MARAD Rulemaking Authority Under Cargo Preference Laws

T h e U .S . M aritim e A d m in istra tio n has the a u th o rity to p ro m u lg ate rules esta b lish in g m andatory uniform c h a rte r term s for the c arriag e of carg o es subject to the C arg o P reference A ct o f 1954.

April 19, 1994

M e m o r a n d u m O p in io n f o r t h e G e n e r a l C o u n s e l

D e p a r t m e n t o f T r a n s p o r t a t io n

This responds to your letter requesting our opinion whether the U.S. Maritime 

Administration (“MARAD”) has authority to promulgate rules establishing mandatory uniform charter terms for the carriage of cargoes subject to the Cargo Preference Act of 1954, section 901(b) of the Merchant Marine Act of 1936, as 

amended (“MMA”), Pub. L. No. 83-664, ch. 936, 68 Stat. 832, 1034 (1954) 

(“CPA”). In addition to the submission accompanying your letter, on November 

23, 1993, the Department of Agriculture (“USDA”) and the U.S. Agency for International Development (“USAID”) each submitted memoranda setting forth their 

views in opposition to MARAD’s position (hereinafter cited as “USDA Mem.” and 

“USAID Mem.”). On January 25, 1994, we received a final submission from 

MARAD in reply to the submissions of USDA and USAID.

We conclude that MARAD’s statutory authority is broad enough to warrant issuance of charter term regulations. Under the CPA, agencies are only required to 

allocate the targeted share of cargo to U.S.-flag carriers to the extent that shipment 

on such carriers is available at “fair and reasonable rates.” The proposed regulations appear to be a reasonable means of containing charter-related pass-through 

costs incurred by U.S.-flag carriers in the preference trade, thereby helping those 

carriers to maintain “reasonable” rates and to utilize the full statutory allocation 

of cargo preference, both overall and by “geographic areas,” see 46 U.S.C. app. 

§ 1241(b)(1). MARAD has explicit authority to issue regulations governing federal agencies in the “administration” of their cargo preference programs, and there 

is persuasive historical evidence that such program administration, as understood 

by Congress, encompasses the promulgation of charter party terms.

I. BACKGROUND

A. The Cargo Preference Act of 1954

This dispute centers around the nation’s cargo preference laws, which require 

that a minimum percentage of ocean cargo generated by certain U.S. government 

programs (e.g., foreign food aid grants or foreign purchases financed by U.S. Gov78
M ARAD Rulemaking Authority Under Cargo Preference Laws

ernment loans) must be transported in U.S.-flag vessels. The Cargo Preference Act 

provides in relevant part:

Whenever the United States shall procure, contract for, or otherwise obtain for its own account, or shall furnish to or for the account of any foreign nation without provision for reimbursement, 

any equipment, materials, or commodities, within or without the 

United States, . . . the appropriate agency or agencies shall take such 

steps as may be necessary and practicable to assure that at least 50 

per centum of the gross tonnage of such equipment, materials, or 

commodities . . . which may be transported on ocean vessels shall 

be transported on privately owned United States-flag commercial 

vessels, to the extent such vessels are available at fair and reasonable rates for United States-flag commercial vessels, in such manner 

as will insure a fair and reasonable participation of United Statesflag commercial vessels in such cargoes by geographic areas ....

46 U.S.C. app. § 1241(b)(1). As a result of amendments enacted in the 1985 Farm 

Bill, the percentage of food aid program shipments subject to cargo preference was 

increased from 50% to 75%. Food Security Act of 1985, Pub. L. No. 99-198, 99 

Stat. 1354, 1496, 46 U.S.C. § 1241b.

In 1970, Congress enacted section 27 of the Merchant Marine Act of 1970, Pub. 

L. No. 91-469, § 27, 84 Stat. 1018, 1034, which added the following explicit cargo 

preference rulemaking authority as § 901 of the MMA:

Every department or agency having responsibility under this subsection shall administer its programs with respect to this subsection 

under regulations issued by the Secretary of Transportation. The 

Secretary of Transportation shall review such administration and 

shall annually report to the Congress with respect thereto.

46 U.S.C. app. § 1241(b)(2). Based on this authority (delegated to MARAD by 

the Secretary of Transportation, see 49 C.F.R. § 1.66(e)(1993)), MARAD has 

promulgated regulations governing participating agencies in the administration of 

their cargo preference responsibilities. 46 C.F.R. pt. 381 (1992). Those regulations establish various reporting requirements, rules governing the cargo “mix” of 

covered shipments, and other matters relative to compliance with the CPA’s requirement for allocating a minimum cargo share to U.S-flag carriers. However, 

none of the existing CPA regulations purports to establish or regulate the substantive terms of cargo charters utilized by agencies in contracting for shipments covered by the CPA. MARAD’s attempt to promulgate regulations that would do just 

that gave rise to this dispute between MARAD and the chief agencies (USDA and 

USAID) administering food aid programs subject to cargo preference.

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B. Agricultural Export Programs

USDA and USAID both participate in various overseas food aid programs involving shipments covered by the CPA, including programs authorized by the Agricultural Trade Development and Assistance Act of 1954, as amended, 7 U.S.C. 

§§ 1691- 1738r, commonly known as “Public Law 480.” Under these programs, 

agricultural commodities and other forms of food aid are shipped overseas to foreign governments pursuant to grants or U.S. Government-financed purchases. 

USDA is in charge of market development credit sales to friendly developing 

countries under title I of Public Law 480, while USAID is in charge of grant programs for emergency food assistance and food donation programs benefiting least 

developed countries under titles II and III.

In 1990, Public Law 480 was amended to provide the Secretary of Agriculture 

and the AID Administrator with certain additional powers in connection with the 

administration of their respective food aid programs. See 7 U.S.C. § 1736a(a)(2) 

(USDA) and (d)(2), (4) (USAID). These provisions authorize the Secretary and 

the Administrator to purchase ocean transportation for their program shipments 

under such competitive bid procedures as they consider appropriate. USDA and 

USAID contend that the imposition of uniform charter party rules by MARAD 

would undercut their ability to establish such competitive bidding procedures.

C. M A R A D ’s Proposed Rule

The proposed rule that precipitated this dispute was developed by MARAD in 

response to complaints from U.S. shipowners that they were being adversely affected by various practices in the awarding of cargo preference ocean transport 

contracts, referred to as “charter parties.” See Liberty Maritime Corporation; Filing of Rulemaking Petition, 57 Fed. Reg. 8287 (1992).' In brief, the shipowners 

claim that U.S. agencies administering CPA programs, as well as recipient nations, 

have increasingly included terms and conditions in charter parties that place an 

excessive burden of cost and risk upon the shipowner, as opposed to the shipper or 

the recipient. Thus, MARAD’s notice of proposed rulemaking stated that it was 

issued “in response to vessel owners’ complaints of discriminatory, noncommercial contracting terms in the preference trade.” NPRM at l.2 An important 

example of such objectionable terms is a provision requiring the shipowner (as 

opposed to the charterer or the recipient nation) to absorb the added costs caused 

by delays in unloading the cargo. As the NPRM continued:

1 M A R A D 's draft nouce o f proposed rulem aking (“N PR M ") defines "C harter Party” as “a contract betw een the cargo charterer and the vessel ow ner/operator reflecting the terms and conditions agreed to by both 

parties regarding the shipm ent of the cargo” N PR M at 18 T he draft NPRM was transm itted to the O ffice 

of M anagem ent and Budget ('‘O M B ”) for pre-prom ulgation clearance on D ecem ber 29, 1992, but it was not 

cleared by O M B due to the inter-agency legal dispute over M A R A D 's authority to issue it.

“ T he shipow ner's petition also asked M AR A D to issue a rule requiring sealed bidding in all CPA charter 

lenders, but M A R A D declined to include such a requirem ent in the NPRM.

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M ARAD Rulemaking Authority U nder Cargo Preference Laws

These discriminatory terms increase vessel owners’ costs and risks.

This, in turn, causes higher freight rates and unnecessary expenditure of U.S. Government funds. Currently, there is a vast array of 

contracting procedures affecting U.S. flag vessels carrying preference cargoes; some programs have uniform charter parties containing minimal onerous, non-commercial terms, whilst others allow a 

multiplicity of nonstandard, discriminatory charter parties. . . . This 

regulation attempts to harmonize all the disparate charter parties 

into one consistent, orderly, fair and commercially justifiable charter party.

Id. 1-2.

The MARAD proposed rule would (1) require MARAD’s pre-approval of all 

freight tenders (i.e., bid solicitations) for CPA charter parties; and (2) require the 

utilization of a uniform charter party (“UCP”) by all agencies in arranging for their 

CPA program shipments. The mandatory provisions proposed for the UCP encompass a range of subjects, including loading and discharging conditions and 

procedures; shipment cancellations due to delays; procedures for handling bills of 

lading; arrangements for the use of stevedores; and various rules and procedures 

for allocating contractual responsibility with respect to the timeliness of various 

actions (e.g., readiness to load or discharge the cargo).

The NPRM described the anticipated effect of the proposed rules as follows:

It would substantially affect the operation of U.S.-flag vessels in the 

preference trade by improving their prospects for achieving a reasonable profit through eliminating unfavorable conditions now existing under the affected Government sponsored programs. Based on 

a survey of participating vessel owners, adoption of these uniform 

charter party provisions could result in significant annual savings.

NPRM at 16.

MARAD contends that it has authority to promulgate the UCP regulations under 

46 U.S.C. app. § 1114(b) and 46 U.S.C. app. § 1241(b)(2). Both USDA and 

USAID contend that those provisions do not authorize MARAD to impose substantive charter terms on agencies administering cargo preference programs. 

Those agencies also contend that MARAD’s attempt to impose mandatory terms to 

govern all CPA cargo charters conflicts with the statutory powers assigned to them 

under the foreign food aid programs.

II. ANALYSIS

A. The Secretary’s General Authority under § 204(b) o f the M M A

We first examine the general authority given the Secretary of Transportation 

under section 204(b) of the MM A, 46 U.S.C. app. § 1114(b), to ascertain whether

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it provides a legal basis for issuance of the charter term regulations. That section 

provides that the Secretary is “authorized to adopt all necessary rules and regulations to carry out the powers, duties and functions vested in [him] by [the Act].” 

Id. Construing the Secretary’s authority under section 204(b) in States Marine

Int’l. v. Peterson, 518 F.2d 1070, 1079 (1975), cert, denied, 424 U.S. 912 (1976), 

the U.S. Court of Appeals for the D.C. Circuit observed:

[U]nder this grant of authority the Secretary . . . has broad discretionary authority to deal with the everchanging technological and 

economic conditions of the commercial shipping industry, as long 

as its actions are reasonable and consistent with the 1936 Act.

The legislative history underlying section 204(b) confirms that Congress intended to give the Secretary broad (but not unlimited) authority and discretion to 

respond to problems afflicting the U.S. merchant shipping industry. As stated in 

the Senate Commerce Committee Report on the 1936 Act:

Title II creates a Maritime Authority .... The Authority is 

given a considerable amount of discretion in the solution of its 

problems. This discretion is necessary since many questions will 

require prompt treatment. Shipping is a business of a highly competitive and constantly changing nature, and its governmental 

contact must be given the power of prompt decision in dealing 

with situations as they arise. Such discretion, however, must have 

limits, and in framing the bill it has been our endeavor to confer no 

greater powers than are necessary and proper considering the ends 

in view.

S. Rep. No. 74-713, at 4 (1935).

These authorities raise the question of whether MARAD’s issuance of the proposed regulations is both a reasonable response to developments in the merchant 

shipping business and consistent with the 1936 Act.

There seems little doubt that the proposed regulations are “consistent with the 

1936 Act.” That Act was intended “to help develop an American merchant fleet 

that would be competitive with foreign flag fleets.” Peterson, 518 F.2d at 1076. 

We think MARAD could reasonably determine that regulating charter parties in a 

manner designed to eliminate terms having a disproportionately adverse affect on 

U.S.-flag carriers would further the competitive interests of the U.S. merchant 

fleet. Thus, the proposed regulations appear generally consistent with the permissive standards for sustaining regulatory actions by the Secretary under the general 

authority of section 204(b) of the MMA. In that regard, cases construing the

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M ARAD Rulemaking Authority Under Cargo Preference Laws

MMA have been consistently deferential to the Secretary’s discretion in regulating 

merchant shipping matters.3 As stated by the Federal Circuit in American President Lines, Ltd. v. United States, 821 F.2d 1571, 1578 (Fed. Cir. 1987), “The 

[Merchant Marine] Act gave the Secretary very broad powers and authority and 

wide discretion in administering programs under its provisions.”

Thus, the language and judicial construction of section 204(b) confirm that it 

constitutes a broad grant of discretionary authority and indicate that the Secretary’s 

issuance of regulations reasonably framed to enhance the competitiveness of the 

U.S. merchant fleet would normally fall within that authority. However, although 

this factor lends support to MARAD’s position, we do not view the breadth of section 204(b)’s grant of general regulatory authority as necessarily conclusive on the 

more specific and difficult question posed here: Whether the Secretary’s admittedly broad rulemaking authority within his areas of statutory responsibility encompasses the power to dictate the specific terms that must be included in 

contracts governing cargo preference charters issued by other federal agencies4

Resolution of this question must address the more particular grant of regulatory 

power found in the CPA itself, 46 U.S.C. app. § 1241(b)(2).

B. The Secretary’s Authority under § 901(b)(2) o f the MMA

1. "Administration" of Cargo Preference "Programs”. In 1970, Congress 

amended the CPA to provide that, “Every department or agency having responsibility under this subsection [i.e., the CPA] shall administer its programs with respect to this subsection under regulations issued by the Secretary of 

[Transportation].” MMA, § 901(b)(2) (codified as amended at 46 U.S.C. app. 

§ 1241(b)(2)). The Senate Commerce Committee Report explained the purpose 

behind the amendment.

The Committee amended the bill to provide that each agency having

responsibilities under [the CPA] will administer its program with

1 E.g , Seatram Shipbuilding Corp v Shell O il Co , 444 U.S 572, 585 (1980) (S ecretary's broad contrad in g powers and discretion lo adm inister the M M A encom passed authority 10 release shipow ner from its 

obligation to operate subsidized ship exclusively in foreign trade); Am erican President Lines, Ltd ,8 2 1 F 2d

at 1578 (court defers to Secretary s authority to charge buyer only one-half o f layup costs in determ ination of 

trade-in allowance under obsolete vessels trade-in program, stating, “The Act gave the Secretary very broad 

pow ers and authority and wide discretion in adm im siering program s under its provisions "), Am erican M a ritim e A ss'n v United Slates, 766 F 2d 545. 560 (D C Cir 1985) ("AMA ' case) (substantial deference standard applied in sustaining M ARAD rules fixing rate structure for subsidized ships in preference trade, 

stating, "M arAd s attem pt to implem ent the 1970 am endm ents ‘represents a reasonable accom m odation of 

the conflicting policies that were com m itted to the agency's care by the statute * (quoting Chevron U S A. v

N ational Resources D ejense C ouncil, 467 U S. 837, 844-46 (1984))

4 M oreover, a letter written by the M ARAD Adm inistrator in 1969 (when M ARAD could rely only on the 

general authority granted the Secretary under 204(b) of the M M A) suggests that M ARAD did not lay claim 

to substantial authority in this area prior to the 1970 CPA am endm ents that gave it specific regulatory 

authority over other agencies in their adm inistration o f cargo preference program s That letter stated “ fOJur 

surveillance over the program is very limited We have no jurisdiction over the activities o f the governm ent 

agencies that actually ship governm ent-sponsored cargoes ” Letter for the Hon James A Burke, House of 

Representatives, from J.W Gulick, Acting A dm inistrator, M aritim e A dm inistration at 3 (M ar 6, 1969).

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respect thereto in accordance with regulations promulgated by the 

Secretary. . . .

Although the cargo preference program is generally recognized 

as an important pillar of our maritime policy, its administration has 

tended to be uneven and chaotic. A lack o f uniform and rational

administration has worked to the disadvantage of shippers, carriers, and various geographic areas of our nation, and has also made 

it exceedingly difficult to assess and review the overall impact of 

the program. The situation is easily understandable when one considers the fact that at present each shipping agency administers its 

own program independently and that none of the agencies primarily 

involved has an expertise in, or a mandate with respect to, overall 

U.S. maritime policy.

S. Rep. No. 91-1080, at 19, 58 (1970), reprinted in 1970 U.S.C.C.A.N. 4188, 

4193, 4232 (emphasis added).5

The Committee then explained how it intended to foster uniformity of administration and to advance the basic goals of the CPA by giving the Secretary the 

power to impose regulatory control over participating agencies in their administration of cargo preference programs. Id. at 58-59, reprinted in 1970 U.S.C.C.A.N. 

4232-33:

Thus, in order to bring some order out of chaos, to correct some 

of the inequities which have resulted from lack of uniformity in administration, and to facilitate the achievement of the program’s objectives . . . the committee amended H.R. 15424 to provide that 

each agency having responsibilities under section 901(b) of the 

Merchant Marine Act, 1936, will administer its program in accordance with regulations promulgated by the Secretary .... This 

provision should prove beneficial in bringing some uniformity to 

the administration of the cargo preference laws. . . . It also has the 

advantage of giving some control over the administration of laws 

designed to assist the merchant marine to the government official 

who has the primary responsibility for the merchant marine — an 

altogether logical and sound approach.

5 T he Senate floor debate on the measure expressed sim ilar sentim ents and purposes Senator M agnuson 

stated that the provision vesting the Secretary with rulem aking authority over the adm inistration o f cargo 

preference program s “should alleviate some o f the anom alies and injustices that have resulted from a lack of 

coordinated adm inistration o f cargo preference. Section 901 is prom otional legislation and the prom otional 

agency for m antim e m atters should guide its adm inistration.” 116 Cong. Rec. 32,491 (1970)

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In adopting the provision referred to in the Senate Report, the Conference 

Committee expressed a similar legislative purpose:

There is a clear need for a centralized control over the administration of preference cargoes. In the absence of such control, the

various agencies charged with administration of cargo preference

laws have adopted varying practices and policies, many of which

are not American shipping oriented. Since these laws were designed by Congress to benefit American shipping, they should be 

administered to provide maximum benefits to the American merchant marine. Localizing responsibility in the Secretary . . . to issue 

standards to administer these cargo preference laws gives the best 

assurance that the objectivefs] of these laws will be realized.6

H.R. Conf. Rep. No. 91-1555, at 6 (1970), reprinted in 1970 U.S.C.C.A.N. 4260, 

4262-63 (emphasis added).

This legislative history confirms that Congress intended the Secretary to have 

substantial authority and leeway in imposing a degree of uniformity upon other 

departments and agencies in the administration of their cargo preference programs. 

See AM A, 766 F.2d 545 at 551 (Congress gave MARAD “broad discretion to supervise the implementation of the 1970 amendments”). We therefore must determine 

whether the promulgation of mandatory charter party terms to govern CPA tenders 

is properly regarded as an aspect of the “administration” of cargo preference “programs” as those terms are used in the CPA. If so, the proposed charter term regulations would appear to be a proper exercise of the Secretary’s statutory authority.

Although the legislative history of the 1970 amendments does not address this 

precise point, evidence that Congress understood agency administration of cargo 

preference programs to encompass regulation of charter terms can be found in the 

Senate Commerce Committee report prepared in 1962 concerning problems in the 

administration of the cargo preference laws. See S. Rep. No. 87-2286 (1962) 

(“ 1962 Senate Report”). That report included a summary of various representative 

episodes in which the Commerce Committee had worked with departments and 

agencies to achieve results favorable to American shipping interests “in keeping 

administration of the cargo preference policy in line with the intent of Congress as 

expressed in the statutes.” Id. at 3. One of the seven episodes cited by the Committee as “excellent guidance for the future” was described in the Report as follows:

6 T he underscored language in the Conference Report could reasonably be view ed as encom passing the 

very kind of practice addressed by the proposed rulem aking at issue here — 1 e., the practice o f im posing 

charter terms that are unfavorable to U.S -flag carriers in their efforts to attain and retain at least the statutory 

m inim um share o f cargo preference traffic.

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Complaints from tramp ship operators that the Department of 

Agriculture had revised certain procedures for the handling of Government-financed cargoes, to the detriment of U.S.-flag vessel owners, were taken up with Secretary [of Agriculture] Freeman, in a 

letter by the chairman on June 4, 1962.

The Secretary’s reply, under date of July 3, presented the Government’s side of the matter, and gave assurance that —

“The Department has recognized the problem presented in your 

letter concerning charter terms on U.S. vessels which are sometimes

burdensome to owners. We are o f the opinion that the adoption of

a uniform charter party would be helpful in this matter. Experience 

has demonstrated that diverse requirements of individual importing 

countries make uniformity of charter party terms and conditions difficult to obtain. We have recognized for some time, however, that 

to the extent practicable uniformity is desirable. To that end, about 

a year ago a form of charter party was developed, and since that 

time has been in use for a part of the chartering required under Public Law 480 programs. The possibility of extending the use of the 

uniform contract is presently being studied.”

Id. at 7 (emphasis added).

This pertinent material from the 1962 Senate Report strongly indicates that 

agency “administration” of cargo preference programs has long been understood to 

encompass the subject of charter terms or “uniform charter party”. While we do 

not regard this 1962 report as actual legislative history on the CPA — since it is not 

material prepared or contemplated by the same Congress that passed or amended 

that act — the report does represent pertinent historical material evidencing congressional and executive branch understanding of what the “administration” of 

cargo preference programs encompasses. Moreover, we are not aware of evidence 

demonstrating a contradictory understanding of the term in subsequent years.7

2. Implementing the “Reasonable” Rate Standard. It also appears that 

MARAD’s regulatory authority under section 901(b)(2) would extend to aspects of

7 M A R A D called to our attention a 1993 report issued by the House M erchant M arine Committee that 

touches on this subject, but that report likewise does not constitute legislative history as to the relevant provisions o f the M M A and the CPA because it w as not issued in connection with the enactm ent or successful 

am endm ent o f those acts. See H.R. Rep No 103-251, at 56 (1993) Nonetheless, in stating the C om m m itte e 's view that charter term s do fall w ithin the Secretary's regulatory authority under 46 U S.C. app 

§ 1241(b)(2), the 1993 C om m ittee Report lends contem porary reenforcem ent and continuity to the general 

congressional understanding indicated in the 1962 Senate R eport — i.e , that the regulation or control over 

charter term s is part and parcel o f the ‘adm inistration of the cargo preference policy " see 1962 Senate Report at 3.

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cargo preference administration that affect the rates charged by United States-flag 

carriers. Under section 901(b)(1), U.S. carriers are only eligible for cargo preference to the extent that they charge “fair and reasonable rates for United States-flag 

commercial vessels.” 46 U.S.C. app. § 1241(b)(1). Exercising the Secretary’s 

substantial administrative discretion, MARAD could reasonably conclude that erratic charter party terms imposing increased costs and risks on U.S.-flag carriers 

might undercut the carriers’ ability to calculate and offer rates that are 

“reasonable.” MARAD could also reasonably conclude that the effect of burdensome charter party terms on the rate-setting practices of the U.S. carriers would 

adversely affect MARAD’s ability to apply the “fair and reasonable” rate standard 

in a correct and consistent manner. Thus, the proposed UCP regulations could be 

justified on the basis of MARAD’s authority to regulate the administration of cargo 

preference programs in a manner that effectively implements the “reasonable rate” 

standard of the CPA.

In that regard, we reject USDA’s argument (USDA Mem. at 8) that the proposed UCP rules must be “practically indispensable and essential” to the performance of MARAD’s statutory responsibilities (quoting from In re United Missouri

Bank o f Kansas City, N.A., 901 F.2d 1449, 1454 (8th Cir. 1990)) in order to be 

sustainable. The opinion from which that language was quoted held that an Article 

I bankruptcy court could not conduct jury trials on the basis of authority allegedly 

implied by the Bankruptcy Amendments Act of 1984. The reasoning of that opinion, and the test of “necessity” that it employed, have little relevance here, where 

(1) MARAD’s authority to promulgate regulations governing other agencies in the 

administration of their cargo preference programs is explicit, not implied; and (2) 

the legislative history of the 1970 amendments unambiguously demonstrates that 

Congress intended MARAD to use that authority to eradicate agency practices in 

cargo preference programs that are adverse to the interests of U.S.-flag carriers. 

See supra note 6 and accompanying text.

3. Reduction o f the Rate Gap and Cargo Preference Costs. The NPRM and 

MARAD’s submissions also indicate that the Government’s interest in reducing the 

costs of the cargo preference program — primarily by reducing the rate gap between American- and foreign-flag carriers — provides an additional valid basis for 

issuance of the UCP regulations. This contention finds some support in caselaw 

and legislative history construing the 1970 amendments to the CPA. In the AMA

case, the court concluded that “Congress clearly intended the 1970 amendments [to 

the CPA] to reduce the government cost of preference cargo carnage.” 766 F.2d at 

561.8 Relatedly, the House Report underlying the 1970 amendments explained

8 The same opinion also concluded lhat

C ongress clearly intended the 1970 am endm ents . gradually, to phase out the expensive and 

ineffective system o f indirect subsidies paid to existing bulk shippers in the form of prem ium 

rates for preference cargo carnage 

766 F 2d at 549 Rate-gap reductions achievable through UCP regulations would serve lhat end

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how the bill was intended to achieve such cost reductions in the long run: “The 

aim of the Administration’s program and the bill is to enable American bulk carriers, eventually at least, to carry government cargoes at world rates.” H.R. Rep. No. 

91-1073, at 38 (1970).

MARAD’s proposed UCP regulations appear reasonably designed to reduce 

shipowner costs and risks entailed by burdensome and inconsistent charter party 

terms, such as those shifting the cost of unloading delays to the shipowner. The 

reduction in shipowner costs and risks contemplated by the regulations should lead 

to reduced cargo rates, which in turn would naturally reduce the government’s

costs in subsidizing cargo preference. Therefore, as the court similarly concluded 

in the AM A case, “[W]e believe lhat Mar Ad’s . . . rule reasonably accomplishes 

Congress’ aim to lower the overall government costs of the preference cargo program . . . .” 766 F.2d at 560.

C. Reasonable Participation by Geographic Areas

The CPA not only requires that U.S.-flag carriers be allocated an overall minimum share of covered cargo, but also requires that the cargo allocation be done “in 

such manner as will insure a fair and reasonable participation of United States-flag 

commercial vessels in such cargoes by geographic areas." 46 U.S.C. app. 

§ 1241(b)(1) (emphasis added). The meaning of this particular clause of the CPA 

was explained by the Seventh Circuit in City of Milwaukee v. Yeutter, 877 F.2d 

540, 543 (7th Cir. 1989), as follows:

The command . . . speaks of “a fair and reasonable participation

o f United States-flag commercial vessels in such cargoes”, not of a 

fair and reasonable participation of ports or port ranges. Section 

1241(b)(1) is special-interest legislation, but the interest is that of 

U.S.-flag lines, not of ports. “By geographic areas” means “by destination”, not “by origin”. This ensures that the government can’t 

short-haul domestic carriers. It can’t send shipments from Bangor,

Maine, to Providence, Newfoundland, on U.S. ships while reserving 

all the traffic from Philadelphia to Bangkok for foreign bottoms.

Thus, MARAD’s regulation under the CPA may include measures intended to 

assure that U.S.-flag carriers receive a proportional share of CPA shipments to 

particular geographic destinations, such as the former Soviet republics or other 

distant regions.

The charter term regulations may also be sustained, therefore, because they facilitate the “reasonable-participation-by-geographic-areas” requirement of the 

CPA. As stated in the NPRM, vessel dimension and cargo size requirements employed in charter parties used in some countries “often do not match the history of

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the port(s) to be served.” NPRM at 10. As the NPRM further stated, “Owners 

who have recently successfully discharged in these ports are now being denied 

access to cargoes to be shipped to those ports.” Id.

There has been testimony before Congress that such unfavorable charter party 

terms have been particularly injurious to U.S.-flag vessels in their efforts to deliver 

and unload preference cargo bound for Russia and other former republics of the 

Soviet Union. See Hearing by Joint Subcomms. on U.S. Flag Shipping Rates on

Grain Sales to the Former Soviet Union: Hearing Before the Subcomm. on Agric.,

Rural Dev., Food and Drug Admin., and Related Agencies and Commerce, State,

Justice and Judiciary of the House Comm, on Appropriations, 103d Cong. 9-13, 

57-62 (1993) (“ 1993 Hearings”). According to this testimony, when adverse 

charter terms are combined with the chaotic and difficult conditions in Russian 

ports, the U.S.-foreign freight differential increases and American-flag vessels are 

disproportionately harmed in the effort to compete for Russia-bound cargoes. Id.

at 9, 14-15, 57-58.

MARAD could reasonably find that such adverse charter terms might ultimately 

discourage U.S.-flag carriers from maintaining a reasonable degree of participation 

in CPA shipments to geographic areas where American shipping interests are disproportionately harmed by such charter terms. Issuing UCP regulations in an effort 

to prevent that from occurring would appear to be a valid means for MARAD to 

further the “reasonable geographic participation” standard of the CPA.

D. Claims o f Conflict with A ID ’s and USDA’s Statutory Authority Regarding

Transportation Arrangements under the Food Aid Programs

The 1990 Food Act provides both the Secretary of Agriculture and the AID 

Administrator with authority to establish competitive bid procedures for the procurement of ocean transportation for the food aid shipment programs they administer. Pub. L. No. 101-624, 104 Stat. 3650 (1990). Thus, 7 U.S.C. § 1736a(a)(2) 

(“Invitation for bid”) provides with respect to USDA:

All awards in the purchase of commodities or ocean transportation 

financed under subchapter II of this chapter shall be consistent with 

open, competitive, and responsive bid procedures, as determined 

appropriate by the Secretary.

Similar authority is provided to the AID Administrator under 7 U.S.C. 

§ 1736a(d)(2) with respect to the programs he administers.9 Additionally, 7 U.S.C. 

§ 1736a(d) provides as follows with respect to USAID program cargo arrangements:

9 That subsection provides that purchases o f ocean transportation under the relevant program s must be 

made ’‘on the basis of full and open com petition utilizing such procedures as are determ ined necessary and 

appropriate by the A dm inistrator.'’ Id

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(1) Acquisition.— The Administrator [of USAID] shall transfer, 

arrange fo r the transportation, and take other steps necessary to 

make available agricultural commodities to be provided under subchapter[s] III and . . . III-A of this chapter.

(4) Ocean transportation services. — Notwithstanding any provision 

of the Federal Property and Administrative Services Act of 1949 

(40 U.S.C. 471 et seq.) or other similar provisions relating to the 

making or performance of Federal Government contracts, the Administrator may procure ocean transportation services under this 

chapter under such full and open competitive procedures as the

Administrator determines are necessary and appropriate.

(Emphasis added.) These provisions thus authorize USAID to arrange for the 

shipment of Public Law 480 cargoes under such “competitive procedures” as the 

Administrator considers “necessary and appropriate.”

USDA and USAID contend that the charter party regulations proposed by 

MARAD are incompatible with their authority to establish the competitive procedures they deem appropriate for the procurement of food aid shipping arrangements.

There is nothing to indicate that the “competitive procedures” provisions of the 

1990 Food Act were intended to interfere with the Secretary of Transportation’s 

administration of the Cargo Preference laws. See S. Rep. No. 101-357, at 169 

(1990), reprinted in 1990 U.S.C.C.A.N. at 4825. On the contrary, the legislative 

history of the 1990 Food Act states as follows: “None of the revisions to Public 

Law 480 contained in this legislation are intended to modify, alter or reduce the 

75[%] U.S. flag shipping requirement provided for under current law.” Id.

We conclude that the Food Act’s competitive procedures provisions can be reconciled with MARAD’s authority to regulate the administration of USDA’s and 

USAID’s cargo preference programs.10 For example, Congress plainly did not 

believe that the competitive procedures provisions would be incompatible with the 

basic 75% cargo preference set-aside for U.S.-flag vessels, see id., which imposes 

far more severe restrictions on competition than those presented by UCP regulations. Rather, the Food Act provisions authorize USDA and USAID to establish

10 T he requirem ent for sealed bidding on all CPA charter parties initially proposed by the petitioning 

shipow ner, but not included by M ARAD in the NPRM it proposed, would appear to present another m atter 

W hether or not to require sealed bidding w ould seem to be the very kind o f ''com petitive procedures” that 

were left to the detei m ination o f USDA and U SA ID under the 1990 Food Act How ever, we do not understand M A R A D 's request for opinion to extend to this issue, since M ARAD itself declined to include a sealed 

bidding requirem ent in its draft NPRM.

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competitive procedures for the procurement of ocean transportation in a manner 

that is compatible with the requirements of the CPA. Cf. AMA, 766 F.2d at 561 

n.25 (“Congress clearly intended MarAd to control the subsidized carriage of preference cargoes and that shipper agencies would adjust their preference cargo procedures to conform with MarAd’s.”). We find nothing in the 1990 legislation or its 

legislative history indicating that USDA or USAID authority over the terms of 

charter parties was considered necessary to the establishment of competitive procurement procedures. Uniform charter party regulations would merely represent an 

element of the unique cargo preference trade environment within which USAID 

and USDA have been authorized to establish competitive procurement procedures."

E. Allocation v. Availability

USDA and USAID also contend that MARAD’s proposed imposition of UCP is 

fundamentally different than the kind of regulatory authority contemplated under 

the CPA — i.e., the authority to assure that a 75% share of cargo subject to the 

CPA is allocated to U.S.-flag carriers “to the extent such vessels are available at 

fair and reasonable rates,” 46 U.S.C. app. § 1241(b)(1). See USAID Mem. at 17- 

20; USDA Mem. at 8-15. The covered agencies have consistently satisfied the 

CPA’s 75% requirement for eligible U.S-flag vessels, and MARAD does not contend otherwise. The opposing agencies therefore contend that the proposed UCP 

regulations are unnecessary and bear no valid relationship to what they view as 

MARAD’s limited statutory authority. In this regard, the more favorable charter 

terms proposed by the NPRM would presumably affect the overall and long-term 

availability of rate-qualified U.S. carriers rather than MARAD’s application of the 

75% preference requirement to the pool of available U.S.- and foreign-flag carriers. Thus, this dispute also raises the question whether the CPA grants MARAD 

the authority to take regulatory action designed to encourage the availability of 

qualifying U.S.-flag carriers but not directly related to the allocation of preference 

cargo among the available and eligible carriers.

MARAD’s allocation authority is largely inconsequential unless there is a substantial number of U.S. merchant vessels “available” to take on the preference 

cargo at reasonable rates. Cf. Yeutter, 877 F.2d at 541-45 (agencies could properly 

allocate cargo preference tonnage on a nationwide, rather than port-by-port, basis; 

effect of this action was to force diversion of cargo preference shipping of Midwest

11 Although the point is not pressed in the subm issions, we assum e lhat M A R A D 's authority under the 

proposed rule to review and approve freight tenders for preference cargo prior to release to the trade would 

be exercised in a m anner that would not unreasonably delay or impede the affected agencies* ability to issue 

freight tenders in a timely fashion If M ARAD s actual practice in exercising such authority unduly interfered with the affected agencies’ food aid operations, it might well exceed even its expansive statutory 

authority in this area See S Rep. No 74-713, at 4 (although M ARAD s discretionary authority to deal with 

problems falling w ithin its jurisdiction is “considerable,” it nonetheless “m ust have lim its'’)

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grain from more cost-effective Great Lakes ports, where U.S. carriers did not operate and were thus not “available,” to more distant coastal ports, where they were 

“available”). For MARAD to enforce the 75% requirement on behalf of a sparse 

and dwindling fleet of available U.S. carriers would do little to further the broad 

objectives of the MMA and the CPA — i.e., to assure the maintenance of a vigorous and competitive U.S. merchant fleet. We conclude therefore that MARAD’s 

regulatory jurisdiction encompasses administrative measures designed to foster the 

availability of reasonable-rate U.S. vessels to pursue the preference trade, as well 

as overseeing the allocation of the minimum cargo preference percentages.

That leaves the question of whether the proposed UCP regulations represent a 

reasonable means of seeking to enhance or sustain U.S.-flag vessel availability for 

the preference trade. We think that the proposed regulations do pass that test. As 

demonstrated by the 1962 Senate Report quoted above, the relevance of charter 

terms to effective implementation of the cargo preference program was recognized 

by the Secretary of Agriculture over 30 years ago.

In the absence of any restrictions sensitive to U.S. merchant fleet concerns, 

onerous and erratic charter party terms might deter some U.S.-flag carriers from 

pursuing their statutory share of cargo preference trade. Although USDA and 

USAID reasonably point out that U.S. carriers may include the increased costs 

caused by adverse charter terms in their proposed rates, and although MARAD 

retains considerable discretion to approve such rate increases as reasonable, that 

discretion is not unlimited. Rates could conceivably be raised to a level that is 

objectively too high for the United States to continue to sustain within realistic 

budgetary constraints. Further, rote approval of escalating charter-driven rate increases would conflict with MARAD’s duty to “reduce the government cost of 

preference cargo carriage,” AMA, 766 F.2d at 561, in keeping with the goals of the 

1970 Amendments.

F. M ARAD Authority to Fix Freight Rates

Another argument against MARAD’s proposed regulation is that it is designed 

to reduce the rates charged by U.S.-flag carriers, whereas USDA contends that 

MARAD lacks authority to fix rates (USDA Mem. at 14-18). In support of this 

contention, USDA relies upon the Fifth Circuit’s observation in United States v.

Bloomfield Steamship Co., 359 F.2d 506, 509 (5th Cir. 1966), cert, denied, 385 

U.S. 1004 (1967), that, “[T]here is nothing in the Cargo Preference Act that indicates that it is intended to fix freight rates.” USDA Mem. at 16.

Whether or not MARAD has such authority, the proposed MARAD regulation 

would not “fix freight rates.” It instead aims to remove obstacles to the reduction 

of the rate gap between the U.S. merchant fleet and foreign-flag carriers that might 

otherwise occur in the absence of such obstacles.

Placed in context, the Fifth Circuit’s statement in Bloomfield does not significantly relate to the issue presented here. That statement was made in the course of

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demonstrating that Congress did not intend to provide still further subsidies to U.S. 

shipowners “by having the Government pay higher rates for shipping than it might 

bargain for.” 359 F.2d at 509 (emphasis added). More specifically, the Bloomfield

opinion rejected the proposition that the CPA was intended to prohibit rates for 

U.S. carriers that “are lower than rates shown to be fair and reasonable.” Id. at 

509-10. The quoted statement from Bloomfield, and the holding of which it was a 

part, simply do not address the distinct issue of whether MARAD could properly 

take regulatory measures designed to reduce the “rate gap” between U.S. and foreign carriers in the interests of fostering a more competitive and cost-efficient U.S. 

merchant fleet. The reduction of that rate gap could advance the overall competitive interests of the U.S. merchant fleet and help reduce the costs of the cargo preference program.

Conclusion

To conclude that issuance of UCP regulations exceeds the Secretary’s authority 

would require an overly narrow construction of the mandates of the MMA, the 

CPA, and the 1970 amendments. MARAD’s authority under those statutes is not 

limited to rote application of the statutory percentage formula to whatever number 

of U.S. shipowners find it profitable to apply for CPA shipments. Rather, 

MARAD may regulate the administration of cargo preference programs with a 

view to achieving recognized goals of the MMA and the CPA: developing a merchant fleet that is at “parity with foreign competitors,” Peterson, 518 F.2d at 1076; 

reducing the costs of the cargo preference program, AMA, 766 F.2d at 561; and 

eradicating divergent agency practices in the preference trade that are “not American shipping oriented,” H.R. Conf. Rep. No. 1555, at 6, reprinted in 1970 

U.S.C.C.A.N. at 4262. MARAD could reasonably conclude that erratic and burdensome charter party terms hinder the achievement of those goals, and it follows 

that UCP regulations aimed at eliminating such terms would be a valid exercise of 

MARAD’s authority under sections 204(b) and 901(b) of the MMA.

WALTER DELLINGER 

Assistant Attorney General

Office o f Legal Counsel

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