Federal Register / Vol. 75, No. 213 / Thursday, November 4, 2010 / Notices 68019 

DEPARTMENT OF TRANSPORTATION 

Maritime Administration 

[Docket No. MARAD–2007–0012] 

RIN 2133–AB69 

Determination of Foreign 

Reconstruction or Rebuilding of U.S.- 

Built Vessels That Participate in the 

Capital Construction Fund and Cargo 

Preference Programs 

AGENCY: Maritime Administration, 

Department of Transportation. 

ACTION: Notice of Withdrawal. 

SUMMARY: The Maritime Administration 

(MARAD) is withdrawing and 

terminating its notice published in the 

Federal Register on November 14, 2007, 

at 72 FR 64109, which requested 

comments on what standards MARAD 

should apply concerning determinations 

of foreign reconstruction of U.S.-built 

vessels that participate in the Capital 

Construction Fund (CCF) program and 

foreign rebuilding of U.S.-built vessels 

that participate in the cargo preference 

program. Initially, when the notice was 

published, it was considered useful to 

obtain public comment on whether 

MARAD should issue regulations on 

standards applicable to determination of 

rebuilding or reconstruction. At the time 

the notice was published, the Coast 

Guard’s approach to rebuilding was an 

unsettled area of law and a particular 

issue had arisen with regard to 

MARAD’s method of determination in a 

foreign rebuild context. That matter was 

resolved and in December 2009, the 

Coast Guard’s method of carrying out 

rebuilding determinations was affirmed 

by the United States Court of Appeals 

for the Fourth Circuit. Likewise, 

MARAD’s approach to such 

determinations had been affirmed by the 

United States Court of Appeals for the 

Second Circuit. Even though the 

standards are different as applied 

regarding the cargo preference program, 

the two approaches would only rarely 

produce a different result. Furthermore, 

because they are generally applied in 

different circumstances, they even more 

rarely produce inconsistent results 

regarding the same vessel. MARAD has 

been requested to make a determination 

only twice in the last fifteen years. 

Therefore, a new rule is not required. 

DATES: The notice published at 72 FR 

64109 (November 14, 2007) is 

withdrawn and terminated on 

November 4, 2010. 

Docket: For access to the docket to 

read background documents, please go 

to http://www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Murray A. Bloom, Chief, Division of 

Maritime Programs, Office of Chief 

Counsel, Maritime Administration, 1200 

New Jersey Ave., SE., Washington, DC 

20590; Ph. (202) 366–5320, fax: (202) 

366–3511; or e-mail 

murray.bloom@dot.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Three maritime promotional statutes 

mandate use of U.S.-built vessels and 

generally provide that a U.S.-built vessel 

becomes ineligible to carry preference 

cargo if the vessel is determined to have 

been reconstructed or rebuilt in a 

foreign country. 

Section 12132(b) of title 46, United 

States Code, provides that a vessel 

eligible to engage in the U.S. coastwise 

trade and later rebuilt outside the 

United States may no longer engage in 

the coastwise trade. This statute is 

administered by the U.S. Coast Guard. 

The Coast Guard’s regulations that 

implement the statute are set forth in 46 

CFR part 67. In determining whether a 

vessel has been rebuilt, the Coast Guard 

examines the amount of steel replaced 

on a vessel. The Coast Guard’s 

interpretation of its regulations 

regarding rebuilding was affirmed in 

Shipbuilders Council of America, Inc. v. 

United States Coast Guard, 578 F.3d 

234 (4th Cir. 2009) and followed in the 

more recent case decided December 3, 

2009, in Shipbuilders Council of 

America v. United States Dept. of 

Homeland Security, 673 F.Supp.2d 438 

(E.D.Va. 2009). 

Chapter 535 of title 46, United States 

Code, established the Capital 

Construction Fund (CCF) program, 

whereby a U.S. citizen owner of an 

eligible vessel may defer Federal income 

taxes on income derived from the 

operation of an eligible vessel to the 

extent that income is deposited into a 

fund to be used solely for the 

acquisition, construction or 

reconstruction of qualified vessels. The 

statutory definitions of both eligible and 

qualified vessels, as pertaining to the 

CCF program, require such vessels, if 

reconstructed, to be reconstructed in the 

United States. MARAD administers the 

CCF program (except for the CCF 

applicable to fishery vessels and 

administered by the National Oceanic 

and Atmospheric Administration) under 

regulations located at 46 CFR part 390. 

To evaluate reconstruction under the 

CCF program, MARAD follows 

determinations made by the Coast 

Guard for Jones Act purposes. Under the 

CCF, because most vessels are Jones Act 

vessels and must meet Coast Guard 

limitations for rebuilding, it is 

appropriate for CCF vessels to meet only 

the single test for Coast Guard and 

MARAD. 

Chapter 553 of title 46, United States 

Code, provides that preference be given 

in the carriage of U.S. Governmentimpelled cargoes to privately-owned 

commercial vessels of the United States. 

The statute excludes any vessel rebuilt 

in a foreign country, unless the vessel 

shall have been documented under U.S. 

registry for at least three years prior to 

seeking preference cargoes. MARAD 

regulations at 46 CFR part 381 govern 

shipment of preference cargoes. To 

assess rebuilding under cargo preference 

rules, MARAD examines the extent of 

shipyard work and whether vessel type 

has been or would be changed, and how 

the changes to the vessel would affect 

trade, U.S. shipyards, and purposes and 

policy of the Merchant Marine Act. 

MARAD’s authority to apply a standard 

to rebuilding determinations, different 

from the Coast Guard’s, was affirmed in 

Aquarius Marine Co. v. Pena, 64 F.3d 82 

(2nd Cir. 1995). This case was followed 

by MARAD’s final opinions in Barge 

Connor, Docket No. A–198 (Oct. 26, 

2005) and Matson Navigation Company, 

MARAD Docket No. A–199 (Dec. 9, 

2008). 

II. Summary of the Notice 

On November 14, 2007, MARAD 

published a notice requesting 

comments. It was published at 72 FR 

64109. The notice requested comments 

as to how MARAD should administer 

the programs assigned to it and sought 

answers to four questions. MARAD 

received 21 comments from 10 

commenters. Commenters included U.S. 

shippers, individuals, and shipping 

associations. A discussion of the 

comments follows. 

III. Discussion of Comments 

The notice requested comments on 

four topics pertaining to foreign rebuild 

and reconstruction standards as applied 

to the CCF program and cargo 

preference. The questions included: 

(1) What substantive standards should 

MARAD apply to determine whether a 

CCF vessel has been reconstructed or a 

cargo preference vessel has been rebuilt; 

(2) what procedures should the MARAD 

adopt to investigate whether a CCF 

vessel has been reconstructed or a cargo 

preference vessel has been rebuilt; (3) 

what role, if any, should unrelated third 

parties, such as competitors or 

shipyards, play in developing a record 

of decision on whether a CCF vessel has 

been reconstructed or a cargo preference 

vessel has been rebuilt; and (4) what 

public disclosure criteria should apply 


jlentini on DSKJ8SOYB1PROD with NOTICES
68020 Federal Register / Vol. 75, No. 213 / Thursday, November 4, 2010 / Notices 

1The parties state that BRSR will continue to be 

controlled by separate, wholly owned subsidiaries 

of Watco. 

to the record of decision on whether a 

CCF vessel has been reconstructed or a 

cargo preference vessel has been rebuilt. 

In response to question one as to which 

substantive standards MARAD should 

apply to determine whether a CCF 

vessel has been reconstructed or a cargo 

preference vessel has been rebuilt, the 

majority of commenters responded that 

there were already established 

precedents in the Aquarius Marine Co. 

case and MARAD’s determinations in 

Golden Monarch and Barge Connor; two 

others suggested that MARAD adopt the 

Coast Guard’s standard for rebuild/ 

reconstruction determinations. MARAD 

will maintain the status quo by adhering 

to the established precedents. As to 

question number two regarding what 

procedures MARAD should adopt to 

inquire into whether a CCF vessel has 

been reconstructed or a cargo preference 

vessel has been rebuilt, a majority of the 

commenters felt participants in the CCF 

and cargo preference programs should 

seek advisory opinions from MARAD 

prior to having work performed outside 

the United States. One commenter 

suggested that MARAD enter into a 

Memorandum of Understanding with 

the Coast Guard to be notified of all 

applications for rebuild determinations 

and then make an independent 

determination based upon the 

application submitted to the Coast 

Guard. MARAD noted in its decision in 

Barge Connor that it would have 

provided an advisory decision to Moby 

Marine Corporation if asked prior to 

work having been performed in 

Colombia. MARAD is willing to provide 

advisory opinions and will do so when 

asked. Such advisory opinions will be 

published in the Federal Register. 

As to the third question posed in the 

notice regarding what role, if any, that 

unrelated third parties should play in 

developing a record of decision on 

whether a CCF vessel has been 

reconstructed or a cargo preference 

vessel has been rebuilt, all commenters 

felt third parties should play a 

substantial role in developing the 

record. 

A variety of comments were received 

in response to question four regarding 

public disclosure of records of decision. 

There was general consensus that 

MARAD should publish its final rulings 

in the Federal Register. MARAD 

currently does not publish its rulings in 

the Federal Register. Instead, previous 

final opinions and orders may be found 

on MARAD’s Web site at http:// 

www.marad.dot.gov in its Electronic 

Reading Room. However, MARAD will 

publish final decisions and orders 

relating to the rebuilding of vessels, as 

it pertains to programs administered by 

MARAD, in the future. 

IV. Reason for Withdrawal 

MARAD’s procedures on foreign 

rebuilding for cargo preference purposes 

were affirmed in Aquarius Marine Co. in 

1995 and reaffirmed in the Barge 

Connor (2005) and Matson (2008) 

decisions. This is a settled area of law. 

Also, MARAD received no objections to 

its practice that CCF reconstruction 

follow Coast Guard guidance. MARAD 

and the Coast Guard have different 

standards for rebuilding as discussed 

herein, but those standards have a very 

slight chance of overlapping or 

producing conflicting results. This is so 

because the differing standards address 

diverse segments of the vessel market. 

Thus, there is no need for a new rule or 

to amend the cargo preference 

regulations or the CCF regulations with 

respect to rebuild or reconstruction 

determination standards. 

By Order of the Maritime Administrator. 

Dated: October 25, 2010. 

Christine Gurland, 

Secretary, Maritime Administration. 

[FR Doc. 2010–27812 Filed 11–3–10; 8:45 am] 

BILLING CODE 4910–81–P 

DEPARTMENT OF TRANSPORTATION 

Surface Transportation Board 

[Docket No. FD 35439] 

Watco Holdings, Inc., Watco 

Companies, Inc., and Watco 

Transportation Services, Inc.— 

Corporate Family Transaction 

Exemption 

Watco Holdings, Inc. (Holdings), 

Watco Companies, Inc. (Watco), Watco 

Transportation Services, Inc. 

(Transportation Services), and the rail 

carrier subsidiaries have jointly filed a 

verified notice of exemption under 49 

CFR 1180.2(d)(3) for a corporate family 

transaction. Watco, a noncarrier, is a 

Kansas corporation that controls 

Transportation Services, also a 

noncarrier and a Kansas corporation. 

Watco indirectly controls 22 Class III 

railroads (the Watco Railroads): South 

Kansas and Oklahoma Railroad 

Company (SKO); Palouse River & Coulee 

City Railroad, Inc.; Timber Rock 

Railroad, Inc.; Stillwater Central 

Railroad, Inc.; Eastern Idaho Railroad, 

Inc; Kansas & Oklahoma Railroad, Inc.; 

Pennsylvania Southwestern Railroad, 

Inc.; Great Northwest Railroad, Inc.; 

Kaw River Railroad, Inc.; Mission 

Mountain Railroad, Inc; Mississippi 

Southern Railroad, Inc.; Yellowstone 

Valley Railroad, Inc.; Louisiana 

Southern Railroad, Inc.; Arkansas 

Southern Railroad, Inc.; Alabama 

Southern Railroad, Inc.; Vicksburg 

Southern Railroad, Inc.; Austin Western 

Railroad, Inc.; Baton Rouge Southern 

Railroad, LLC (BRSR); Pacific Sun 

Railroad, LLC (PSRR); Grand Elk 

Railroad; Alabama Warrior Railway, 

LLC (AWR); and Boise Valley Railroad, 

Inc. 

Under the proposed transaction, all 

but 4 of the Watco Railroads, SKO, 

PSRR, AWR, and BRSR, will reorganize. 

Holdings, which is a new Kansas 

noncarrier holding company, will 

indirectly control all of the Watco 

Railroads. There are several steps to the 

proposed transaction. The existing 

stockholders of Watco will form 

Holdings, and Holdings will become the 

parent to Watco and thus will indirectly 

control the 22 Watco Railroads. In 

addition, Watco will convert from a 

Kansas corporation to a Delaware 

limited liability company and will 

continue to control Transportation 

Services. In turn, Transportation 

Services will convert from a Kansas 

corporation to a Kansas limited liability 

company and will continue to directly 

control 21 of the Watco Railroads: all 

but BRSR.1 Further, each of the Watco 

Railroads except SKO, PSRR, AWR, and 

BRSR will be converted to either a 

limited liability company or a C 

corporation, depending on applicable 

State law. Each of the Watco Railroads 

will remain incorporated in the same 

state of its incorporation today. 

The transaction is scheduled to be 

consummated on or after November 18, 

2010, the effective date of the exemption 

(30 days after the notice was filed). The 

purpose of this transaction is to 

facilitate Watco’s ability to obtain 

financing. 

This is a transaction within a 

corporate family of the type specifically 

exempted from prior review and 

approval under 49 CFR 1180.2(d)(3). 

The parties state that the transaction 

will not result in adverse changes in 

service levels, significant operational 

changes, or any change in the 

competitive balance with carriers 

outside the Watco corporate family. 

Under 49 U.S.C. 10502(g), the Board 

may not use its exemption authority to 

relieve a rail carrier of its statutory 

obligation to protect the interests of its 

employees. Section 11326(c), however, 

does not provide for labor protection for 

transactions under 49 U.S.C. 11324 and 

11325 that involve only Class III rail 


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