FYs 2012, 2013, 
2014, and 2015 to support the operation of up to 60 U.S.-flag vessels 
in the foreign commerce of the United States. Payments to participating 
operators are specified in the statute at $2.6 million per ship per 
year for FYs 2006 through 2008, $2.9 million per ship per year for FYs 
2009 through 2011, and $3.1 million per ship per year for FYs 2012 
through 2015. Payments are subject to annual appropriations. 
Participating operators are required to enter into an Emergency 
Preparedness Agreement, which would make their commercial 
transportation resources available upon request by the Secretary of 
Defense during times of war or national emergency.
    Subtitle A, section 3517 of the MSA 2003 provides for a pilot 
program under which the Secretary of Transportation may enter into an 
agreement(s) to reimburse MSP vessel operators up to 80 percent of the 
cost of performing maintenance and repairs in U.S. shipyards versus the 
cost of performing this work in a geographic region in which the MSP 
vessel generally operates. Funding to perform qualified maintenance and 
repair work in the United States on MSP vessels is authorized to be 
appropriated in the amount of $19.5 million for each of fiscal years 
2006 through 2011.

Interim Final Rule

    As authorized by section 53103(b)(1) of the MSA 2003, MARAD issued 
an interim final rule on July 20, 2004 (69 FR 43328), which added a new 
part 296 to title 46 of the Code of Federal Regulations. The interim 
final rule established procedures to implement the MSA 2003 with 
respect to the application for, and award of, MSP Operating Agreements 
that provide financial assistance to owners and/or operators of the 
vessels enrolled in the program. The program will be administered on 
the basis of one-year renewable MSP Operating Agreements, provided 
funding is available in subsequent years. Participating operators will 
receive financial assistance when operating eligible vessels in the 
foreign commerce of the United States, and certain specified foreign 
and domestic areas, with a minimum of operating restrictions, for at 
least 320 days in any fiscal year. Payment under the program will be 
made on a prorated basis for vessels operated less than 320 days in any 
year, exclusive of days a MSP vessel is being drydocked, surveyed, or 
repaired. In addition, no payment will be made for each day any vessel 
carries civilian bulk preference cargoes of 7,500 tons or more. MARAD's 
interim final rule solicited applications for participation in the MSP 
using the application approved under OMB Control No. 2133-0525. MARAD 
received applications from 26 applicants for 142 applicant vessels; MSP 
Operating Agreements for 60 vessels were awarded on January 12, 2005.

Discussion of Comments and Changes

    MARAD received fifteen sets of comments on the interim final rule. 
MARAD also received comments that were not related to the interim final 
rule, which will not be addressed in this document. Comments on the 
interim final rule, MARAD's responses, and changes made to the interim 
rule, are as follows.

1. Definitions; Section 296.2

Definition of Citizen of the United States

    Comment: One commenter approves of the definition of ``Section 2 
Citizen'' but urges that the definition of ``Section 2 Citizen'' be 
used in sections 296.20, 296.22, 296.30(f)(2)(ii)A&B, 296.31(d)(3), and 
296.41(c)(ii) instead of ``citizens of the United States under section 
2 of the Shipping Act, 1916 (46 App. U.S.C. 802).'' The commenter urges 
that the term ``Citizen of the United States'' not be used because it 
is duplicative, unnecessary, and confusing.
    Response: MARAD agrees to substitute ``Section 2 Citizen'' for 
``citizens of the United States under section 2 of the Shipping Act, 
1916 (46 App. U.S.C. 802)''. In the sections referred to by the 
commenter, the term ``Citizen of the United States'' will be deleted 
from the regulation.
    Comment: One commenter argued that the last phrase of the 
definition of ``Citizen of the United States''--``or a corporation, 
partnership, or association as determined under section 2 of the 
Shipping Act, 1916, as amended (46 App U.S.C. 802)''--is too 
restrictive as it defines U.S. citizenship and is not in agreement with 
section 12102 of title 46, United States Code. The commenter stated 
that the definition of ``Citizen of the United States'' should also 
include documentation citizens.
    Response: The commenter's suggestion is rejected because the 
documentation statutes, 46 U.S.C. 12101, et seq., do not contain a 
definition for ``Citizen of the United States''.

Definition of Domestic Trade

    Comment: One commenter seeks to have the term ``domestic trade'' 
conform with terminology used elsewhere in the rule--``coastwise 
trade''.
    Response: The terms ``domestic trade'' and ``coastwise trade'' are 
used in two contexts in the statute. First, MSP operators may not 
participate in noncontiguous domestic trade unless they are Section 2 
Citizens. Second, MSP vessels may be operated in mixed foreign commerce 
and domestic trade allowed under a registry endorsement; however, the 
MSP vessel cannot otherwise be operated in ``coastwise trade''. The use 
of both terms in the regulation is consistent with the statute. The 
statute apparently uses both terms ``coastwise trade'' and ``domestic 
trade'' interchangeably to mean trade between points in the United 
States. The definition section will reflect both definitions, which 
have been clarified by removing ``two or more ports and/or'' as being 
redundant with the term ``points''.

Definition of Fleet

    Fleet has been removed as the definition of ``Fleet'' was redundant 
to the definition of MSP Fleet.

Definition of Foreign Commerce

    Comment: The definition of ``foreign commerce'' is divided into two 
paragraphs ``the first paragraph concerns vessels other than liquid or 
dry bulk carriers; the second paragraph concerns liquid and dry bulk 
carrying services. Three parties commented on the first paragraph. One 
commenter stated that the term ``cargo'' in line ten of the definition 
is ambiguous because it could be interpreted that only cargo 
originating in or destined for the United States could be carried by a 
covered vessel. The commenter urged that the definition be clarified by 
adding the word ``any'' in front of cargo, enabling a single unit of 
cargo with origination in or destination to the United States to

[[Page 55583]]

qualify the vessel/voyage. Two other commenters stated that 46 U.S.C. 
53101(4)(A)(ii) clearly permits ``commerce or trade between foreign 
countries'' without restriction. Both commenters urged that the 
definition be changed to reflect the statute's language.
    Response: MARAD agrees to add the word ``any'' regarding 
origination or destination to the United States to qualify the vessel/
voyage and will revise the definition of foreign commerce accordingly. 
MARAD does not agree that the definition of foreign commerce for MSP 
liner cargo is intended to be between foreign countries if no cargo 
originates in or is destined for the United States.
    Comment: Two parties commented on the second paragraph. Both 
commenters stated that the definition of ``foreign commerce'' as 
written precludes the carriage of cargo between the United States and a 
foreign port.
    Response: MARAD agrees that the second paragraph could be 
interpreted as precluding carriage of cargo between United States ports 
and foreign ports and needs clarification. We have added a phrase that 
specifically permits trading between United States ports and foreign 
ports.

Definition of Militarily Useful

    Comment: One commenter stated that the definition of ``militarily 
useful'' may limit the discretion of the Secretary of Defense by 
binding him to ``minimum military capabilities, according to the 
Department of Defense (DOD) Joint Strategic Planning Capabilities Plan 
(JSCAP) guidance.'' The commenter ``suggests that the definition of 
``militarily useful'' be revised to confirm DOD's unfettered 
authority'' over the vessel selection process.
    Response: The standards for ``militarily useful'' are DOD 
standards. MARAD does not agree that the definition limits the 
discretion of the Secretary of Defense during the selection of vessels 
for the MSP.

Definition of MSA 2003

    MARAD has added a definition for ``MSA 2003''.

Definition of MSP Operating Agreement

    MARAD has clarified the term MSP Operating Agreement by defining it 
as an assistance agreement as opposed to a procurement.

Definition of Noncontiguous Domestic Trade

    Comment: One commenter seeks to include the phrase ``including 
transportation under the Third Proviso to Section 27 of the Merchant 
Marine Act of 1920 (the Jones Act) (46 App. U.S.C. 883)'' at the end of 
the definition of ``noncontiguous domestic trade''.
    Response: The Third Proviso provides an exception to the 
prohibition in the Jones Act on the use of non-coastwise vessels for 
carriage of cargo between points within the continental United States, 
including Alaska, provided part of the transportation is over Canadian 
rail lines. However, 46 U.S.C. 53107, specifically prohibits 
participation by an MSP operator in transportation 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.'' The question 
is whether the current definition is sufficient on the prohibition of 
carriage of cargo in the noncontiguous domestic trades under MSP, even 
if allowed under the Third Proviso to section 27. In our view, the 
definition is specific, and the only exception to the MSP prohibition 
is spelled out ``other than a point in Alaska north of the Arctic 
Circle''.

Definition of Operator

    Comment: MARAD received two comments that ownership alone does not 
necessarily qualify an owner as an operator.
    Response: MARAD agrees and has added the phrase ``and operates that 
vessel directly'' immediately after the words ``owns a vessel'' in the 
text.

Definition of Person

    Comment: MARAD received two comments that the concluding sentence 
``A trust is not a person'' causes unintended consequences particularly 
with respect to ownership of enrolled vessels.
    Response: The purpose of this determination is that MARAD did not 
want to grant an MSP Operating Agreement to a trust, because we believe 
that an MSP Operating Agreement should be awarded to an entity that can 
actively manage a vessel in its own right. Accordingly, a corporation, 
limited liability company, partnership, or individual are all 
acceptable contractors. However, a trust cannot act in its own right 
and should not be eligible. Therefore, we are changing the concluding 
sentence to ``For purposes of holding an MSP Operating Agreement, the 
term ``person'' excludes a trust.'' MARAD is adding to the definitions 
of Applicant and Contractor that ``the term, applicant excludes a 
trust'' and ``the term, contractor excludes a trust'', respectively.

Definition of Section 2 Citizen

    Comment: One commenter does not understand or agree with the phrase 
``without regard to any statute that ``deems'' a vessel to be owned and 
operated by a Section 2 Citizen'', and urges clarification as to the 
purpose of this phrase.
    Response: MARAD used the ``deeming'' phrase to account for the 
possibility of future changes to the ``deeming'' law. The ``deeming 
statute'' is cited in 46 U.S.C. 12102(d)(4), as amended, and does not 
currently apply to chapter 531 of title 46.

Definition of Transfer of an Operating Agreement

    Comment: Two commenters objected to the definition of ``transfer of 
an operating agreement''. Both commenters wanted the phrase ``either 
directly or indirectly'' removed and both did not want the definition 
to reflect inter-company transfers that, under the existing MSP, do not 
require an amendment to the MSP Operating Agreement. Both commenters 
proposed revised language and one offered an additional definition.
    Response: We do not feel that it is unreasonable to require 
contractors to report all proposed transfers. A transfer of an MSP 
Operating Agreement could be accomplished indirectly, if the MSP 
Operator is acquired by another entity. In such events, MARAD and DOD 
have a responsibility under the statute to review the transfer. Thus, 
MARAD declines to revise this definition.

Definition of United States Citizen Trust

    Comment: One commenter states that section 53102 of the MSA 2003 
requires only that each trustee be a ``citizen of the United States'' 
for a trust to qualify, not a Section 2 Citizen, as specified in the 
definition. The commenter requests that MARAD's definition conform to 
the law.
    Response: MARAD believes that the intent of the statute is that 
each trustee be a Section 2 Citizen. Further, not requiring each 
trustee to be a Section 2 Citizen defeats the purpose of having a 
United States Citizen Trust. Therefore, no change will be made to this 
definition.

2. Applications; Section 296.3

    Comment: One commenter notes that the term ``contractor'' in 
section 296.3(a) should be replaced by ``applicant''.
    Response: MARAD agrees and has amended section 296.3(a) 
accordingly. The sentence including this change has been moved to a new 
section 296.24.
    Comment: One commenter states that MARAD should make clear what 
sort of

[[Page 55584]]

substantiating information is required to establish either ownership or 
the status of a demise charter for the application to be considered 
``complete''.
    Response: MARAD is adding to section 296.3(a) the sentence 
``Contractors of MSP Operating Agreements are required to submit 
ownership information such as a vessel title of ownership and signed 
charters to MARAD for approval by July 1, 2005.''
    Comment: One commenter objected to the qualifier ``U.S.'' before 
citizenship as it applies to vessel managers in paragraph (b)(1).
    Response: MARAD is requiring that vessel managers meet the same 
standards of citizenship as the applicant for whom they provide 
service. We have modified the language to clarify that vessel managers 
for Section 2 Citizen applicant operators must meet Section 2 
Citizenship standards, and vessel managers for documentation citizens 
must meet citizenship standards for documentation citizens.
    Comment: One commenter believes that the use of the word 
``demonstrates'' with regard to submitting an affidavit of U.S. 
citizenship to qualify as being able to document a vessel under 46 
U.S.C. chapter 121, needs to be changed to ``declare'' or ``affirm''.
    Response: MARAD does not believe that a change to the definition is 
necessary as an affidavit is an affirmation.
    Comment: One commenter requested changing ``your'' to ``any'' in 
section 296.3(b)(12) in reference to supplying special security 
agreements with the MSP application.
    Response: MARAD agrees and has changed ``your'' to ``any'' in 
section 296.3(b)(12).
    Comment: One commenter states that the text of section 296.3(b)(13) 
limits the scope of the certification from a documentation citizen who 
is a demise charterer of the MSP vessel to only ``the foreign country 
of the parent'' of any documentation citizen required to so certify, 
whereas the form of the declaration states the scope as ``laws of the 
foreign country(ies) of the [Applicant's] ultimate foreign parent or 
intermediate parents''. * * *
    Response: MARAD agrees and has changed the text of section 
296.3(b)(13) to agree with the declaration.
    Comment: One commenter argues that section 296.3(b)(15) regarding 
replacement vessel plans and age waivers is inconsistent with the MSP 
application form and that the application form should prevail. The 
commenter notes that item 17 of the MSP application form requires that 
an applicant for a Participating Fleet Vessel that is over 15 years of 
age include detailed information on its intended replacement vessel and 
item 18 requires an applicant for an age waiver to provide statutory 
information to support an age waiver. The commenter believes that 
section 296.3(b)(15) appears to require applicants to provide details 
of their replacement plan, which is premature.
    Response: MARAD agrees and has added language regarding the 
replacement plan to section 296.3(b)(15) that is consistent with the 
MSP application form.

3. Citizenship Requirements of Owners, Charterers and Operators; 
Section 296.10

    Comment: One commenter suggests that in order to ensure proper 
interpretation of MSA 2003 requirements, ``entire'' should be added to 
section 296.10 to ensure that citizenship requirements apply throughout 
the term of an MSP Operating Agreement.
    Response: MARAD agrees and has amended the regulation to read 
``Citizenship requirements are deemed to have been met if during the 
entire period of an MSP Operating Agreement under this chapter''. * * *
    Comment: One commenter requests that the word ``person'' should be 
replaced by ``non-Section 2 Citizen'' so that foreign certification and 
other documentation requirements would apply to only documentation 
citizens.
    Response: MARAD agrees and has amended the regulation to read ``A 
vessel to be included in an MSP Operating Agreement is owned by a 
person that is a Section 2 Citizen or a United States Citizen Trust, 
and the vessel is demise chartered to a non-Section 2 Citizen''.
    Comment: One commenter states that MARAD does not cover the 
procedures it will follow as to the approval of board and executive 
personnel at the time of application in section 296.10(b)(2).
    Response: MARAD does not believe that establishing specific 
procedures for approval of board and executive personnel is necessary. 
MARAD believes that maintaining flexibility to consider all factors 
during the evaluation of applications and considering unforeseen events 
does not require establishment of specific procedures.
    Comment: One commenter objects to requiring a majority of the 
members of the board of directors of a Documentation Citizen charterer 
being Section 2 Citizens and recommends that ``section 2'' be deleted 
and ``of the United States'' be inserted after ``citizens.''
    Response: MARAD's language in section 296.10 conforms to 46 U.S.C. 
53102(c)(2)(A)(ii)(II) of the MSA 2003. Thus, no revision is necessary.
    Comment: One commenter requested that MARAD revise the introductory 
text of section 296.10(c) by adding the phrase ``and operated'' to 
indicate that a vessel to be included in an MSP Operating Agreement 
must be owned and operated by defense contractors as set forth in 
paragraph (c). The commenter also suggested that MARAD modify the 
phrase ``owned and operated by a defense contractor'' by adding ``or a 
related person to include affiliated or related companies within the 
same corporate group'' as the commenter believes the phrase ``who is a 
person'' is too restrictive.
    Response: MARAD agrees and has added these changes to the section 
296.10.

4. Vessel Requirements; Section 296.11

    Comment: One commenter notes that section 296.11(a)(5) should 
modify section 296.11(a)(4)(ii).
    Response: MARAD agrees and has renumbered section 296.11(a)(5) to 
section 296.11(a)(4)(ii)(A) and renumbered sections 296.11(a)(5)(i) 
through 296.11(a)(5)(iii) to sections 296.11(a)(4)(ii)(A)(1) through 
296.11(a)(4)(ii)(A)(3), respectively.
    Comment: One commenter argues that the reflagging-in requirement as 
stipulated in section 296.11(a)(4) (which includes the former section 
296.11(a)(5)) implies that the vessel standard exception is a threshold 
for vessel participation in the MSP, rather than an exception from U.S. 
Coast Guard standards that apply to every other U.S.-flag vessel. The 
commenter requests that this section be moved to another subsection and 
clarified to state that a vessel enrolled in the MSP that satisfies the 
statutory requirements will receive a valid Certificate of Inspection 
from the U.S. Coast Guard for all purposes.
    Response: MARAD believes that section 296.11(a)(4) states clearly 
that in order to be eligible for an MSP Operating Agreement, a foreign 
flag vessel must meet the Coast Guard standards noted in section 
296.11(a)(4)(ii)(A). Whether or not a vessel meets the standards noted 
in section 296.11(a)(4)(ii)(A) can only be addressed by the U.S. Coast 
Guard.
    Comment: One commenter noted that MARAD did not address regulatory 
relief provided in 46 U.S.C. 53108(c), as enacted in the MSA 2003, 
regarding telecommunications and other electronic equipment on a 
foreign vessel

[[Page 55585]]

that will be documented under the U.S. flag for operation in the MSP. 
The commenter suggested that MARAD incorporate the Federal 
Communications Commission (FCC) regulatory relief provisions into 
section 296.11(a)(5).
    Response: MARAD agrees, and is adding the FCC provision under 
section 296.11(c).

5. Tank Vessels; Section 296.20

    Comment: One commenter stated that, because of uncertainty of 
funding for the National Defense Tank Vessel Construction Assistance 
Program (NDTVCP), the application process for tankers in the MSP should 
be phased in. The commenter stated the difficulty of providing specific 
existing vessel information when the uncertainty of funding makes it 
impossible to know how long the existing vessels need to be contracted 
for, or even whether NDTVCP funding will eventually occur. The 
commenter urges MARAD to allow NDTVCP applicants to provide generic 
information on October 15, regarding vessels for temporary slots, and 
to fill in the specific data later.
    Response: MARAD is keenly aware of the dilemma presented to NDTVCP 
tanker applicants. However, MARAD was required to offer MSP Operating 
Agreements to operators on January 12, 2005. Those MSP Operating 
Agreements will, by necessity, include temporary vessel slots for 
existing tankers or other vessels to temporarily occupy the slots of 
NDTVCP tankers well in advance of MARAD knowing that tanker 
construction money will be available. Funding availability will 
determine when NDTVCP permanent slots are awarded.
    Comment: One commenter noted that section 296.20(e) specifies that 
if a tank vessel contractor does not offer an eligible existing tank 
vessel during construction of the tank newbuilding, then the Secretary 
may award an MSP Operating Agreement to a non-tank vessel of another 
contractor until construction of the new tank vessel is completed in 
the United States. The commenter suggests that another alternative 
would be to temporarily award an MSP Operating Agreement to a different 
contractor with an eligible tank vessel.
    Response: MARAD will amend the language to change ``non-tank 
vessel'' to ``any eligible vessel''. In addition, MARAD is adding to 
the end of this section further clarification to this section in 
accordance with MARAD's determination of January 12, 2005 specifying 
that a Contractor awarded MSP Operating Agreements for three existing 
tank vessels must sign and execute a binding agreement for construction 
in the United States of three replacement tank vessels to be operated 
under MSP Operating Agreements not later than nine months after 
construction and MSP operating assistance funding for three tank 
vessels becomes available.
    Section 296.20(b)(1) has been amended for clarity, including that 
the requirement for a Contractor to enter into a binding agreement only 
occurs after both construction and operating assistance are available. 
Sections (b)(2)(i) and (b)(2)(ii) have been rewritten to reflect MSP 
Operating Agreement language that was not available when the Interim 
Final Rule was published.

6. Participating Fleet Vessels; Section 296.21

    Comment: One commenter suggests revising the last sentence in 
section 296.21(d)(1) by inserting after ``Applicants must certify that 
they will have the requisite authority'' the phrase ``as of October 1, 
2005 and for the full period of the Operating Agreement thereafter'' 
and adding ``that remains in effect beyond September 30, 2015'' to the 
end of the sentence.
    Response: MARAD agrees that this language adds clarity but has 
changed ``beyond'' to ``until'' after ``that remain in effect'.
    Comment: One commenter suggests that requesting applicants to name 
a replacement vessel with their applications as noted in section 
296.21(d)(2) is unreasonable and that a ``replacement plan'' is what 
should be approved by MARAD.
    Response: In conjunction with comments on section 296.31, MARAD has 
decided to change its requirements. For companies requesting age 
waivers, MARAD will require Applicants to submit a replacement vessel 
plan at least 120 days before the expiration of age eligibility for the 
MSP vessel.
    Comment: One commenter believes that section 296.21(d)(2) is 
misplaced because it refers to all vessels subject to an age waiver, 
not just Participating Fleet Vessels. The commenter further believes 
that MARAD should clarify that the decision to extend an MSP Operating 
Agreement beyond the date that the vessel becomes 25 years of age will 
be made during the term of the MSP Operating Agreement when an 
appropriate vessel can be offered instead of during the application 
process.
    Response: Section 296.21(d)(2) refers to the need of the applicant 
to provide replacement plans for vessels in section 296.21(d)(1) that 
become over age. This section relates only to Priority II vessels, so 
no change to this section is required. The statute does not give 
authority to allow a vessel over 25 years of age in the program unless 
it is a Priority II vessel, and only during the first 30 months of the 
program.
    Comment: One commenter suggested that DOD has the right to reject a 
Participating Fleet Vessel if it is no longer deemed militarily useful. 
The commenter states that DOD has authority to specify operational 
requirements to determine the order of priority within a category of 
priority and the authority to approve or not approve the award of an 
MSP Operating Agreement within a priority. The commenter believes that 
MARAD's reference in section 296.30(a)(2) to the Commander establishing 
general evaluation criteria for operational requirements * * * for 
vessels eligible under the third and fourth priorities is incorrect, 
and should also be applied to the second priority.
    Response: MARAD does not agree as a determination was made by the 
U.S. Transportation Command (USTRANSCOM) prior to acceptance of 
applications that all the Participating Fleet Vessels in Priority II 
have already been deemed to be militarily useful, and therefore, the 
Commander's general evaluation criteria will be restricted to Priority 
III and Priority IV applicants. While some Priority III and Priority IV 
vessels having greater military usefulness than some Priority II 
vessels may be rejected, MARAD and the Commander intend to honor the 
``grandfather'' rights of the Participating Fleet Vessels, pursuant to 
46 U.S.C. 53103(a)(1)(B). No change needs to be made to the regulation.
    Comment: One commenter expressed concern over the possibility that 
a Participating Fleet Vessel may not be available to participate in the 
MSP on October 1, 2005 due to an unforeseen casualty to the vessel, and 
suggested that the Contractor be allowed to offer an eligible 
replacement vessel with a 60 day (or other agreed upon) period to 
preserve the MSP slot.
    Response: MARAD agrees to add a new paragraph (f) to section 296.21 
to address this concern. Section 296.21(f) will read ``In the event 
that a Participating Fleet Vessel will be unavailable to participate in 
the MSP on October 1, 2005, due to an unforeseen casualty to the 
vessel, a Contractor may offer an eligible replacement vessel. The 
replacement vessel must subsequently be approved by MARAD and DOD. The 
replacement vessel must operate under an MSP Operating Agreement in

[[Page 55586]]

sufficient time to meet the 180 minimum operation days required during 
the fiscal year to avoid being in default of the MSP Operating 
Agreement.''

7. Discretion Within Priority; New Section 296.23

    Comment: Several commenters stated that Discretion Within Priority 
applied to all priorities and placing it in section 296.22, which only 
references Priority III and Priority IV vessels, implies that 
Discretion Within Priority applies only to Priority III and Priority IV 
vessels.
    Response: MARAD agrees and has moved the provisions regarding 
Discretion Within Priority to a new section 296.23.
    A new subsection has been added stating that the Secretary must 
follow the priority system established in 46 U.S.C. 53103(c) when 
awarding initial MSP Operating Agreements. In other words, MARAD 
cannot, for example, favor a Priority III applicant over a Priority II 
applicant.

8. Subsequent Awards of MSP Operating Agreements; New Section 296.24

    Comment: One commenter indicated that if for any reason, after the 
award of an operating agreement, the contractor is unwilling or unable 
to enter into an MSP Operating Agreement, MARAD may award that 
operating agreement to an applicant having an eligible vessel that 
applied but was not awarded an MSP Operating Agreement or may award 
that operating agreement following a new round of applications at a 
later date.
    Response: MARAD is adding section 296.24 to adopt these views by 
providing for subsequent awards of MSP Operating Agreements should an 
opening occur at a later date. Part of section 296.3(a) concerning 
failure of MSP Operating Agreement holders to commence operations 
pursuant to the terms of the MSP Operating Agreement has been restated 
and moved to the new section 296.24. Section 296.24 also provides 
procedures for awarding replacement MSP Operating Agreements subsequent 
to October 1, 2005. MARAD retains the discretion envisioned in the 
statute to award an MSP Operating Agreement either from the original 
pool of applicants or from a new pool of applicants. At the time 
subsequent awards are made, MARAD will determine if the original 
applicant pool is stale. Section 296.24 also states that inasmuch as 
MSP furthers a public purpose and MARAD does not acquire goods or 
services through MSP, the selection process for award of MSP Operating 
Agreements does not constitute an acquisition process subject to 
procurement law or the Federal Acquisition Regulations. This 
determination results from recent ``bid protests'' that were filed with 
the Government Accountability Office and subsequently withdrawn.
    Comment: One commenter argues that MSP applicants meeting the 
Section 2 Citizenship requirements, whose vessels have been found 
eligible but are wait listed for an award of an MSP Operating Agreement 
due to the lack of available slots, should receive first priority 
consideration if slots become available.
    Response: Until October 1, 2005 MSP applicants meeting the Section 
2 citizenship requirements will get priority because the priority 
system will apply, subject to approval of USTRANSCOM. After October 1, 
2005 MARAD, in conjunction with USTRANSCOM, will select vessels on the 
basis of military utility and commercial viability, giving priority to 
applicants that have the same or more restrictive citizenship status as 
the original awardee of the slot returned to MARAD for reissue. New 
section 296.24 covers the procedures to be used by MARAD to select 
vessels if slots become available. No change is necessary in section 
296.30.

9. General Conditions; Approval; Section 296.30

    Comment: One commenter stated that MARAD should have the 
flexibility to consider newbuilds other than tank vessels, but that the 
language of section 296.30(b) seemed to preclude this as the starting 
date for the new MSP was established as October 1, 2005. The only 
exception listed in section 296.30(b)(2) is for vessels under charter 
to the Government. The commenter recommended language for a second 
exception specifically for newbuilds.
    Response: One of the goals of the new MSP is to have 60 vessels 
selected and ready to enter the program on October 1, 2005. There were 
a couple of applications that featured newbuilds. For those 
applications, MARAD has the discretion to offer temporary slots to 
existing vessels if the newbuilds are selected for future inclusion 
when they are delivered. MARAD does not believe additional language is 
necessary.
    Comment: One commenter noted that the sections under 296.30 address 
the situation of partial funding by Congress for the MSP, and that 
section 296.30(g) specifies that a determination on which vessels will 
be funded will be based on the most militarily useful and commercially 
viable vessels. The commenter argues that a determining consideration 
of which vessels will be funded should also include the Contractors' 
services and systems. In addition, the commenter believes that the 
priority system must be followed.
    Response: MARAD believes that a determination of ``commercially 
viable'' vessels addresses the commenter's concerns about Contractors' 
services and systems. MARAD is not required to follow the initial 
application priority system in determining which MSP Operating 
Agreements to fund when the program is partially funded after October 
1, 2005.
    Comment: One commenter stated that tank vessels not built under the 
NDTVCP should not be treated the same as tank vessels built under the 
NDTVCP with regard to flagging out vessels in the event of termination 
of the MSP Operating Agreement with replacement by the Contractor or if 
sufficient MSP funding is not appropriated for any fiscal year by the 
60th day of that fiscal year. Section 296.30(h) requires the owner and 
operator of any tank vessel to formally apply to MARAD pursuant to 
section 9 of the Shipping Act, 1916 to transfer and register the vessel 
under a foreign registry.
    Response: MARAD agrees that the requirement for formally applying 
under section 9 of the Shipping Act, 1916, to flag out tankers applies 
only to tankers built under the NDTVCP. Appropriate changes have been 
made to sections 296.30(h)(2) and 296.30(h)(3).
    Comment: One commenter argued that the transfer of MSP Operating 
Agreements should be allowed only to a person with the same or more 
restrictive U.S. citizenship priority. The commenter also urged that 
MARAD should render decisions on MSP transfer requests within 90 days--
not with a minimum of 90 days without an upper limit to process such 
transfer requests.
    Response: MARAD agrees that transfers of MSP Operating Agreements 
will be to persons of the same or more restrictive U.S. citizenship 
priority. However, the statute provides for both DOD and MARAD approval 
of transfers, and does not set a time limit for review. Therefore, 
MARAD will not limit MSP transfer requests to 90 days or less. MARAD 
does not believe any changes are necessary to the rule with regard to 
the commenter's suggestions.
    Comment: One commenter believes that a transfer from a holder of an 
MSP Operating Agreement under the Third citizenship category be 
required to transfer that MSP Operating Agreement to another person 
that qualifies under the Third citizenship category. In connection, the 
commenter requests that section 296.30(f)(2)(B) be reworded to

[[Page 55587]]

``Owned by a person that is a Documentation Citizen and operated by a 
person that is a Section 2 Citizen.''
    Response: MARAD agrees to this language and has revised the 
regulation accordingly.

10. MSP Assistance Conditions; Section 296.31

    Comment: One commenter requested that MARAD amend the proposed 
regulations to allow U.S. Merchant Marine Academy (USMMA) cadets to be 
carried either on the MSP vessel or on non-MSP U.S.-flag vessels in the 
Contractor's fleet.
    Response: MARAD does not agree to this change. One of the 
requirements for receiving an MSP Operating Agreement is that MSP 
vessels carry USMMA cadets. Section 296.31 has been amended for 
clarity.

11. Payment procedures; Section 296.41

    Comment: One commenter claims that MARAD has exceeded its authority 
in section 296.41(c)(1)(v) by limiting the number of days that a vessel 
may be drydocked, surveyed, inspected, or repaired without MARAD 
approval to 30 days, and requests removal of this section or, 
alternatively, an increase in the number of days to 45.
    Response: MARAD believes thirty days is a reasonable limit. If a 
Contractor anticipates that the number of repair days will exceed this 
amount, a request for MARAD approval may be submitted by the 
Contractor.
    Comment: One commenter believes that MARAD must set a limit per 
voyage on carriage of preference cargo of 7,500 tons bagged and/or 
bulk, or alternatively, MARAD should adopt rules requiring that full 
shipment lot bids submitted to agricultural agencies on behalf of MSP 
vessels be augmented with the per ton value of the daily government 
assistance from MSP.
    Response: Section 296.41(c)(i) states that no payments will be made 
``[f]or any day that an MSP Agreement Vessel is engaged in transporting 
more that 7,500 tons* * *of civilian bulk preference cargoes pursuant 
to section 901(a), 901(b), or 901b of the Act provided that it is bulk 
cargo.'' Section 296.41(c)(i) comports with the language in 46 U.S.C. 
53106 which does not allow for ``7,500 bagged'' preference cargo or a 
reduction based on a per ton value of the daily government MSP 
assistance. Therefore, MARAD is not changing section 296.41(c)(i).
    MARAD has replaced the words ``of up to'' preceding $2,600,000 in 
the first paragraph in section 296.41 with ``equal to'' to comport with 
the governing statute, 46 U.S.C. 53106(a).

12. Administrative Determinations; Section 296.50

    Section 296.50(a) has been amended to clarify and to indicate that 
appeals to the Administrator under this paragraph are a prerequisite to 
exhausting administrative remedies. Section 296.50(b) has been amended 
for purposes of clarity.

13. Miscellaneous Editorial and Clarifying Changes Adopted

    The commenters submitted several editorial and clarifying comments 
which MARAD is incorporating in this final rule. In section 
296.11(a)(2), the reference to foreign commerce of the United States, 
and in sections 296.31(d)(2) and 296.41, the descriptions of ``foreign 
trade'' are being replaced by the words ``foreign commerce'' because 
the reference and the descriptions closely mirror the definition of 
``foreign commerce'' in section 296.2.
    MARAD has amended Section 296.31(b) to clarify funding levels and 
vessel selection under a continuing resolution, and section 
296.31(d)(3) to clarify the meaning of the term ``participates''.
    MARAD has added the phrase ``or if not current year data, a 
Schedule 310 of the MA-172'' to section 296.32(b) to clarify MARAD's 
expectations if current year data is not available.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review), and Department 
of Transportation (DOT) Regulatory Policies; Pub. L. 104-121

    This rulemaking is considered to be an economically significant 
regulatory action under section 3(f) of Executive Order 12866 and is 
also considered a major rule for purposes of Congressional review under 
Pub. L. 104-121. Since the program is designed to support up to 60 
vessels in FY 2006, each receiving equal to $2.6 million annually, the 
Maritime Administrator finds that the program may have an annual effect 
on the economy of $100 million or more. Thus, it is considered to be a 
significant rule under Executive Order 12866 and DOT's Regulatory 
Policies and Procedures (44 FR 11034, February 26, 1979), and has been 
reviewed by OMB. Under Executive Order 12866, MARAD is required to 
provide an analysis of information developed as part of its decision 
making process, including the benefits anticipated from the regulatory 
action, the costs anticipated from the action, and an assessment of the 
costs and benefits of potentially effective and reasonably feasible 
alternatives to the regulatory action. MARAD's regulatory analysis 
follows.

Background

    The Maritime Security Act of 1996 (MSA) was passed with strong 
bipartisan support in Congress and was signed into law on October 8, 
1996. The MSA outlined, in detail, the establishment of a fleet of 
vessels, pursuant to agreement, engaged in U.S. foreign commerce and 
available for use by the Department of Defense (DOD) during times of 
war or national emergency. Based on the success of the program under 
the original MSA, Congress, as part of the recently enacted MSA 2003, 
created a new program that permits an increase in both the number of 
participant vessels as well as the payment amounts such vessels will 
receive under the program.

Benefits

    The major benefit of the MSA 2003 is that it will provide DOD with 
assured access of up to 60 vessels that may be used during times of war 
or national emergency. The existing MSP fleet of 47 vessels consists 
primarily of containerships, which are mainly designed for the 
sustainment phase of sealift operations that support military 
operations. In Operation Iraqi Freedom, 40 MSP vessels were employed in 
support of military operations. Four additional MSP ships have been 
utilized for reconstruction of Iraq. In addition, the MSP provides 
necessary support to help maintain a U.S.-flag presence in 
international commerce. The MSP vessels are a major component of the 
U.S.-flag capability that contributes to the U.S. mariner base for 
utilization on both commercial and DOD organic fleets. The MSP also 
supports the training of merchant mariners by including United States 
Merchant Marine Academy cadets on voyages of MSP vessels.

Costs

    From the inception of the program, Congress set strict limits, not 
subject to the Secretary of Transportation's discretion, on the number 
of participant vessels and the annual payment per vessel. The MSA 2003 
will permit an increase in the number of participant vessels from 47 
authorized under the original MSA (for FYs 1997-2005) to 60 (authorized 
for FYs 2006-2015). Similarly, the payments per vessel are increased 
from $2.1 million (under the original MSA for FYs 1997-2005) to $2.6 
million (for FYs 2006-2008); $2.9 million (for FYs 2009-2011); and $3.1 
million (for FYs 2012-2015). The maximum programmatic payment that

[[Page 55588]]

Congress directed through the MSA 2003 is $156 million, $174 million, 
and $186 million per year for FYs 2006-2008, 2009-2011, and 2012-2015, 
respectively, subject to appropriation.

Analysis of Alternatives

    The MSA 2003 expands the MSP program that was originally 
established by Congress in 1996 by increasing the number of participant 
vessels, annual funding amounts, and expenditure amounts for the new 
MSP program. However, beyond the increased size of the new MSP program 
under the MSA 2003, the underlying statutes are substantially similar, 
and envision a new MSP program that is essentially a continuation of 
the prior MSP program under the original MSA. Under both the original 
MSA and the MSA 2003, Congress prescribed the salient details of the 
MSP program, including ship ownership, vessel eligibility, vessel 
documentation, program duration, the number of participants, the amount 
of funding, and, under the MSA 2003, guidelines regarding the 
composition of the fleet. Since the MSA 2003 provides detailed 
requirements for continuing the MSP program, MARAD has little 
discretion to propose regulatory options. In fact, given the highly 
prescriptive nature of both the original MSA and MSA 2003, MARAD 
believes that no viable regulatory alternatives exist in lieu of 
implementing these regulations, which continue and expand the current 
MSP program.

Executive Order 13132

    We have analyzed this rulemaking in accordance with the principles 
and criteria contained in Executive Order 13132 (``Federalism'') and 
have determined that it does not have sufficient federalism 
implications to warrant the preparation of a federalism summary impact 
statement. The regulations have no substantial effects on the States, 
the current Federal-State relationship, or the current distribution of 
power and responsibilities among various local officials. Therefore, 
consultation with State and local officials was not necessary.

Executive Order 13175

    MARAD does not believe that this final rule will significantly or 
uniquely affect the communities of Indian tribal governments when 
analyzed under the principles and criteria contained in Executive Order 
13175 (Consultation and Coordination with Indian Tribal Governments). 
Therefore, the funding and consultation requirements of this Executive 
Order do not apply.

Regulatory Flexibility

    Because no notice of proposed rulemaking was required prior to 
issuance of this final rule, as set forth in section 3533 of Subtitle 
C, Title XXXV, of the National Defense Authorization Act for Fiscal 
Year 2004, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
601 et. seq.) do not apply. However, the Maritime Administrator 
certifies that this final rule will not have a significant economic 
impact on a substantial number of small entities. We anticipate that 
few, if any, small entities will participate in this program due to the 
nature of the shipping industry and the capital costs associated with 
ships that are eligible for the program. In addition, because this 
final rule implements a financial assistance program, it does not 
impose an economic burden on small entities.

Unfunded Mandates Reform Act of 1995

    This final rule will not impose an unfunded mandate under the 
Unfunded Mandates Reform Act of 1995. It will not result in costs of 
$100 million or more, in the aggregate, to any of the following: State, 
local, or Native American tribal governments, or the private sector.

Environmental Assessment

    We have analyzed this final rule for purposes of compliance with 
the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et 
seq.) and we have concluded that, under the categorical exclusions 
provision in section 4.05 of Maritime Administrative Order (MAO) 600-1, 
``Procedures for Considering Environmental Impacts,'' 50 FR 11606 
(March 22, 1985), neither the preparation of an Environmental 
Assessment, an Environmental Impact Statement, nor a Finding of No 
Significant Impact for this rulemaking is required. This final rule 
does not change the environmental effects of the current MSP, which has 
been operational since FY 1997. This final rule implements a financial 
assistance program which results in a negligible, if any cumulative 
effect on the environment. The vessels eligible for the MSP under the 
MSA 2003 (1) will continue to operate under the U.S. flag, and will 
continue to be governed by U.S.-flag state control while operating in 
the foreign commerce of the United States; and (2) are and will 
continue to be designed, constructed, equipped and operated in 
accordance with stringent United States Coast Guard and International 
Maritime Organization standards for maritime safety and maritime 
environmental protection.

Paperwork Reduction

    The Office of Management and Budget extended its approval of an 
information collection under the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507 et seq.) for three years on January 31, 2005. The title of 
the information collection is Application and Reporting Elements for 
Participation in the Maritime Security Program, OMB Control No. 2133-
0525.
    This information collection requires vessel operators to continue 
to submit initial applications, amendments to applications (if 
necessary), and monthly and annual reports. We estimate that the number 
of annual respondents under the new MSP program will increase from 12.5 
to 15, the average total number of annual responses will increase from 
132 to 198.5, and that the average annual recordkeeping and reporting 
burden program total will increase from 152 hours to 224 hours. We 
estimate that the total average annual cost burden associated with this 
information collection will be $10,726.65, or $715.11 per respondent.

List of Subjects in 46 CFR Part 296

    Assistance payments, Maritime carriers, Reporting and recordkeeping 
requirements.


0
Accordingly, the interim final rule adding part 296 to title 46, Code 
of Federal Regulations, which was published at 69 FR 43328 on July 20, 
2004, is revised and adopted as a final rule to read as follows:

PART 296--MARITIME SECURITY PROGRAM (MSP)

Subpart A--Introduction
Sec.
296.1 Purpose.
296.2 Definitions.
296.3 Applications.
296.4 Waivers.
Subpart B--Eligibility
296.10 Citizenship requirements of owners, charterers and operators.
296.11 Vessel requirements.
296.12 Applicants.
Subpart C--Priority for Granting Applications
296.20 Tank vessels.
296.21 Participating Fleet Vessels.
296.22 Other vessels.
296.23 Discretion within priority.
296.24 Subsequent awards of MSP Operating Agreements.
Subpart D--Maritime Security Program Operating Agreements
296.30 General conditions.
296.31 MSP assistance conditions.
296.32 Reporting requirements.

[[Page 55589]]

Subpart E--Billing and Payment Procedures
296.40 Billing procedures.
296.41 Payment procedures.
Subpart F--Appeals Procedures
 296.50 Administrative determinations.
Subpart G--Maintenance and Repair Reimbursement Pilot Program
296.60 Applications.

    Authority: Pub. L. 108-136, 117 Stat. 1392; 46 App. U.S.C. 
1114(b), 49 CFR 1.66.

Subpart A--Introduction


Sec.  296.1  Purpose.

    This part prescribes regulations implementing the provisions of 
Subtitle C, Maritime Security Fleet Program, Title XXXV of the National 
Defense Authorization Act for Fiscal Year 2004, the Maritime Security 
Act of 2003 (MSA 2003), governing Maritime Security Program (MSP) 
payments for vessels operating in the foreign trade or mixed foreign 
and domestic commerce of the United States allowed under a registry 
endorsement issued under 46 U.S.C. 12105. The MSA 2003 provides for 
joint responsibility between the Department of Defense (DOD) and the 
Department of Transportation (DOT) for administering the law. These 
regulations provide the framework for the coordination between DOD and 
DOT in implementing the MSA 2003. Implementation of the MSA 2003 has 
been delegated by the Secretary of Transportation to the Maritime 
Administrator, U.S. Maritime Administration and by the Secretary of 
Defense to the Commander, U.S. Transportation Command, respectively.


Sec.  296.2  Definitions.

    For the purposes of this part:
    Act means the Merchant Marine Act, 1936, as amended (46 App. U.S.C. 
1101 et seq.).
    Administrator means the Maritime Administrator, U.S. Maritime 
Administration (MARAD), U.S. DOT, who is authorized by the Secretary of 
Transportation to administer the MSA 2003, in consultation with the 
Commander, U.S. Transportation Command (USTRANSCOM).
    Agreement Vessel means a vessel covered by an MSP Operating 
Agreement.
    Applicant means an applicant for an MSP Operating Agreement. The 
term, ``applicant'' excludes a trust.
    Bulk Cargo means cargo that is loaded and carried in bulk without 
mark or count.
    Chapter 121 means the vessel documentation provisions of chapter 
121 of title 46, United States Code.
    Coastwise Trade means trade between points in the United States.
    Commander means Commander, USTRANSCOM, who is authorized by the 
Secretary of Defense to administer the MSA 2003, in consultation with 
the Administrator.
    Contracting Officer means the Associate Administrator for National 
Security, MARAD.
    Contractor means the owner or operator of a vessel that enters into 
an MSP Operating Agreement for the vessel with the Secretary of 
Transportation (acting through MARAD) pursuant to Sec.  53103 of the 
MSA 2003. The term, ``Contractor'' excludes a trust.
    Defense Contractor means a person that operates or manages United 
States documented vessels for the Secretary of Defense or charters 
vessels to the Secretary of Defense and has entered into a special 
security agreement with the Secretary of Defense.
    Documentation Citizen means an entity able to document a vessel 
under 46 U.S.C. chapter 121. This definition includes a trust.
    DOD means the U.S. Department of Defense.
    Domestic Trade means trade between points in the United States.
    Eligible Vessel means a vessel that meets the requirements of Sec.  
53102(b) of the MSA 2003.
    Emergency Preparedness Agreement means an agreement, required by 
Sec.  53107 of the MSA 2003, between a Contractor and the Secretary of 
Transportation (acting through MARAD) to make certain commercial 
transportation resources available during time of war or national 
emergency or whenever determined by the Secretary of Defense to be 
necessary for national security or contingency operation.
    Enrollment means the entry into an MSP Operating Agreement with 
MARAD to operate a vessel(s) in the MSP Fleet in accordance with Sec.  
296.30.
    Fiscal Year means any annual period beginning on October 1 and 
ending on September 30.
    Foreign Commerce means:
    (1) For any vessel other than a liquid or a dry bulk carrier, a 
cargo freight service, including direct and relay service, operated 
exclusively in the foreign trade or in mixed foreign and domestic trade 
allowed under a registry endorsement under section 12105 of title 46, 
United States Code, where the origination point or the destination 
point of any cargo carried is the United States, regardless of whether 
the vessel provides direct service between the United States and a 
foreign country, or commerce or trade between foreign countries; and
    (2) For liquid and dry bulk cargo carrying services, includes 
trading between ports in the United States and foreign ports or trading 
between foreign ports in accordance with normal commercial bulk 
shipping practices in such manner as will permit United States-
documented vessels to freely compete with foreign-flag bulk carrying 
vessels in their operation or in competing for charters.
    LASH Vessel means a lighter aboard ship vessel.
    Militarily Useful is defined, in terms of minimum military 
capabilities, according to DOD Joint Strategic Planning Capabilities 
Plan (JSCAP) guidance.
    MSA 2003 means the Maritime Security Act of 2003.
    MSP Fleet means the fleet of vessels established under section 
53102(a) of the MSA 2003 and operated under MSP Operating Agreements.
    MSP Operating Agreement means the assistance agreement between a 
Contractor and MARAD that provides for MSP payments, but is not a 
``procurement contract.''
    MSP Payments means the payments made for the operation of U.S.-flag 
vessels in the foreign commerce.
    Noncontiguous Domestic Trade means 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.
    Operating Day means any calendar day during which a vessel is 
operated in accordance with the terms and conditions of the MSP 
Operating Agreement.
    Operator is a person that either owns a vessel and operates that 
vessel directly or charters in a vessel at a financial risk through a 
demise charter that transfers virtually all the rights and obligations 
of the vessel owner to the vessel operator, such as that of crewing, 
supplying, maintaining, insuring and navigating the vessel.
    Owner means an entity that has title and/or beneficial ownership of 
a vessel. Only an owner that is a person is eligible to enter into an 
MSP Operating Agreement.
    Participating Fleet Vessel means any vessel that:
    (1) On October 1, 2005--
    (i) Meets the citizenship requirements of paragraph (1), (2), (3), 
or (4) of section 53102(c) of the MSA 2003;
    (ii) Is less than 25 years of age, or is less than 30 years of age 
in the case of a LASH vessel; and
    (2) On December 31, 2004, is covered by an MSP Operating Agreement.

[[Page 55590]]

    Person includes corporations, limited liability companies, 
partnerships, and associations existing under or authorized by the laws 
of the United States, or any State, Territory, District, or possession 
thereof, or of any foreign country. For purposes of holding an MSP 
Operating Agreement, the term ``person'' excludes a trust.
    Roll-on/Roll-off Vessel means a vessel that has ramps allowing 
cargo to be loaded and discharged by means of wheeled vehicles so that 
cranes are not required.
    SecDef means Secretary of Defense acting through the Commander 
USTRANSCOM.
    Section 2 Citizen means a United States citizen within the meaning 
of section 2 of the Shipping Act, 1916, 46 U.S.C. 802, without regard 
to any statute that ``deems'' a vessel to be owned and operated by a 
Section 2 Citizen.
    Secretary means the Secretary of Transportation acting through the 
Maritime Administrator.
    Tank Vessel means, as stated in 46 U.S.C. 2101(38), a self-
propelled tank vessel that is constructed or adapted to carry, or that 
carries, oil or hazardous material in bulk as cargo or cargo residue. 
In addition, the vessel must be double hulled and capable of carrying 
simultaneously more than two separated grades of refined petroleum 
products.
    Transfer of an MSP Operating Agreement includes any sale, 
assignment or transfer of the MSP Operating Agreement, either directly 
or indirectly, or through any sale, reorganization, merger, or 
consolidation of the MSP Contractor.
    United States includes the 50 U.S. States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Northern Mariana 
Islands, Guam, American Samoa, and the Virgin Islands.
    United States Citizen Trust means:
    (1) Subject to paragraph (3) of this definition, a trust that is 
qualified under this definition.
    (2) A trust is qualified only if:
    (i) Each of the trustees is a Section 2 Citizen; and
    (ii) The application for documentation of the vessel under 46 
U.S.C. chapter 121, includes the affidavit of each trustee stating that 
the trustee is not aware of any reason involving a beneficiary of the 
trust that is not a Section 2 Citizen, or involving any other person 
that is not a Section 2 Citizen, as a result of which the beneficiary 
or other person would hold more than 25 percent of the aggregate power 
to influence or limit the exercise of the authority of the trustee with 
respect to matters involving any ownership or operation of the vessel 
that may adversely affect the interests of the United States.
    (3) If any person that is not a Section 2 Citizen has authority to 
direct or participate in directing a trustee for a trust in matters 
involving any ownership or operation of the vessel that may adversely 
affect the interests of the United States or in removing a trustee for 
a trust without cause, either directly or indirectly through the 
control of another person, the trust instrument provides that persons 
who are not Section 2 Citizens may not hold more than 25 percent of the 
aggregate authority to so direct or remove a trustee.
    (4) This definition shall not be considered to prohibit a person 
who is not a Section 2 Citizen from holding more than 25 percent of the 
beneficial interest in a trust.
    United States Documented Vessel means a vessel documented under 46 
U.S.C. chapter 121.


Sec.  296.3  Applications.

    (a) Action by MARAD.--Time Deadlines. Applications for enrollment 
of vessels in the MSP were due by October 15, 2004 to the Secretary, 
Maritime Administration, Room 7218, Maritime Administration, U.S. 
Department of Transportation, 400 Seventh Street, SW., Washington, DC 
20590. Any applications received before October 15, 2004 were deemed to 
have been submitted on October 15, 2004. Within 90 days after receipt 
of a completed application, the Secretary was obligated to approve the 
application, in conjunction with the SecDef, or provide in writing the 
reason for denial of that application. Execution of a standard MSP 
Operating Agreement took place reasonably soon after approval of the 
application. Contractors of MSP Operating Agreements were required to 
submit ownership information and signed charters to MARAD for approval 
by July 1, 2005.
    (b) Action by the Applicant. Each applicant for an MSP Operating 
Agreement was required to submit an application under OMB control 
number 2133-0525 to the Secretary, Maritime Administration in the 
manner prescribed on that form. Application forms were made available 
from MARAD's Office of Sealift Support, or the application form could 
be downloaded from the MARAD Web site, http:www.marad.dot.gov, 
Information required included:
    (1) An Affidavit of Section 2 Citizenship that comports with the 
requirements of 46 CFR part 355, if applying as a Section 2 Citizen. 
Otherwise, an affidavit which demonstrates that the applicant is 
qualified to document a vessel under 46 U.S.C. chapter 121 is required. 
If the applicant is a vessel operator and proposes to employ a vessel 
manager, then the applicant must supply an affidavit for the vessel 
manager that meets the same citizenship requirements applicable to the 
applicant;
    (2) Certificate of Incorporation;
    (3) Copies of by-laws or other governing instruments;
    (4) Maritime related affiliations;
    (5) Financial data:
    (i) Provide an audited financial statement or a completed MARAD 
Form MA-172 dated within 120 days after the close of the most recent 
fiscal period; and
    (ii) Provide estimated annual forecast of maritime operations for 
the next five years showing revenue and expense, including explanations 
of any significant increase or decrease of these items;
    (6) Intermodal network:
    (i) If applicable, a statement describing the applicant's operating 
and transportation assets, including vessels, container stocks, trucks, 
railcars, terminal facilities, and systems used to link such assets 
together;
    (ii) The number of containers and their twenty-foot equivalent 
units (TEUs) by size and type owned and/or long-term leased by the 
applicant distinguishing those that are owned from those that are 
leased; and
    (iii) The number of chassis by size and type owned and/or long-term 
leased by the applicant distinguishing those that are owned from those 
that are leased;
    (7) Diversity of trading patterns: A list of countries and trade 
routes serviced along with the types and volumes of cargo carried;
    (8) Applicant's record of owning and/or operating vessels: Provide 
number of ships owned and/or operated, specifying flag, in the last ten 
years, trades involved, number of employees in your ship operations 
department, vessel or ship managers utilized in the operation of your 
vessels, and any other information relevant to your record of owning or 
operating vessels;
    (9) Bareboat charter arrangements, if applicable;
    (10) Vessel data including vessel type, size, and construction 
date;
    (11) Military Utility: Provide an assessment of the value of the 
vessel to DOD sealift requirements. Provide characteristics which 
indicate the value of the vessels to DOD including items of

[[Page 55591]]

specific value, e.g., ramp strengths, national defense sealift 
features;
    (12) Special Security Agreements: If applicable, provide a copy of 
any Special Security Agreement;
    (13) If applicable, Certification from documentation citizen who is 
the demise charterer of the MSP vessel: In a letter submitted at the 
time of the application addressed to the Administrator and the 
Commander from the Chief Executive Officer, or equivalent, of a 
documentation citizen that is the proposed Contractor of an MSP 
Operating Agreement, provide a statement that there are no treaties, 
statutes, regulations, or other laws of the foreign country(ies) of the 
parent, that would prohibit the proposed Contractor from performing its 
obligations under an MSP Operating Agreement. The statement should be 
substantially in the following format:

    ``I, --------, Chief Executive Officer of --------, certify to 
you that there are no treaties, statutes, regulations, or other laws 
of the foreign country(ies) of ----'s ultimate foreign parent or 
intermediate parents that would prohibit ---- from performing its 
obligations under an Operating Agreement with the Maritime 
Administration pursuant to the Maritime Security Act of 2003.'';
    (14) Agreement from the ultimate foreign parent of the 
documentation citizen: An agreement to be signed and submitted at 
the time of application from the equivalent of the Chief Executive 
Officer of the ultimate foreign parent of a documentation citizen 
not to influence the operation of the MSP vessel in a manner that 
will adversely affect the interests of the United States. The 
Agreement should be substantially in the following format:
    ``I, --------, am the Chief Executive Officer [or equivalent] of 
------, the ultimate foreign parent of --------, a documentation 
citizen of the United States that is applying for an MSP Operating 
Agreement. I agree on behalf of the ``foreign parent'' that neither 
-------- (the ultimate foreign parent) nor any representative of --
------ (the ultimate foreign parent) will in any way influence the 
operation of the MSP vessel in a manner that will adversely affect 
the interests of the United States.'';

    (15) Replacement Vessel Plan and Age Waiver: If applicable, an 
applicant must submit a replacement vessel plan along with an age 
waiver request if the applicant seeks an age waiver for an existing 
vessel(s). The vessel replacement plan shall include the vessel's 
characteristics, a letter of intent or other document indicating 
agreement for purchase of vessel, and a forecast of operations for five 
years for the replacement vessel. The age restriction for over-age 
vessels shall not apply to a Participating Fleet Vessel during the 30-
month period beginning on the date the vessel begins operating under an 
MSP Operating Agreement under the MSA 2003 provided that the Secretary 
has determined that the Contractor has entered into an arrangement for 
a replacement vessel that will be eligible to be included in an MSP 
Operating Agreement, and;
    (16) Anti-Lobbying Certificate: A certificate as required by 49 CFR 
part 20 stating that no funds provided under MSP have been used for 
lobbying to obtain an Operating Agreement.


(Approved by the Office of Management and Budget under Control Number 
2133-0525)


Sec.  296.4  Waivers.

    In General--In special circumstances, and for good cause shown, the 
procedures prescribed in this part may be waived in writing by the 
Secretary, by mutual agreement of the Secretary in consultation with 
the SecDef, and the Contractor, so long as the procedures adopted are 
consistent with the MSA 2003 and with the objectives of these 
regulations.

Subpart B--Eligibility


Sec.  296.10  Citizenship requirements of owners, charterers and 
operators.

    Citizenship requirements are deemed to have been met if during the 
entire period of an MSP Operating Agreement under this chapter that 
applies to the vessel, all of the conditions of any of the paragraphs 
(a), (b), (c), or (d) of this section are met, and subject to 
conditions in paragraph (e):
    (a) A vessel to be included in an MSP Operating Agreement is owned 
and operated by one or more persons that are Section 2 Citizens.
    (b) A vessel to be included in an MSP Operating Agreement is owned 
by either a person that is a Section 2 Citizen or a United States 
Citizen Trust, and the vessel is demise chartered to a non-Section 2 
Citizen--
    (1) That is eligible to document the vessel under 46 U.S.C. chapter 
121;
    (2) Whose chairman of the board of directors, chief executive 
officer, and a majority of the members of the board of directors are 
Section 2 Citizens, and are appointed and subject to removal only upon 
approval by the Secretary as follows:
    (i) Proposed changes to the chairman of the board, chief executive 
officer, and membership of the board of directors must be submitted to 
the Administrator 60 days before scheduled to take effect; and
    (ii) MARAD must approve or disapprove changes within 30 days of 
receiving the proposed changes;
    (3) That certifies to the Secretary in a format substantially 
similar to the format at Sec.  296.3(b)(13) that there are no treaties, 
statutes, regulations, or other laws that would prohibit the Contractor 
from performing its obligations under an MSP Operating Agreement at the 
time of application for an MSP Operating Agreement; and
    (4) The ultimate foreign parent of that person proffers, at the 
time of application for an MSP Operating Agreement, an agreement in a 
format substantially similar to the format at Sec.  296.3(b)(14) not to 
influence the vessel's operation in a way that is detrimental to the 
United States.
    (c) A vessel to be included in an MSP Operating Agreement is owned 
and operated by a defense contractor or a related person to include 
affiliated or related companies within the same corporate group that:
    (1) Is eligible to document the vessel under 46 U.S.C. chapter 121;
    (2) Operates or manages other United States-documented vessels for 
the SecDef, or charters other vessels to the SecDef;
    (3) Has entered into a special security agreement with the SecDef;
    (4) Certifies to the Secretary, at the time of application, in a 
format substantially similar to the format of Sec.  296.3(b)(13), that 
there are no treaties, statutes, regulations, or other laws that would 
prohibit the Contractor from performing its obligations under an MSP 
Operating Agreement; and
    (5) Has its ultimate foreign parent proffer, at the time of 
application for an MSP Operating Agreement, an agreement in a format 
substantially similar to the format of Sec.  296.3(b)(14) not to 
influence the vessel's operation in a way that is detrimental to the 
United States.
    (d) The vessel is owned by a documentation citizen and demise 
chartered to a Section 2 Citizen.
    (e) Where applicable, the Secretary and the SecDef shall notify the 
Senate Committees on Armed Services, and Commerce, Science, and 
Transportation and the House of Representatives Committee on Armed 
Services that they concur with the certifications by the documentation 
citizens under Sec.  296.3(b)(13) and that they have reviewed the 
agreements proffered by the ultimate foreign parent under Sec.  
296.3(b)(14), and agree that there are no other legal, operational, or 
other impediments that would prohibit the contractors for the vessels 
from performing their obligations under MSP Operating Agreements.

[[Page 55592]]

Sec.  296.11  Vessel requirements.

    (a) Eligible Vessel. A vessel is eligible to be included in an MSP 
Operating Agreement if:
    (1) The vessel is:
    (i) Determined by the SecDef to be suitable for use by the United 
States for national defense or military purposes in time of war or 
national emergency; and
    (ii) Determined by the Secretary to be commercially viable;
    (2) The vessel is operated or, in the case of a vessel to be 
purchased or constructed, will be operated to provide transportation in 
the foreign commerce;
    (3) The vessel is self-propelled and is:
    (i) A Roll-on/Roll-off vessel with a carrying capacity of at least 
80,000 square feet or 500 twenty-foot equivalent units and is 15 years 
of age or less on the date the vessel is included in the MSP;
    (ii) A tank vessel that is constructed in the United States after 
November 24, 2003;
    (iii) A tank vessel that is 10 years of age or less on the date the 
vessel is included in the MSP Fleet;
    (iv) A LASH vessel that is 25 years of age or less on the date the 
vessel is included in the MSP fleet; or
    (v) Any other type of vessel that is 15 years of age or less on the 
date the vessel is included in the MSP fleet;
    (4) The vessel is:
    (i) A United States documented vessel under 46 U.S.C. chapter 121; 
or
    (ii) Not a United States-documented vessel under 46 U.S.C. chapter 
121, but the owner of the vessel has demonstrated an intent to have the 
vessel documented under 46 U.S.C. chapter 121 at the time the vessel is 
to be included in the MSP fleet; and
    (A) The vessel is eligible for a certificate of inspection if the 
Secretary of the Department in which the United States Coast Guard is 
operating determines that:
    (1) The vessel is classed and designed in accordance with the rules 
of the American Bureau of Shipping (ABS) or another classification 
society accepted by such 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 U.S.-flag vessel; 
and
    (3) The flag country has not been identified by such Secretary as 
inadequately enforcing international vessel regulations.
    (B) [Reserved]
    (b) Waiver of Age Restriction of Vessels. The SecDef, in 
conjunction with the Secretary, may waive the age restriction in 
paragraph (a) of this section if the Secretaries jointly determine that 
the waiver:
    (1) Is in the national interest;
    (2) Is appropriate to allow the maintenance of the economic 
viability of the vessel and any associated operating network; and
    (3) Is necessary due to the lack of availability of other vessels 
and operators that comply with the requirements of the MSA 2003.
    (c) Telecommunications and Other Electronic Equipment. The 
telecommunications and other electronic equipment on an existing vessel 
that is redocumented under the laws of the United States for operation 
under an MSP Operating Agreement shall be deemed to satisfy all Federal 
Communications Commission equipment certification requirements, if
    (1) Such equipment complies with all applicable international 
agreements and associated guidelines as determined by the country in 
which the vessel was documented immediately before becoming documented 
under the laws of the United States;
    (2) That country has not been identified by the Secretary as 
inadequately enforcing international regulations as to that vessel; and
    (3) At the end of its useful life, such equipment will be replaced 
with equipment that meets Federal Communications Commission equipment 
certification standards (see 49 CFR Chapter I).


Sec.  296.12  Applicants.

    Applicant. Owners or operators of an eligible vessel may apply to 
MARAD for inclusion of that vessel in the MSP Fleet pursuant to the 
provisions of the MSA 2003. Applications shall be addressed to the 
Secretary, Maritime Administration, Room 7218, Maritime Administration, 
U.S. Department of Transportation, 400 Seventh Street, SW., Washington, 
DC 20590.

Subpart C--Priority for Granting Applications


Sec.  296.20  Tank vessels.

    (a) First priority for the award of MSP Operating Agreements under 
MSA 2003 shall be granted to a tank vessel that is constructed in the 
United States after October 1, 2004.
    (b) First priority for the award of MSP Operating Agreements under 
the MSA 2003 may be granted to a tank vessel that is less than ten 
years of age on the date it enters an MSP Operating Agreement:
    (1) Provided: (i) That the Contractor agrees to execute a binding 
agreement approved by the Secretary for a replacement vessel to be 
operated under the MSP Operating Agreement and to be built in the 
United States not later than nine months after the first date 
appropriated funds are available for construction and operating 
assistance for a minimum of three tank vessels;
    (ii) A tank vessel under this section is eligible to be included in 
the MSP under Sec.  296.11(a); and
    (iii) A tank vessel under this section is owned and operated during 
the period of the MSP Operating Agreement by one or more persons that 
are Section 2 Citizens;
    (2) No payment can be made for an existing tank vessel granted 
priority one status after the earlier of:
    (i) Four years following the date this MSP Operating Agreement is 
effective, except if amounts are available for construction of a 
minimum of three tank vessels under the National Defense Tank Vessel 
Construction Assistance Program (NDTVCP) by October 1, 2007, then no 
payments shall be made for the existing ``tank vessel'' after four 
years following the date such amounts are available; or
    (ii) The date of delivery of the replacement tank vessel 
constructed in the United States after October 1, 2004.
    (3) The Secretary will not enter into more than five MSP Operating 
Agreements for tank vessels under this priority. If the five tank 
vessel MSP Operating Agreement slots are not fully subscribed, the 
Secretary, in consultation with the SecDef, may award the non-
subscribed slots to lower priority vessels, if deemed appropriate. If 
the Secretary determines that no funds are, or are likely to be, 
allocated for any tank vessel construction in the United States, the 
five slots may nevertheless be awarded to existing tank vessels or the 
slots may be awarded permanently to any eligible vessels. The Secretary 
may temporarily award a slot reserved for a tank vessel under 
construction to a lower priority vessel during the construction period 
of that vessel if an existing tank vessel offered by the tank vessel 
Contractor is not eligible for priority for that slot. If no existing 
tank vessel is offered by the tank vessel Contractor, the Secretary may 
temporarily award an MSP Operating Agreement to any eligible vessel of 
another Contractor until a new tank vessel's construction is completed 
in the United States. Such temporary MSP Operating Agreements may be 
terminated under terms set forth in the temporary MSP Operating 
Agreement.


Sec.  296.21  Participating Fleet Vessels.

    (a) Priority.--To the extent that appropriated funds are available 
after applying the first priority, tank vessels,

[[Page 55593]]

in Sec.  296.20, the second priority is applicable to Participating 
Fleet Vessels.
    (b) Number of MSP Operating Agreements.--MARAD will not enter into 
more than 47 MSP Operating Agreements for Participating Fleet Vessels.
    (c) Reduction of Participating Fleet Vessel MSP Operating 
Agreements.--The number of MSP Operating Agreements available to 
Participating Fleet Vessels shall be reduced by one for:
    (1) Each Participating Fleet Vessel for which an application for 
enrollment in the MSP is not received by the Secretary, Maritime 
Administration on October 15, 2004; or
    (2) Each Participating Fleet Vessel for which an application for 
enrollment in the MSP is received by the Secretary, Maritime 
Administration on October 15, 2004, but the application is not approved 
by the Secretary of Transportation and the SecDef by January 12, 2005.
    (d) Authority to Enter into an MSP Operating Agreement--(1) 
Applications for inclusion of a Participating Fleet Vessel under the 
priority in paragraph (a) of this section will be accepted only from a 
person that has authority to enter into an MSP Operating Agreement for 
the vessel with respect to the full term of the MSP Operating 
Agreement. Applicants must certify that they have the requisite 
authority as of October 1, 2005 and for the full period of the MSP 
Operating Agreement thereafter and provide the basis on which they rely 
for such certification, such as a copy of a vessel title of ownership 
or a demise charter that remains in effect until September 30, 2015.
    (2) The full term of the MSP Operating Agreement is the period from 
October 1, 2005 through September 30, 2015. If a vessel proposed to be 
included in the MSP will become ineligible for the program prior to 
September 30, 2015, due to vessel age restrictions, then the full term 
of the MSP Operating Agreement for that vessel for purposes of 
paragraph (d)(1) of this section is the period the vessel meets the 
applicable age restrictions. MARAD may still award an MSP Operating 
Agreement through September 30, 2015, to an applicant having authority 
to enter into an MSP Operating Agreement for a vessel whose age 
eligibility expires before that date. For companies requesting an age 
waiver, the Applicant must submit an appropriate replacement vessel at 
least 120 days prior to the date of expiration of age eligibility.
    (3) For the purposes of paragraph (d)(1) of this section, in the 
case of a vessel that is subject to a demise charter that terminates by 
its terms on September 30, 2005 (without giving effect to any extension 
provided therein for completion of a voyage or to effect the actual 
redelivery of the vessel), or that is terminable at will by the owner 
of the vessel after such date, only the owner of the vessel (provided 
the owner of the vessel is a ``person'' as defined in Sec.  296.2) 
shall be treated as having the authority referred to in paragraph 
(d)(1) of this section.
    (4) If two or more applicants claim authority for the same vessel, 
the Secretary may request additional information bearing on the issue 
of which party has authority to enter into an MSP Operating Agreement, 
and the Secretary shall, in his/her sole discretion, decide the matter 
as he/she deems appropriate.
    (e) During the 30-month period commencing October 1, 2005, the age 
restrictions set forth under Sec.  296.11(a) and Sec.  296.41(c) do not 
apply to a Participating Fleet Vessel operating under an MSP Operating 
Agreement, provided:
    (1) The Contractor has entered into an arrangement to obtain and 
operate under that MSP Operating Agreement a replacement vessel for 
that Participating Fleet Vessel; and
    (2) The Secretary determines that the replacement vessel will be 
eligible to be included in the MSP Fleet under Sec.  296.11(a).
    (f) In the event that a Participating Fleet Vessel will be 
unavailable to participate in the MSP on October 1, 2005, due to an 
unforeseen casualty to the vessel, a Contractor may offer an eligible 
replacement vessel. The replacement vessel must subsequently be 
approved by MARAD and DOD. The replacement vessel must operate under an 
MSP Operating Agreement in sufficient time to meet the 180 minimum 
operation days required during the fiscal year to avoid being in 
default of the MSP Operating Agreement.


Sec.  296.22  Other vessels.

    (a) Third Priority.--To the extent that appropriated funds are 
available after applying the first priority, tank vessels, in Sec.  
296.20, and the second priority, Participating Fleet Vessels, in Sec.  
296.21, the third priority is for any other vessel that is eligible to 
be included in an MSP Operating Agreement under Sec.  296.11(a), and 
that, during the period of that MSP Operating Agreement, will be:
    (1) Owned and operated by one or more persons that are Section 2 
Citizens; or
    (2) Owned by a person that is eligible to document the vessel under 
46 U.S.C. chapter 121 and operated by a person that is a Section 2 
Citizen.
    (b) Fourth Priority.--To the extent that appropriations are 
available after applying the first priority in Sec.  296.20, the second 
priority in Sec.  296.21, and the third priority in paragraph (a) of 
this section, the fourth priority is for any other vessel that is 
eligible to be included in an MSP Operating Agreement under Sec.  
296.11(a).


Sec.  296.23  Discretion within priority.

    The Secretary--
    (a) Subject to paragraph (b) of this section, may award MSP 
Operating Agreements within each priority as the Secretary considers 
appropriate; and
    (b) Shall award MSP Operating Agreements within a priority--
    (1) In accordance with operational requirements specified by the 
SecDef;
    (2) In the cases of the Priorities III and IV, according to the 
applicants' records of owning and operating vessels; and
    (3) Subject to the approval of the SecDef.
    (c) The Secretary does not have discretion to override the priority 
requirements with respect to the initial award of MSP Operating 
Agreements.


Sec.  296.24  Subsequent awards of MSP Operating Agreements.

    (a) Until October 1, 2005, if, for any reason, after the award of 
an MSP Operating Agreement, the Applicant is unwilling or unable to 
commence operations pursuant to the terms of the MSP Operating 
Agreement, MARAD may, pursuant to the priority criteria, award that MSP 
Operating Agreement to an Applicant having an eligible vessel that 
applied but was not awarded an MSP Operating Agreement.
    (b) After October 1, 2005, MARAD intends to ensure that all 
available MSP Operating Agreements are fully utilized at all times, in 
order to maximize the benefit of the MSP. Accordingly, when an MSP 
Operating Agreement becomes available through termination by the 
Secretary, expiration of a temporary MSP Operating Agreement or early 
termination by the MSP contractor, and no transfer under 46 U.S.C. 
53105(e) is involved, MARAD will reissue the MSP Operating Agreement 
pursuant to the following criteria.
    (1) The proposed vessel must meet the requirements for vessel 
eligibility in 46 U.S.C. 53102(b);
    (2) The applicant must meet the vessel ownership and operating 
requirements for priority in 46 U.S.C. 53103(c); and

[[Page 55594]]

    (3) Priority will be assigned in accordance with operational 
requirements specified by the SecDef.
    (c) MARAD will use the following procedures in reissuing an MSP 
Operating Agreement. MARAD and USTRANSCOM will determine if the 
applications received on October 15, 2004 form an adequate pool for 
award of a reissued MSP Operating Agreement. If so, MARAD will award a 
reissued MSP Operating Agreement from that pool of qualified applicants 
in its discretion, subject to approval of the SecDef. MARAD and 
USTRANSCOM may decide to open a new round of applications. Applicants 
for reissued MSP Operating Agreements must meet the citizenship 
requirements of Priority III. Inasmuch as MSP furthers a public purpose 
and MARAD does not acquire goods or services through MSP, the selection 
process for award of MSP Operating Agreements does not constitute an 
acquisition process subject to any procurement law or the Federal 
Acquisition Regulations.

Subpart D--Maritime Security Program Operating Agreements


Sec.  296.30  General conditions.

    (a) Approval. (1) The Secretary, in conjunction with the SecDef, 
may approve applications to enter into an MSP Operating Agreement and 
make MSP Payments with respect to vessels that are determined by the 
Secretary to be commercially viable and those that are deemed by the 
SecDef to be militarily useful for meeting the sealift needs of the 
United States in time of war or national emergencies. The Secretary 
announced an initial award of 60 MSP Operating Agreements on January 
12, 2005. In addition, the Secretary advised those applicants found to 
be eligible but not included in the initial award that those applicants 
will be wait-listed for an award of an MSP Operating Agreement if 
additional slots become available.
    (2) The Commander established general evaluation criteria for 
operational requirements for considering replacement vessels described 
in Sec.  296.21(e), and for vessels eligible under the third and fourth 
priorities described in Sec.  296.22. These general evaluation criteria 
were made available by the Commander in sufficient time for preparing 
applications.
    (b) Effective date. (1) General Rule. Unless otherwise provided, 
the effective date of an MSP Operating Agreement is October 1, 2005.
    (2) Exceptions. In the case of an Eligible Vessel to be included in 
an MSP Operating Agreement that is on charter to the U.S. Government, 
other than a charter under the provisions of an Emergency Preparedness 
Agreement (EPA) provided by Sec.  53107 of the MSA 2003, unless an 
earlier date is requested by the applicant, the effective date for an 
MSP Operating Agreement shall be:
    (i) The expiration or termination date of the Government charter 
covering the vessel; or
    (ii) Any earlier date on which the vessel is withdrawn from that 
charter, but not before October 1, 2005.
    (c) Replacement Vessels. A Contractor may replace an MSP vessel 
under an MSP Operating Agreement with another vessel that is eligible 
to be included in the MSP under Sec.  296.11(a), if the Secretary, in 
conjunction with the SecDef, approves the replacement vessel. The 
replacement vessel must qualify with the same or with more militarily 
useful capability as the MSP vessel to be replaced for operational 
requirements as determined by the Commander.
    (d) Termination by the Secretary. If the Contractor materially 
fails to comply with the terms of the MSP Operating Agreement:
    (1) The Secretary shall notify the Contractor and provide a 
reasonable opportunity for the Contractor to comply with the MSP 
Operating Agreement;
    (2) The Secretary shall terminate the MSP Operating Agreement if 
the Contractor fails to achieve such compliance; and
    (3) Upon such termination, any funds obligated by the relevant MSP 
Operating Agreement shall be available to the Secretary to carry out 
the MSP.
    (e) Early termination by Contractor, generally. An MSP Operating 
Agreement shall terminate on a date specified by the Contractor if the 
Contractor notifies the Secretary not later than 60 days before the 
effective date of the proposed termination that the Contractor intends 
to terminate the MSP Operating Agreement. The Contractor shall be bound 
by the provisions relating to vessel documentation and national 
security commitments, and by its EPA for the full term, from October 1, 
2005 through September 30, 2015, of the MSP Operating Agreement.
    (f) Early termination by Contractor, with available replacement. An 
MSP Operating Agreement shall terminate without further obligation on 
the part of the Contractor upon the expiration date of the three-year 
period beginning on the date a vessel begins operating under the MSP, 
if:
    (1) The Contractor notifies the Secretary, by not later than two 
years after the date the vessel begins operation under an MSP Operating 
Agreement, that the Contractor intends to terminate the MSP Operating 
Agreement; and
    (2) The Secretary, in conjunction with the SecDef, determines that:
    (i) An application for an MSP Operating Agreement has been received 
for a replacement vessel that is acceptable to the Secretaries; and
    (ii) During the period of an MSP Operating Agreement that applies 
to the replacement vessel, the replacement vessel will be:
    (A) Owned and operated by one or more persons that are Section 2 
Citizens; or
    (B) Owned by a person that is a Documentation Citizen and operated 
by a person that is a Section 2 Citizen.
    (g) Non-renewal for lack of funds. If, by the first day of a fiscal 
year, sufficient funds have not been appropriated under the authority 
of MSA 2003 for that fiscal year, the Secretary will notify the 
Senate's Committees on Armed Services and Commerce, Science, and 
Transportation, and the House of Representatives' Committee on Armed 
Services, that MSP Operating Agreements 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 only 
partial funding is appropriated by the 60th day of such fiscal year, 
then the Secretary, in consultation with the SecDef, shall select the 
vessels to retain under MSP Operating Agreements, based on the 
Secretaries' determinations of the most militarily useful and 
commercially viable vessels. In the event that no funds are 
appropriated, then all MSP Operating Agreements shall be terminated 
and, each Contractor shall be released from its obligations under the 
MSP Operating Agreement. Final payments under the terminated MSP 
Operating Agreements shall be made in accordance with Sec.  296.41. To 
the extent that funds are appropriated in a subsequent fiscal year, 
former MSP Operating Agreements may be reinstated if mutually 
acceptable to the Administrator and the Contractor provided the MSP 
vessel remains eligible.
    (h) Release of Vessels from Obligations: If an MSP Operating 
Agreement is terminated by the Contractor, with available replacement 
under paragraph (f) of this section, or if sufficient funds are not 
appropriated for payments under an MSP Operating Agreement for any 
fiscal year by the 60th day of that fiscal year, then--

[[Page 55595]]

    (1) Each vessel covered by the terminated MSP Operating Agreement 
is released from any further obligation under the MSP Operating 
Agreement;
    (2) The owner and operator of a non-tank vessel or a tank vessel 
not built under the NDTVCP may transfer and register the applicable 
vessel under a foreign registry deemed acceptable by the Secretary and 
the SecDef, notwithstanding section 9 of the Shipping Act, 1916 (46 
App. U.S.C. 808) and 46 CFR part 221;
    (3) The owner and operator of a tank vessel built under the NDTVCP 
must formally apply to MARAD pursuant to section 9 of the Shipping Act, 
1916 to transfer and register the vessel under a foreign registry; and
    (4) If section 902 of the Act is applicable to a vessel that has 
been transferred to a foreign registry due to a terminated MSP 
Operating Agreement, then that vessel is available to be requisitioned 
by the Secretary pursuant to section 902 of the Act.
    (5) Paragraph (h) of this section is not applicable to vessels 
under MSP Operating Agreements that have been terminated for any other 
reason.
    (i) Foreign Transfer of Vessel. A Contractor may transfer a non-
tank vessel to a foreign registry, without approval of the Secretary, 
if the Secretary, in conjunction with the SecDef, determines that the 
contractor will provide a replacement vessel:
    (1) Of equal or greater military capability or of a capacity that 
is equivalent or greater as measured in deadweight tons, gross tons, or 
container equivalent units, as appropriate;
    (2) That is a documented vessel under 46 U.S.C. chapter 121 by the 
owner of the vessel to be placed under a foreign registry; and
    (3) That is not more than 10 years of age on the date of that 
documentation.
    (j) Transfer of MSP Operating Agreements. A Contractor subject to 
an MSP Operating Agreement may transfer that MSP Operating Agreement 
(including all rights and obligations under that MSP Operating 
Agreement) to any person eligible to enter into an MSP Operating 
Agreement under Sec.  296.10 and of the same or more restrictive U.S. 
citizen priority, provided that prior approval to transfer the MSP 
Operating Agreement is granted by the Secretary and the SecDef. The 
Contractor should allow at least 90 days for processing of a transfer 
request.


Sec.  296.31  MSP assistance conditions.

    (a) Term of MSP Operating Agreement. MSP Operating Agreements are 
authorized for 10 years, starting on October 1, 2005, and ending on 
September 30, 2015, but payments to Contractors are subject to annual 
appropriations each fiscal year. MARAD may enter into MSP Operating 
Agreements for a period less than the full term authorized under the 
MSA 2003.
    (b) Terms under a Continuing Resolution (CR). In the event funds 
are available under a CR, the terms and conditions of the MSP Operating 
Agreements shall be in force provided sufficient funds are available to 
fully meet obligations under MSP Operating Agreements, and only for the 
period stipulated in the applicable CR. If funds are not appropriated 
under a CR at sufficient levels for any portion of a fiscal year, the 
Secretary will select the vessels to retain within the funding level of 
the previous fiscal year, in consultation with the SecDef, based on the 
Secretaries' determination of the most militarily useful and 
commercially viable vessels. With regard to an MSP Operating Agreement 
that does not receive funds, the terms and conditions of any applicable 
MSP Operating Agreement may be voided and the Contractor may request 
termination of the MSP Operating Agreement.
    (c) National security requirements. Each MSP Operating Agreement 
shall require the owner or operator of an Eligible Vessel included in 
that MSP Operating Agreement to enter into an EPA pursuant to section 
53107 of the MSA 2003. The EPA shall be a document incorporating the 
terms of the Voluntary Intermodal Sealift Agreement (VISA), as approved 
by the Secretary and the SecDef, or other agreement approved by the 
Secretaries.
    (d) Vessel operating agreements. The MSP Operating Agreement shall 
require that during the period an Eligible Vessel is included in that 
MSP Operating Agreement, the Eligible Vessel shall:
    (1) Documentation: Be documented as a U.S.-flag vessel under 46 
U.S.C. chapter 121;
    (2) Operation: Be operated exclusively in the foreign commerce, 
except for tankers, which may be operated in foreign-to-foreign 
commerce, and shall not otherwise be operated in the coastwise trade of 
the United States; and
    (3) Noncontiguous Domestic Trade: Not receive MSP payments during a 
period in which the Contractor participates, i.e., directly or 
indirectly owns, charters, or operates, a vessel engaged in 
noncontiguous domestic trade unless the Contractor is a Section 2 
Citizen.
    (e) Obligation of the U.S. Government. The amounts payable as MSP 
payments under an MSP Operating Agreement shall constitute a 
contractual obligation of the United States Government to the extent of 
available appropriations.
    (f) U.S. Merchant Marine Academy cadets. The MSP Operator shall 
agree to carry on the MSP vessel two U.S. Merchant Marine Academy 
cadets, if available, on each voyage.


Sec.  296.32  Reporting requirements.

    The Contractor shall submit to the Director, Office of Financial 
and Rate Approvals, Maritime Administration, 400 Seventh St., SW., 
Washington, DC 20590, one of the following reports, including 
management footnotes where necessary to make a fair financial 
presentation:
    (a) Form MA-172: Not later than 120 days after the close of the 
Contractor's semiannual accounting period, a Form MA-172 on a 
semiannual basis, in accordance with 46 CFR 232.6; or
    (b) Financial Statement: Not later than 120 days after the close of 
the Contractor's annual accounting period, an audited financial 
statement in accordance with 46 CFR 232.6 and the most recent vessel 
operating cost data submitted as part of its EPA, or if not current 
year data, a Schedule 310 of the MA-172.


(Approved by the Office of Management and Budget under Control Number 
2133-0005.)

Subpart E--Billing and Payment Procedures


Sec.  296.40  Billing procedures.

    Submission of voucher. For contractors operating under more than 
one MSP Operating Agreement, the contractor may submit a single monthly 
voucher applicable to all its MSP Operating Agreements. Each voucher 
submission shall include a certification that the vessel(s) for which 
payment is requested were operated in accordance with Sec.  296.31(d) 
and applicable MSP Operating Agreements with MARAD, and consideration 
shall be given to reductions in amounts payable as set forth in Sec.  
296.41(b) and (c). All submissions shall be forwarded to the Director, 
Office of Accounting, MAR-330, Room 7325, Maritime Administration, 400 
Seventh Street, SW., Washington, DC 20590. Payments shall be paid and 
processed under the terms and conditions of the Prompt Payment Act, 31 
U.S.C. 3901.


Sec.  296.41  Payment procedures.

    (a) Amount payable. An MSP Operating Agreement shall provide, 
subject to the availability of appropriations and to the extent the MSP 
Operating Agreement is in effect,

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for each Agreement Vessel, an annual payment equal to $2,600,000 for FY 
2006, FY 2007, FY 2008; $2,900,000 for FY 2009, FY 2010, FY 2011; and 
$3,100,000 for FY 2012, FY 2013, FY 2014, FY 2015. This amount shall be 
paid in equal monthly installments at the end of each month. The annual 
amount payable shall not be reduced except as provided in paragraphs 
(b) and (c) of this section.
    (b) Reductions in amount payable. (1) The annual amount otherwise 
payable under an MSP Operating Agreement shall be reduced on a pro rata 
basis for each day less than 320 in a fiscal year that an Agreement 
Vessel:
    (i) Is not operated exclusively in the foreign commerce, except for 
tank vessels, which may be operated in foreign-to-foreign commerce;
    (ii) Is operated in the coastwise trade; or
    (iii) Is not documented under 46 U.S.C. chapter 121.
    (2) To the extent that a Contractor operates MSP vessels less than 
320 days under the provisions of Sec.  296.31(d), payments will be 
reduced for each day less than 320 days.
    (c) No payment. (1) Regardless of whether the Contractor has or 
will operate for 320 days in a fiscal year, a Contractor shall not be 
paid:
    (i) For any day that an Agreement Vessel is engaged in transporting 
more than 7,500 tons (using the U.S. English standard of short tons, 
which converts to 6,696.75 long tons, or 6,803.85 metric tons) of 
civilian bulk preference cargoes pursuant to section 901(a), 901(b), or 
901b of the Act, provided that it is bulk cargo;
    (ii) During a period in which the Contractor participates in 
noncontiguous domestic trade, unless that Contractor is a Section 2 
Citizen;
    (iii) While under charter to the United States Government other 
than a charter pursuant to an EPA under Sec.  53107 of the MSA 2003. A 
voyage charter that is essentially a contract of affreightment will not 
be considered to be a charter;
    (iv) For a vessel in excess of 25 years of age, except for a LASH 
vessel in excess of 30 years of age or a tank vessel which is limited 
to 20 years of age, unless the vessel is a Participating Fleet Vessel 
meeting the requirements of Sec.  296.21(e);
    (v) For days in excess of 30 days in a fiscal year in which a 
vessel is drydocked or undergoing survey, inspection, or repair unless 
prior to the expiration of the vessel's 30-day period, approval is 
obtained from MARAD for an extension beyond 30 days. Drydocking, 
survey, inspection, or repair periods of 30 days or less are considered 
operating days; and
    (vi) If the contracted vessel is not operated or maintained in 
accordance with the terms of the MSP Operating Agreement.
    (2) To the extent that non-payment days under paragraph (c) of this 
section are known, Contractor payments shall be reduced at the time of 
the current billing. The daily reduction amounts shall be based on the 
annual amounts in paragraph (a) of this section divided by 365 days 
(366 days in leap years) and rounded to the nearest cent. Daily 
reduction amounts shall be applied.
    (3) MARAD may require, for good cause, that a portion of the funds 
payable under this section be withheld if the provisions of Sec.  
296.31(d) have not been met.
    (4) Amounts owed to MARAD for reductions applicable to a prior 
billing period shall be electronically transferred using MARAD's 
prescribed format, or a check may be forwarded to the Maritime 
Administration, P.O. Box 845133, Dallas, Texas 75284-5133, or the 
amount owed can be credited to MARAD by offsetting amounts payable in 
future billing periods.

Subpart F--Appeals Procedures


Sec.  296.50  Administrative determinations.

    (a) Policy. A Contractor who disagrees with the findings, 
interpretations or decisions of the Maritime Administration or the 
Contracting Officer with respect to the administration of this part or 
any other dispute or complaint concerning MSP Operating Agreements may 
submit an appeal to the Administrator. Such appeals shall be made in 
writing to the Secretary, within 60 days following the date of the 
document notifying the Contractor of the administrative determination 
of the Contracting Officer. Such an appeal should be addressed to the 
Maritime Administrator, Attn.: MSP Operating Agreement Appeals, 
Maritime Administration, 400 Seventh St., SW., Washington, DC 20590. 
Such an appeal is a prerequisite to exhausting administrative remedies.
    (b) DOD determinations. The MSA 2003 assigns joint and separate 
roles and responsibilities to the Secretary and to the SecDef. The 
Administrator and the Commander will make joint and separate findings, 
interpretations, and decisions necessary to implement the MSA 2003. A 
Contractor who disagrees with the initial findings, interpretations or 
decisions regarding the implementation of the MSA 2003--whether joint 
or separate in nature--shall communicate such disagreement to the 
Contracting Officer. Any disagreement or dispute of a Contractor may, 
where appropriate, be transferred to the Director, Policy and Plans, 
U.S. Transportation Command (Director), for resolution. A Contractor 
who disagrees with the findings, interpretations, or decisions of the 
Director, with respect to the administration of this part, may submit 
an appeal to the Commander. Such an appeal shall be made in writing to 
the Commander within 60 days following the date of the document 
notifying the Contractor of the administrative determination of the 
Director. Such an appeal should be addressed to the Commander, U.S. 
Transportation Command, 508 Scott Drive, Scott Air Force Base, IL 
62225-5357.
    (c) Process. The Administrator, or the Commander in the case of a 
DOD determination, may require the person making the request to furnish 
additional information, or proof of factual allegations, and may order 
any proceeding appropriate in the circumstances. The decision of the 
Administrator, or the Commander in the case of a DOD determination, 
shall be final.

Subpart G--Maintenance and Repair Reimbursement Pilot Program


Sec.  296.60  Applications.

    Section 3517, Subtitle A of Title XXXV establishes a five-year 
pilot program for MSP vessels to perform maintenance and repair (M&R) 
work in United States shipyards.
    (a) The M&R pilot program is authorized at $19.5 million per year 
for FYs 2006-2011.
    (b) The M&R pilot program is a voluntary program and MSP operators 
are not required to participate.
    (c) Subject to available funding, expenses are reimbursable at 80 
percent of the difference between the fair and reasonable costs of the 
repairs in a foreign shipyard in the geographic region in which the MSP 
vessel operates and the fair and reasonable costs of performing the 
repairs in a United States shipyard.
    (1) An MSP operator must apply at least 180 days in advance of 
anticipated M&R work.
    (2) The application must include estimates of M&R costs in the 
United States and outside the United States in the geographic region in 
which the MSP vessel operates.
    (d) MARAD has 60 days to notify the M&R applicant if the repair 
work meets the requirements of the M&R pilot program, if there is a 
shipyard in the

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United States that can perform the approved repairs, and whether funds 
are available.
    (e) Qualified M&R work includes any required inspection and any M&R 
work determined in the course of an inspection that is necessary to 
comply with the laws of the United States.
    (f) Qualified M&R work does not include routine M&R or emergency 
M&R that is necessary to enable a vessel to return to a port in the 
United States.

    By order of the Maritime Administrator.

    Dated: September 15, 2005.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 05-18678 Filed 9-21-05; 8:45 am]
BILLING CODE 4910-81-P