Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11375

the AFA and the requirements of the

U.S.-Japan FCN is demonstrated above.

Accordingly, under Section 213(g) of the

Act, Congress has directed that the

provisions of Sections 202 and 203

‘‘shall not apply’’ to Petitioners ‘‘to the

extent of * * * such inconsistency.’’

‘‘The exemption provided by Section

213(g) is not limited to property rights,

contract rights, debt interests or

investment interests in existence on

October 1, 2001, but rather applies to

exempt an ‘‘owner’’ from the

requirements of the AFA ‘‘to the extent

of the inconsistency’’ between the Act

and the Treaty. Petitioners qualify as

‘‘owners.’’ Petitioners are, therefore,

exempt from the requirements of the

AFA ‘‘to the extent of the

inconsistency’’ between the AFA and

the Treaty. As demonstrated above, the

‘‘inconsistency’’ between the AFA and

the Treaty is three-fold: (1) The Treaty

protects Petitioners’ existing ownership

interests in the Vessel, which the AFA

would impair, prohibit or restrict; (2)

the Treaty protects Petitioners’ existing

financing arrangements related to the

Vessel, including the Alyeska loans to

WAF and Wards Cove and Alyeska’s

Commercial Revolving Credit Line Loan

and Security Agreement with the Vessel

Owner and ancillary contract rights

under the Fishing Commitment

Agreement between Alyeska and the

Vessel Owner, which the AFA would

impair, prohibit or restrict; and (3) the

Treaty protects future transactions

between or among the Petitioners with

respect to the Vessel, which the AFA

would prohibit or restrict, including

future loans, preferred mortgages and

other financing and ancillary

contractual arrangements, such as

exclusive marketing agreements, which

Petitioners may deem necessary or

appropriate to protect their existing

businesses and their existing financial

interests in the Vessel and the Vessel

Owner. Thus, Section 213(g) exempts

Petitioners entirely from the restrictions

and limitations of Sections 202, 203 and

204 of the AFA and MARAD’s

implementing rules with respect to the

Vessel.

‘‘The inconsistency between the

provisions of the AFA and MARAD’s

implementing regulations and the

requirements of the U.S.-Japan FCN is

demonstrated above. Accordingly,

under Section 213(g) of the Act, the

provisions of Section 202, 203 and 204

‘‘shall not apply’’ to Petitioners with

respect to the Vessel.’’

This concludes the analysis submitted

by Petitioner for consideration.

Dated: February 16, 2001.

By Order of the Maritime Administrator.

Joel Richard,

Secretary, Maritime Administration.

[FR Doc. 01–4469 Filed 2–23–01; 8:45 am]

BILLING CODE 4910–81–P

DEPARTMENT OF TRANSPORTATION

Maritime Administration

[Docket No. MARAD–2001–8930]

MORNING STAR—Applicability of

Preferred Mortgage, Ownership and

Control Requirements To Obtain a

Fishery Endorsement

AGENCY: Maritime Administration,

Department of Transportation.

ACTION: Invitation for public comments

on a petition requesting MARAD to

issue a determination that the

ownership and control requirements

and the preferred mortgage

requirements of the American Fisheries

Act of 1998 and 46 CFR Part 356 are in

conflict with an international

investment agreement.

SUMMARY: The Maritime Administration

(MARAD, we, our, or us) is soliciting

public comments on a petition from the

owners and mortgagees of the vessel

MORNING STAR—Official No. 610393

(hereinafter the ‘‘Vessel’’). The petition

requests that MARAD issue a decision

that the American Fisheries Act of 1998

(‘‘AFA’’), Division C, Title II, Subtitle I,

Public Law 105–277, and our

regulations at 46 CFR Part 356 (65 FR

44860 (July 19, 2000)) are in conflict

with the U.S.-Japan Treaty and Protocol

Regarding Friendship, Commerce and

Navigation, 206 UNTS 143, TIAS 2863,

4 UST 2063 (1953) (‘‘U.S.-Japan FCN’’ or

‘‘Treaty’’). The petition is submitted

pursuant to 46 CFR 356.53 and section

213(g) of AFA, which provide that the

requirements of the AFA and the

implementing regulations will not apply

to the owners or mortgagees of a U.S.-

flag vessel documented with a fishery

endorsement to the extent that the

provisions of the AFA conflict with an

existing international agreement relating

to foreign investment to which the

United States is a party. This notice sets

forth the provisions of the international

agreement that the Petitioner alleges are

in conflict with the AFA and 46 CFR

Part 356 and the arguments submitted

by the Petitioner in support of its

request. If MARAD determines that the

AFA and MARAD’s implementing

regulations conflict with the U.S.-Japan

FCN, the requirements of 46 CFR Part

356 and the AFA will not apply to the

extent of the inconsistency.

Accordingly, interested parties are

invited to submit their views on this

petition and whether there is a conflict

between the U.S.-Japan FCN and the

requirements of both the AFA and 46

CFR Part 356. In addition to receiving

the views of interested parties, MARAD

will consult with other Departments and

Agencies within the Federal

Government that have responsibility or

expertise related to the interpretation of

or application of international

investment agreements.

DATES: You should submit your

comments early enough to ensure that

Docket Management receives them not

later than March 26, 2001.

ADDRESSES: Comments should refer to

the docket number that appears at the

top of this document. Written comments

may be submitted by mail to the Docket

Clerk, U.S. DOT Dockets, Room PL–401,

Department of Transportation, 400 7th

St., SW., Washington, D.C. 20590–0001.

You may also send comments

electronically via the Internet at http://

dms.dot.gov/submit/. All comments will

become part of this docket and will be

available for inspection and copying at

the above address between 10 a.m. and

5 p.m., E.T., Monday through Friday,

except Federal Holidays. An electronic

version of this document and all

documents entered into this docket are

available on the World Wide Web at

http://dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: John

T. Marquez, Jr. of the Office of Chief

Counsel at (202) 366–5320. You may

send mail to John T. Marquez, Jr.,

Maritime Administration, Office of

Chief Counsel, Room 7228, MAR–222,

400 Seventh St., SW., Washington, D.C.

20590–0001 or you may send e-mail to

John.Marquez@marad.dot.gov.

SUPPLEMENTARY INFORMATION: 

Background

The AFA was enacted in 1998 to give

U.S. interests a priority in the harvest of

U.S.-fishery resources by increasing the

requirements for U.S. Citizen

ownership, control and financing of

U.S.-flag vessels documented with a

fishery endorsement. MARAD was

charged with promulgating

implementing regulations for fishing

vessels of 100 feet or greater in

registered length while the Coast Guard

retains responsibility for vessels under

100 feet.

Section 202 of the AFA, raises, with

some exceptions, the U.S.-Citizen

ownership and control standards for

U.S.-flag vessels that are documented

with a fishery endorsement and

operating in U.S.-waters. The ownership

and control standard was increased

from the controlling interest standard

11376 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

(greater than 50%) of section 2(b) of

Shipping Act, 1916 (‘‘1916 Act’’), as

amended, 46 App. U.S.C. 802(b), to the

standard contained in section 2(c) of the

1916 Act, 46 App. U.S.C. 802(c), which

requires that 75 percent of the

ownership and control in a vessel

owning entity be vested in U.S. Citizens.

In addition, section 204 of the AFA

repeals the ownership grandfather

‘‘savings provision’’ in the AntiReflagging Act of 1987, Public Law 100–

239, section 7(b), 101 Stat 1778 (1988),

which permits foreign control of

companies owning certain fishing

vessels.

Section 202 of the AFA also

establishes new requirements to hold a

preferred mortgage on a vessel with a

fishery endorsement. State or federally

chartered financial institutions must

now comply with the controlling

interest standard of section 2(b) of the

1916 Act in order to hold a preferred

mortgage on a vessel with a fishery

endorsement. Entities other than state or

federally chartered financial institutions

must either meet the 75% ownership

and control requirements of section 2(c)

of the 1916 Act or utilize an approved

U.S.-Citizen Mortgage Trustee that

meets the 75% ownership and control

requirements to hold the preferred

mortgage for the benefit of the noncitizen lender.

Section 213(g) of the AFA provides

that if the new ownership and control

provisions or the mortgagee provisions

are determined to be inconsistent with

an existing international agreement

relating to foreign investment to which

the United States is a party, such

provisions of the AFA shall not apply to

the owner or mortgagee on October 1,

2001, with respect to the particular

vessel and to the extent of the

inconsistency. MARAD’s regulations at

46 CFR 356.53 set forth a process

wherein owners or mortgagees may

petition MARAD, with respect to a

specific vessel, for a determination that

the implementing regulations are in

conflict with an international

investment agreement. Petitions must be

noticed in the Federal Register with a

request for comments. The Chief

Counsel of MARAD, in consultation

with other Departments and Agencies

within the Federal Government that

have responsibility or expertise related

to the interpretation of or application of

international investment agreements,

will review the petitions and, absent

extenuating circumstances, render a

decision within 120 days of the receipt

of a fully completed petition.

The Petitioners

Alyeska Seafoods, Inc. (‘‘Alyeska’’),

Wards Cove Packing Company (‘‘Wards

Cove’’), Maruha Corporation (‘‘Maruha’’)

and Western Alaska Fisheries, Inc.

(‘‘WAF’’), are the owners of direct or

indirect interests in Morning Star, L.P.

(the ‘‘Vessel Owner’’) and indirect

interests in the Vessel. Alyeska is the

mortgagee under a preferred mortgage

on the Vessel. (Alyeska, Maruha, Wards

Cove and WAF are referred to

hereinafter as a ‘‘Petitioner’’ and,

collectively, as the ‘‘Petitioners.’’)

Ownership and Mortgage Structure of

the Vessel

The ownership and mortgage

structure for the Vessel is as follows:

A. Ownership Structure

Morning Star, L.P., a Washington

limited partnership (the ‘‘Vessel

Owner’’), is the owner of the Vessel. The

Vessel Owner was formed in 1997 for

the purpose of allowing Alyeska to

acquire an interest in the Vessel. The

sole general partner of Morning Star,

L.P. is Morning Star Management, LLC,

a Washington limited liability company

which is owned entirely by individual

U.S. Citizens and which owns 75% of

the interest in Morning Star, L.P.

Alyeska is the limited partner of

Morning Star, L.P. and owns the

remaining 25% interest in the limited

partnership.

Alyeska is an Alaska corporation,

formed in 1985 to acquire, construct and

operate a large seafood processing

facility at Dutch Harbor, Alaska. All of

the capital stock of Alyeska is owned by

Wards Cove, Maruha, WAF and

Marubeni. Maruha and Marubeni are

publicly traded Japanese corporations.

WAF is a wholly-owned U.S. subsidiary

of Maruha. Maruha, WAF and Marubeni

collectively own more than 25% of the

capital stock of Alyeska. Accordingly,

Alyeska does not qualify as a U.S.

Citizen under the standards of the AFA

and MARAD’s implementing rules and

is therefore a ‘‘Non-Citizen,’’ as defined

in 46 CFR 356.3(o).

B. Mortgage Structure

Alyeska provided a loan to the Vessel

Owner that is secured by a preferred

mortgage on the Vessel. This loan

remains outstanding and continues to be

secured by this preferred mortgage.

C. Exclusive Marketing Agreement

Alyeska agreed to invest in the Vessel

Owner and to provide a loan to that

entity in order to ensure a stable supply

of fish to Alyeska’s Dutch Harbor

facility and in reliance on the assured

revenue stream which sales to Alyeska

would generate for the Vessel Owner.

The Limited Partnership Agreement of

Morning Star, L.P. provides that the

Vessel will sell its products primarily to

Alyeska Seafoods, Inc. and that Alyeska

will pay competitive prices for all such

products. The only exceptions to the

Partnership’s obligation to deliver to

Alyeska are where Alyeska lacks

capacity to process a delivery and where

Alyeska and Morning Star Management

agree that the Vessel may sell into other

markets.

Requested Action

The Petitioners seek a determination

from MARAD under section 213(g) of

the Act and 46 CFR 356.53 that they are

exempt from the requirements of

sections 202, 203 and 204 of the AFA

and 46 CFR Part 356 on the ground that

the requirements of the AFA and 46

CFR Part 356, as applied to Petitioners

with respect to the Vessels, conflict with

U.S. obligations under U.S.-Japan FCN.

The Petitioners request a determination

that the restrictions placed on foreign

ownership, foreign financing and

foreign control of U.S.-flag vessels

documented with a fishery endorsement

contained in 46 CFR Part 356 and

sections 202, 203 and 204 of the AFA

do not apply to Petitioners with respect

to:

(1) The existing ownership interests

in the Vessels held, directly or

indirectly, by the Vessel Owner;

(2) the existing exclusive marketing

agreement and other contract rights and

interests ancillary to Alyeska’s

ownership interest in and financing

arrangements with the Vessel Owner;

and

(3) future loans, financing and other

contract arrangements between the

Petitioners and the Vessel Owner with

respect to the Vessel the existing

preferred mortgage interests in the

Vessel held by Alyeska.

Petitioner’s Description of the Conflict

Between the FCN Treaty and Both 46

CFR Part 356 and the AFA

MARAD’s regulations at 46 CFR

356.53(b)(3) require Petitioners to

submit a detailed description of how the

provisions of the international

investment agreement or treaty and the

implementing regulations are in

conflict. The entire text of the FCN

Treaty is available on MARAD’s internet

site at http://www.marad.dot.gov. The

description submitted by the Petitioner

of the conflict between the FCN Treaty

and both the AFA and MARAD’s

implementing regulations forms the

basis on which the Petitioners request

that the Chief Counsel issue a ruling

that 46 CFR Part 356 does not apply to

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11377

7Compare 46 U.S.C. 31322(a), as now in effect,

with 46 U.S.C. § 31322(a)(4), as amended by Section

202(b) of the AFA.

8See, generally, 46 U.S.C. Chapter 313.

9AFA Section 202(a), codified at 46 U.S.C.

12102(c)(2).

10AFA Section 203(c)(2).

11See, generally, 46 CFR 356.11, 356.13–15,

356.21–25, 356.39–45.

12See 46 CFR 356.15(d), 356.21(d).

13 65 Fed. Reg. at 44871 c.2 (July 19, 2000)

(‘‘[A]dvancements of funds from Non-Citizen

processors will not be permitted where the security

for the loan is a security interest in the vessel’’).

14While Alyeska’s 25% limited partnership

interest in the Vessel Owner is permissible under

the AFA’s new Non-Citizen ownership restriction,

it is uncertain whether MARAD would approve a

preferred mortgage held by a 25% Non-Citizen

limited partner, even where the Non-Citizen limited

partner is not a fish processor with which the

Vessel Owner has entered into an exclusive

marketing agreement.

Petitioners with respect to the Vessels.

Petitioner’s description of how the

provisions of the U.S.-Japan FCN are in

conflict with both the AFA and 46 CFR

Part 356 is as follows:

‘‘A. The AFA’s Limitations and

Restrictions on Foreign Involvement in

the U.S. Fishing Industry Are

Inconsistent With U.S. Obligations

Under the U.S.-Japan FCN.

‘‘1. The AFA’s Restrictions on Foreign

Financing and Foreign ‘‘Control’’ of

Fishing Vessels Violate Article VII.

‘‘a. The AFA’s Restrictions on Foreign

Financing and Foreign ‘‘Control’’ of

Fishing Vessels Impair Petitioners’

Rights and Interests With Respect to

Existing Financing and Other

Contractual Arraignments.

‘‘The AFA will nullify the preferred

mortgage interest in the Vessel currently

held by Alyeska, impair Alyeska’s rights

and interests under existing financing

documents, impair Alyeska’s rights and

interests under the exclusive marketing

provision of the limited partnership

agreement governing the Vessel Owner

and prevent Alyeska and its Japanese

shareholders from protecting their

established businesses and interests by

entering into future financing and

contractual arrangements with the

Vessel Owner.

‘‘Current law permits wholly or partly

Japanese-owned entities, including

Alyeska, Maruha and WAF, to finance

U.S. fishing vessels and to hold

preferred mortgage interests in U.S.

fishing vessels to secure their loans. 7 A

‘‘preferred mortgage’’ is a creature of

federal statute and gives the mortgagee

a lien on the mortgaged vessel,

enforceable in U.S. District Court under

a priority scheme that protects the

mortgagee from most maritime liens.8 46

U.S.C. 31326(b)(1) gives the preferred

mortgage lien priority over all liens

arising after filing of the mortgage

except a limited number of ‘‘preferred

maritime liens’’ listed at 46 U.S.C.

31301(5) and provides that a sale of the

vessel by order of the District Court

terminates all liens or other claims

against the vessel, thus ensuring the

purchaser clear title and allowing the

mortgagee to realize maximum value for

its security. Since liens arise in favor of

suppliers, materialmen, repairmen and

others in the course of the ordinary

operations of the vessel, protection

against such liens is essential to the

mortgagee’s security, as is the ability to

terminate those liens on foreclosure and

to sell the vessel ‘‘free and clear’’ of

liens. Absent preferred mortgage status,

a mortgage provides little or no security

for the lender. Thus, the preferred

mortgage which Alyeska holds in the

Vessel is a valuable property interest in

the Vessel.

‘‘The AFA will prohibit Alyeska from

continuing to hold its existing preferred

mortgage on the Vessel. Section 202(b)

of the AFA amends 46 U.S.C. 31322(a)

to disqualify Non-Citizens, such as

Alyeska, from holding preferred

mortgages on fishing vessels over 100

feet in registered length.

‘‘Further, The AFA contains a new

definition of impermissible Non-Citizen

‘‘control’’ 9 and requires transfers of

‘‘control’’ of fishing vessels to be

‘‘rigorously scrutinized’’ by MARAD

under this new standard.10 MARAD has

implemented the AFA’s new ‘‘control’’

standard by adopting a host of new

restrictions and limitations on

contractual and other business

arrangements between fishing vessel

owners and Non-Citizens, including

loans and exclusive marketing

agreements.11 Unless MARAD reviews

and approves the terms of the preferred

mortgage and other financing

documents previously executed by the

Vessel Owner in favor of Alyeska prior

to October 1, 2001 under these new

standards, the Vessel will lose its

fishery endorsement and the Vessel

Owner will no longer be permitted to

own or operate the Vessel in the U.S.

fisheries.12 This, in turn, will destroy

the value of the Vessels as security

under the mortgage held by Alyeska and

destroy the ability of the Vessel Owner

to repay the debt which the mortgage

secures. By prohibiting Alyeska from

continuing to hold its existing preferred

mortgage on the Vessel and imposing

new conditions and restrictions on the

terms of Alyeska’s existing financing

documents, including a new

requirement of administrative review

and approval of those financing

documents under the AFA’s new

‘‘control’’ standards, the AFA and

MARAD’s implementing regulations

impair the contract rights and mortgage

interests of Alyeska.

‘‘In addition, however, MARAD has

made clear that there is no way that

Alyeska can preserve its mortgage

interest under the AFA. MARAD has

interpreted the AFA’s requirements to

prohibit Non-Citizen fish processors,

such as Alyeska, from holding

mortgages or other security interests in

fishing vessels, even if the mortgage is

held by a qualified Mortgage Trustee

and the loan and mortgage terms are

otherwise acceptable to MARAD.13

Thus, the AFA’s requirements will

nullify Alyeska’s existing preferred

mortgage interest in the Vessel. If

Alyeska’s mortgage is not released, the

Vessel will lose its fishery endorsement,

destroying the value of the Vessel as

collateral for Alyeska’s loan and

destroying the Vessel Owner’s ability to

pay its debts.14

‘‘Alyeska’s rights and interests under

the exclusive marketing provision of the

limited partnership agreement

governing the Vessel Owner are also

impaired by the AFA. Because of the

injunction of Section 202(c)(2) of the

AFA to ‘‘rigorously scrutinize’’

exclusive marketing agreements with

Non-Citizens, 46 CFR 356.43(c) requires

a fishing vessel owner to obtain prior

MARAD approval before entering into

such an agreement ‘‘if the agreement

* * * contains provisions that in any

way convey to the [Non-Citizen]

purchaser * * * control over the

operation, management or harvesting

activities of the vessel, [or] vessel owner

* * * other than as provided for in

paragraph (b)’’ of that section. Since the

Agreement of Limited Partnership of

Morning Star, L.P. contains a variety of

provisions related to the rights and

obligations of Alyeska and Morning Star

Management, LLC with respect to the

management of the partnership, none of

which are referenced in Section

356.43(b), it could be argued that the

agreement ‘‘contains provisions that in

[some] way convey to [Alyeska] control

over * * * the vessel owner.’’

Accordingly, the AFA and Section

356.43(c) render the permissibility of

the exclusive marketing provision of the

limited partnership agreement and,

accordingly, the Vessel Owner’s

continued eligibility for a fishery

endorsement, uncertain.

‘‘Further, even if Alyeska’s existing

mortgage interest and contract rights

were found to be exempt from the

requirements of the AFA and MARAD’s

implementing rules, the AFA’s

restrictions on future financing

11378 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

15Annex, Attachment 2, Memorandum of

Conversation held March 4, 1952, pp. 2–3.

16Annex, Attachment 3, Dept. of State Outgoing

Telegram dated March 10, 1952, p. 1. See also

Attachment 5 at p. 3, noting that the ‘‘* * * first

paragraph of Article VI can be considered the heart

of the treaty; it is the basic ‘establishment’

provision, prescribing the fundamental principle

governing the doing of business and the making of

investments, in a treaty which is, above all, a treaty

of establishment.’’

17Annex, Attachment 4, Dept. of State Outgoing

Telegram dated May 21, 1952, p. 3.

18 Id.

19Annex, Attachment 5, Memorandum of

Conversation concerning discussions on the draft

FCN held between October 15, 1952 and March 11,

1953, p. 15.

transactions and contractual

arrangements between Alyeska or its

Japanese shareholders and the Vessel

Owner will substantially impair the

rights and interests of Alyeska and its

Japanese shareholders in violation of

Article VII.1. The AFA’s restrictions on

foreign financing and foreign ‘‘control’’

of fishing vessels will prevent Alyeska

and its Japanese shareholders from

protecting their investments in

Alyeska’s Dutch Harbor processing

facility and their existing investment in

and loan to the Vessel Owner by

offering the Vessel Owner financing for

operating funds or for vessel repairs or

improvements which may become

necessary to permit the Vessel Owner to

operate profitably—or at all. If

alternative financing from a financial

institution is unavailable to the Vessel

Owner, the ability of Alyeska to make

loans to support the Vessel’s continuing

operations may be the only means

available to protect the Vessel Owner

from insolvency and default on its

existing loan from Alyeska. Thus, the

AFA’s restrictions on the ability of

Alyeska and its Japanese shareholders to

make new loans to the Vessel Owner, to

take security in the Vessel or to enter

into contracts with the Vessel Owner

jeopardize the existing investment and

other financial interests of Alyeska and

its Japanese shareholders in the Vessel

Owner and the Vessel.

‘‘Finally, the new restrictions

imposed by the AFA and MARAD’s

regulations on the ability of Alyeska to

make loans to and to enter into

exclusive marketing arrangements with

fishing vessel owners will disrupt

Alyeska’s ability to secure a reliable

supply of fish to its processing facility.

Alyeska’s ability to offer financing for

the operation, construction, acquisition,

repair or improvement of fishing vessels

is a necessary means to secure a stable

supply of fish to its processing plant. A

processor’s agreement to provide

financing to qualified vessel owners in

return for the vessel owner’s agreement

to sell the vessel’s catch exclusively to

the processor is a customary means by

which vessel owners finance the

operation, acquisition, repair or

improvement of their vessels and

processors secure a reliable supply of

fish to their plants. Such arrangements

between vessel owners and processors,

both wholly domestic and Non-Citizen

processors, are common and traditional

in the Alaska fishing industry. NonCitizen processors, such as Alyeska,

which have invested many millions of

dollars in shore-based processing plants

in remote locations in Alaska, must

have the ability, like their wholly

domestic competitors, to secure a

reliable supply of fish to their plants by

financing the operation, acquisition,

repair or improvement of fishing vessels

in return for fish deliveries. Just as their

existing ownership and mortgage

interests are protected by the Treaty,

Alyeska and its Japanese shareholders

must also be able to modify and

restructure their loans and related

security arrangements with the Vessel

Owner and make new loans to the

Vessel Owner with respect to the Vessel

in order to further and protect Alyeska’s

existing investment, mortgage and

business interests in the Vessel, as

circumstances may require.

‘‘b. The Restrictions on Foreign

Financing and Foreign ‘‘Control’’ of

Fishing Vessels Imposed by the AFA

and MARAD’s Implementing Rules

Violate Article VII.1.

‘‘The new restrictions on foreign

financing and foreign ‘‘control’’ of

fishing vessels imposed by the AFA and

MARAD’s implementing regulations

violate Article VII.1’s national treatment

guaranty by (1) depriving Alyeska of its

existing preferred mortgage interest,

securing its existing loan; (2) subjecting

the terms of Alyeska’s existing loan

documents and exclusive marketing

agreement with the Vessel Owner to a

new requirement of administrative

review and approval by MARAD under

the new ‘‘control’’ standards of the AFA

and MARAD’s implementing rules; (3)

depriving Alyeska of the value of its

collateral and the income stream from

operations on which Alyeska relied in

making its loan; and (4) preventing

Alyeska or its shareholders from

refinancing its existing loan, making

new loans to the Vessel Owner, taking

a new mortgage on the Vessel or

entering into other contractual

arrangements with respect to the Vessel

or the Vessel Owner necessary to further

or protect their existing financial and

business interests in the Vessel.

‘‘Article VII.1 extends full national

treatment protection ‘‘with respect to

engaging in all types of commercial,

industrial, financial and other business

activities.’’ The negotiating history of

the U.S.-Japan FCN leaves no doubt that

loans and lending by foreign-owned

lenders are entitled to full national

treatment under the first sentence of

Article VII.1.

‘‘At the fourth informal meeting of the

U.S. and Japanese negotiators, the

Japanese negotiators argued that foreignowned banks should be denied national

treatment, as well as most-favorednation protection. One reason given was

that their loans could result in the

foreign-owned bank lender controlling

key industries.15 For this and other

reasons, Japan suggested rewriting

Article VII.1, and among other changes

deleting ‘‘financial’’ from the activities

provided national treatment in the first

sentence of the provision.

‘‘A cable from U.S. State Department

headquarters in Washington noted that

the Japanese proposal, and in particular

its interest in denying national

treatment to bank loans, reflected an

attitude that creates a ‘‘difficulty going

to heart of treaty.’’ 16 The State

Department opposed any change that

would delete the word financial from

the first sentence of Article VII.1.

Subsequently, the Japanese side

suggested instead adding the word

‘‘lending’’ to the exception provided in

the first sentence of Article VII.2, so that

the exception would extend to ‘‘banking

involving depository, lending or

fiduciary functions.’’ In response, the

State Department reiterated its

opposition to any change that would

deny foreign lenders the right to full

national treatment under Article VII.1.

‘‘A Department cable explained why

the exception to national treatment

provided by the first sentence of the

U.S. draft of Article VII.2 was limited to

only the depository and fiduciary

functions of banks.17 The cable states:

‘‘Mr. Otabe is incorrect in supposing

that the U.S. reservation for banking is

based on the reason he alleges. The

reservation has to do with receiving and

keeping custody of deposits from the

public at large: that is, the safekeeping

of other people’s money, a function of

particular trust. It does not have to do

with the lending activities of a bank;

and the Department does not feel that a

reservation is either appropriate or

necessary as to a bank’s lending its own

money.’’ 18 During the second round of

informal meetings, the U.S. negotiators

continued to oppose adding loans to the

banking functions excluded from full

national treatment by the first sentence

of Article VII.2, and the Japanese

government eventually agreed to

withdraw its proposed change.19

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11379

20Charles H. Sullivan, ‘‘State Department

Standard Draft Treaty of Friendship, Commerce and

Navigation’’ (undated) (hereinafter ‘‘Sullivan

Study’’) at 144.

21To the extent that it could be argued that the

first sentence of Article VII.2 might permit

restrictions on foreign financing of fishing vessels,

the grandfather provision of Article VII.2 would

clearly protect Alyeska and its shareholders with

respect to their existing rights and interests, as the

holders of ownership and debt interests in the

Vessel Owner and mortgage interests in the Vessel,

and with respect to future financing activities

undertaken to further or protect those interests.

Alyeska and its Japanese shareholders clearly

‘‘acquired interests’’ in the Vessel Owner and the

Vessel prior to enactment of the AFA and are thus

entitled to national treatment in future dealings

with the Vessel Owners.

22Annex, Attachment 6, Letter to the Chairman

of the House of Representatives Committee on

Merchant Marine and Fisheries from Robert Lee,

August 17, 1964, as published in Ronny E. Jones,

‘‘State Department Practices Under U.S. Treaties of

Friendship, Commerce, and Navigation’’ (1981)

(hereinafter ‘‘Jones Study’’) at p. 80.

23Protocol, ¶ 2 (emphasis added).

24Annex, Attachment 7, Memorandum of

Conversation dated April 15, 1952 at p. 3.

25 Id.

‘‘The exception to national treatment

for certain banking functions in the first

sentence of Article VII.2 is the same as

in the standard FCN treaty text. The

Sullivan Study notes that ‘‘this

reservation is stated in terms intended

to circumscribe it as much as possible,

thereby maximizing the extent to which

the banking business remains subject to

the rule [of national treatment] set forth

in Article VII(1).’’ 20 The Sullivan Study

notes that the two areas reserved,

depositary and fiduciary functions,

involve the custody and management of

other people’s money, and therefore are

the most sensitive areas of banking.

‘‘It is clear, therefore, that the

reference in the first sentence of Article

VII.2 to ‘‘banking involving depository

or fiduciary functions’’ does not include

the lending activities of Alyeska. Both

the U.S. and Japanese negotiators were

in full agreement as to the meaning of

this phrase. Thus, the financing

activities of banks and other lenders are

entitled to the full national treatment

under Article VII.1.21

‘‘The provisions of the AFA and

MARAD’s implementing rules which

restrict the right of Japanese-owned

entities to make loans secured by

preferred mortgages on U.S. vessels or to

make loans or enter into other

commercial contracts with a vessel

owner without prior MARAD approval

of the loan or contract terms are

inconsistent with the guaranty of

national treatment in Article VII.1. The

rationale that such loan activities may

be restricted on the grounds that they

could result in a degree of control over

sensitive industries was specifically

considered by the U.S. negotiators and

rejected as a valid reason for limiting

the Treaty’s protections for such lending

activities. The control argument

presented by Japan at that time is the

same argument used to justify the

restrictions of the AFA. Although the

negotiating history deals largely with

banking, the language of Article VII.1

extends the protections of national

treatment broadly to ‘‘all types of

commercial * * * financial and other

business activities.’’ Under Article VII.1,

neither State Party may restrict loans by

foreign-owned entities to the owners of

fishing vessels of their national flag or

commercial contract arrangements

between them.

‘‘The AFA and MARAD’s

implementing rules impose new

restrictions on the ability of Alyeska and

its shareholders, going forward, to

protect their existing financial interests

in the Vessel Owner and the Vessel by,

e.g., re-financing existing loans,

advancing new loans for operation,

repair or improvement of the Vessel or

entering into other financing or

contractual arrangements with the

Vessel Owner. These restrictions are not

permitted by Article VII.1 of the Treaty.

Article VII.1 extends the Treaty’s

protection both to loans, mortgages and

other financing arrangements that are

now outstanding under the terms of

existing financing documents and to

future financing activities by Alyeska or

its shareholders involving the Vessel or

the Vessel Owner.

‘‘Application of the AFA’s new

‘‘control’’ standards to restrict the

ability of Alyeska to do business with

the vessel owners that supply fish to its

processing plant, as it has done in the

past and on the same terms as its U.S.

Citizen competitors, would deny

national treatment to Alyeska and its

Japanese shareholders. The State

Department has recognized that the

exception to the requirement of national

treatment that may apply with respect to

the ownership of fishing vessels under

the first sentence of Article VII.2 does

not apply to fish processors.22 Article

VII.1 applies, and it extends the

protection of full and unconditional

national treatment to fish processors

with Japanese ownership, such as

Alyeska. The discriminatory restrictions

imposed under the AFA on Alyeska’s

ability to enter into future financing and

other contractual arrangements with the

Vessel Owner to ensure a stable supply

of fish to Alyeska’s Dutch Harbor

processing facility clearly violate Article

VII.1.

‘‘For these reasons, Petitioners seek a

determination by MARAD that Sections

202, 203 and 204 of the AFA and

MARAD’s implementing regulations do

not apply to Petitioners with respect to

(a) Alyeska’s existing preferred mortgage

and associated loan documents

previously executed by the Vessel

Owner in favor of Alyeska; (b) the

exclusive marketing agreement

contained in the Morning Star Limited

Partnership Agreement; or (c) future

financing and ancillary contractual

arrangements between Alyeska or its

Japanese shareholders and the Vessel

Owner, including exclusive marketing

agreements.

‘‘2. Application of the AFA and

MARAD’s Implementing Rules to

Petitioners Would Result in a ‘‘Taking’’

in Violation of Article VI.3.

‘‘The first sentence of Article VI.3 of

the Treaty states that ‘‘[p]roperty of

nationals and companies of either Party

shall not be taken within the territories

of the other Party except for a public

purpose, nor shall it be taken without

the prompt payment of just

compensation.’’ This ‘‘takings’’

provision precludes expropriations and

other measures that substantially impair

a Japanese national’s direct and indirect

property rights. Applying the AFA’s

new restrictions to prohibit Alyeska

from holding its existing contract rights

and preferred mortgage interest in the

Vessel would deprive Alyeska of its

property in violation of Article VI.3.

‘‘The term ‘‘property’’ in Article VI.3

includes not simply direct ownership

but also a wide variety of property

interests, such as those which the NonCitizen Petitioners have in the Vessel

Owners and in the Vessels. The Protocol

to the U.S.-Japan FCN explicitly states

that ‘‘[t]he provisions of Article VI,

paragraph 3 * * * shall extend to

interests held directly or indirectly by

nationals and companies of either Party

in property which is taken within the

territories of the other Party.’’23 As the

United States delegates made clear

during the negotiation of the Treaty, the

phrase ‘‘interests held directly or

indirectly’’

is intended to extend to every type of right

or interest in property which is capable of

being enjoyed as such, and upon which it is

practicable to place a monetary value. These

direct and indirect interests in property

include not only rights of ownership, but

[also] * * * lease hold interest[s], easements,

contracts, franchises, and other tangible and

intangible property rights.24

In short, ‘‘all property interests are

contemplated by the provision.’’25 This

necessarily includes the preferred

mortgage interest which Alyeska has in

the Vessel, together with ancillary

contract rights granted to Alyeska in the

11380 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

26Sullivan Study at 116 (emphasis added).

27 Id. at 115.

28Herman Walker, Jr., ‘‘Treaties for the

Encouragement and Protection of Foreign

Investment: Present United States Practice,’’ 5 Am.

J. Comp. Law 229 at 236 (1956).

29Annex, Attachment 8, Department of State

Instruction dated February 15, 1954, p. 2,

(discussing the applicability of Article V of the

U.S.-Japan FCN to American lawyers doing

business in Japan, and citing May, 1952

memorandum to U.S. Committee on Foreign

Relations).

30 Id. See also, Annex, Attachment 9, Department

of State Division of Communications & Records

Outgoing Airgram dated October 28, 1952, p. 2. The

latter indicates that, among other reasons, the State

Department opposed the proposed Japanese

language because it was concerned that the

language ‘‘could be construed (but tortuously) as

allowing each party latitude with respect to

discharging its full obligations under Articles VII

and VIII to accord national treatment to the

introduction of investment capital and the initiation

and development of investment enterprises.’’ 31Sullivan Study at 115.

loan documents and related agreements

executed by the Partnership in

conjunction with that loan.

‘‘The concept of a taking in this

context is broad and ‘‘is considered as

covering, in addition to physical

seizure, a wide variety of whole or

partial sequestrations and other

impairments of interests in or uses of

property.’’ 26 Here, the AFA’s new

restrictions on foreign investment and

foreign financing will prohibit the

Vessel Owner from employing the

Vessel in the U.S. fisheries. In effect, the

AFA will either deprive the Petitioners

of the economic value of their interests

in the Vessel by prohibiting its

productive use, force divestiture by

Alyeska of its loan and preferred

mortgage interests in the Vessel or force

complete divestiture by the Vessel

Owner of its interests in the Vessel. The

impairment of the presently existing

right of the Vessel Owner to employ the

Vessel in the U.S. fisheries—and the

right of Alyeska to hold its loan and

preferred mortgage interests in the

Vessel—is a sufficient impairment of

those rights and interests as to

constitute a violation of Article VI.3.

‘‘Further, a taking is permitted under

the Treaty only for a ‘‘public purpose,’’

and it is clear that application of the

AFA’s ownership restrictions to the

Vessel Owner so as to force a divestiture

of Alyeska’s loan and preferred

mortgage interests or complete

divestiture of the Vessel to a private

party which qualifies as a U.S. Citizen

would not satisfy the ‘‘public purpose’’

requirement of the U.S.-Japan FCN.

Even if such a forced sale to a private

party could be characterized as having

a ‘‘public purpose,’’ the AFA makes no

provision for the ‘‘prompt payment of

just compensation,’’ as required by

Article VI.3. The fact that the AFA and

46 CFR Part 356 fail to provide any

compensation scheme—let alone

‘‘adequate provision * * * at or prior to

the time of taking for the determination

and payment thereof,’’ as required by

Article VI.3—is another basis for

concluding that the AFA’s retroactive

limitations on foreign ownership and

foreign financing of fishing vessels are

inconsistent with Article VI.3 of the

U.S.-Japan FCN.

‘‘3. The AFA and MARAD’s

Implementing Rules Impair Petitioners’’

Legally Acquired Rights in Violation of

Article V.

‘‘The new restrictions imposed by the

AFA and MARAD’s implementing rules

on foreign involvement in the U.S.

fishing industry are ‘‘unreasonable or

discriminatory measures’’ that impair

the legally acquired rights and interests

of Petitioners in violation of Article V of

the Treaty.

‘‘Article V provides that ‘‘[n]either

Party shall take unreasonable or

discriminatory measures that would

impair the legally acquired rights or

interests within its territories of

nationals and companies of the other

Party in the enterprises which they have

established. * * *’’ The provision

follows the standard FCN treaty

language, except that the language was

moved from Article VI.3 in the standard

text to a new Article V and certain

additional language, not relevant here,

was added. According to the Sullivan

Study, the provision ‘‘offers a basis in

rather general terms for asserting

protection against excessive

governmental interference in business

activities or particular activities not

specifically covered by the treaty.’’ 27

Herman Walker observed that this

language is designed ‘‘to account for the

possibility of injurious governmental

harassments short of expropriation or

sequestration.’’ 28 A State Department

memorandum to Congress, discussing

language very similar to Article V in

another treaty, noted that the language

‘‘affords one more ground, in addition to

all the other grounds set forth in the

treaty, for contesting foreign actions

which appear to be injurious to

American interests.’’ 29

‘‘The negotiating history confirms that

Article V was intended as a general

provision prohibiting discrimination

against foreign-owned entities not

subject to other provisions of the U.S.-

Japan FCN. During the negotiations,

Japan proposed adding language

prohibiting the denial ‘‘of opportunities

and facilities for the investment of

capital.’’ The proposal was not adopted

after the U.S. opposed it on the grounds

that Article VII fully addressed

investment activities and that the

additional language was not appropriate

in Article V, which addresses issues not

limited to investment.30

‘‘Thus, Article V was intended as a

general prohibition of discriminatory

restrictions not covered by other

provisions of the U.S.-Japan FCN and of

restrictions that do not rise to the level

of a ‘‘taking.’’ Article V prohibits

deprivations of both most-favored

nation treatment and national

treatment.31 Thus, it would apply to the

variety of discriminatory prohibitions

and restrictions that the AFA and

MARAD’s implementing regulations

impose on Petitioners’ existing

ownership and mortgage interests and

other contract rights and on Petitioners’

ongoing ability to protect those rights

and interests by entering into future

transactions among themselves related

to the Vessel.

‘‘The intrusive and discriminatory

restrictions imposed by the AFA and

MARAD’s implementing rules on

transactions between Non-Citizen

lenders, such as Alyeska, and U.S.

fishing vessel owners place the NonCitizen lenders at a significant

competitive disadvantage. U.S. Citizen

processors and other lenders are free to

make loans and to enter into contracts

with fishing vessel owners without

restriction. U.S. Citizen processors

remain free to obtain a reliable supply

of fish by financing fishing vessel

acquisitions, conversions, repairs and

improvements in return for exclusive

marketing relationships while NonCitizen processors are prohibited from

making similar arrangements. As

previously noted, MARAD has stated

that Non-Citizen processors will be

flatly prohibited from taking security in

fishing vessels to secure loans to vessel

owners. Under 46 CFR 356.45, a NonCitizen lender is not even permitted to

make an unsecured loan to a fishing

vessel owner, if (a) the loan exceeds the

annual value of the vessel’s catch

(where an exclusive marketing

agreement is involved—see

§ 356.45(a)(2)(i)); or (b) the lender is

‘‘affiliated with any party with whom

the owner * * * has entered into a

mortgage, long-term or exclusive sales

or purchase agreement, or other similar

contract * * *’’ (see § 356.45(b)(1)).

Under these standards, Alyeska’s

existing loan to the Vessel Owner would

no longer be permitted and Alyeska will

not be permitted to make future loans to

the Vessel Owner to protect its existing

interests. Further, the requirement of

MARAD review and approval is itself an

unreasonable and discriminatory

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11381

32Article XIX.7 defines ‘‘vessel’’ to exclude

‘‘fishing vessels’’ for purposes of Article XIX.6.

33Annex, Attachment 6, Letter to the Chairman

of the House of Representatives Committee on

Merchant Marine and Fisheries from Robert Lee,

August 17, 1964. See fn. 22.

34Annex, Attachment 10, Memorandum of

Conversation held April 3, 1952, at p. 5.

35Annex, Attachment 11, Department of State

Outgoing Airgram dated June 1952, at pp. 1–2

(nothing that a clearer way to effect the Japanese

intent would be by adopting a single

comprehensive exception stating that ‘‘[t]he

provisions of the present Treaty shall not apply

with respect to the national fisheries of either Party,

or to the products of such fisheries’’).

36See fn. 22. See also, Jones Study at 80–81.

37Sullivan Study at 284 (emphasis added). 38See, generally, Jones Study.

burden, particularly in the absence of

coherent published standards. The AFA

and MARAD’s rules thus impose

‘‘unreasonable or discriminatory

measures’’ on Non-Citizen fish

processors, such as Alyeska, impairing

their legally acquired rights and

interests and their ongoing ability to

protect those interests in violation of

Article V of the U.S.-Japan FCN.

‘‘4. Article XIX.6 Does Not Authorize

the Provisions of the AFA and

MARAD’s Implementing Rules which

are Otherwise in Violation of the U.S.-

Japan FCN.

‘‘Article XIX.6 provides that

notwithstanding any other provision of

the Treaty, ‘‘each Party may reserve

exclusive rights and privileges to its

own vessels with respect to the * * *

national fisheries * * *.’’ This

provision does not authorize the

discriminatory limitations on Japanese

investment and financing contained in

the AFA and MARAD’s implementing

rules.

‘‘Even if Article XIX.6 is interpreted

as applying to fishing vessels,32 it would

be irrelevant to the issues presented

here with respect to the AFA. Consistent

with the Treaty text authorizing a Party

to reserve exclusive rights to ‘‘its own

vessels,’’ the State Department has

interpreted Article XIX.6 merely to

permit the U.S. to reserve the right to

catch or land fish in the U.S. national

fisheries to ‘‘U.S. flag vessels.’’ 33 The

text of Article XIX.6 says nothing about

and certainly does not authorize

restrictions on foreign ownership or

financing of U.S. flag fishing vessels or

the ability of foreign-owned enterprises

to do business with the owners of U.S.

flag fishing vessels—restrictions that

otherwise clearly violate Article VII of

the Treaty.

‘‘The historical record of the

negotiations provides further evidence

that Article XIX.6 was not intended to

override Article VII’s national treatment

requirements with respect to foreign

investment in or financing of U.S. flag

fishing vessels or other dealings

between foreign-owned enterprises and

fishing vessel owners. At one point, the

Japanese negotiators proposed rewriting

Article XIX.6 to provide that the

national treatment provisions of the

Treaty would not extend to ‘‘nationals,

companies and vessels of the other Party

any special privileges reserved to

national fisheries.’’ 34 The State

Department understood the Japanese

suggestion as an attempt to obtain a

blanket exception from the entire Treaty

for national fisheries.35 The U.S rejected

the Japanese proposal and the language

of Article XIX.6 remained unchanged.

The issue of Japanese investment in and

other dealings with enterprises owning

or operating U.S. flag fishing vessels

was left to Article VII.

‘‘Subsequent practice of the State

Department confirms this reading of

Article XIX.6. In 1964, the State

Department reaffirmed the narrow scope

of Article XIX.6 in a letter to the House

Committee on Merchant Marine and

Fisheries. The letter makes clear that the

provision merely permits the United

States to reserve the right to catch or

land fish to U.S. flag vessels.36

‘‘This reading of Article XIX.6 in the

U.S.-Japan FCN also comports with the

State Department’s reading of this same

language in other FCN treaties to which

the U.S. is a party. The Sullivan Study

explicitly states that ‘‘[t]he crucial

element in Article XIX is that it relates

to the treatment of vessels and to the

treatment of their cargoes. It is not

concerned with the treatment of the

enterprises which own the vessels and

the cargoes.’’ 37

‘‘Thus, the text, negotiating history

and subsequent State Department

practice and understanding all

explicitly confirm that Article XIX.6 is

irrelevant to laws restricting foreign

ownership and control of fishing vessel

owners and thus does not override the

other provisions of the U.S.-Japan FCN

dealing with foreign investment and

business activity. Article XIX.6 does not

exempt the AFA’s foreign ownership,

financing and control restrictions from

Articles V, VI.3, VII or IX.2, each of

which bars application of those

restrictions to Petitioners with respect to

the Vessel Owners and the Vessels.

‘‘5. A Broad Interpretation of the

Treaty’s Protections is in the U.S.

Interest.

‘‘The terms of the U.S.-Japan FCN and

the other FCN treaties which share the

same language are reciprocal—that is,

the principle of ‘‘national treatment’’

applies not only to protect the

investments of foreign nationals in the

United States but also to protect the

investments of U.S. nationals in Japan

and other countries. Thus, any

interpretation of the U.S.-Japan FCN

adopted by MARAD in the present

context will also define the rights of

U.S. nationals doing business in Japan

and other countries, now and in the

future. A narrow interpretation of the

U.S.-Japan FCN’s protections for

Japanese enterprises and their

investments in the present context will

effectively limit the rights of U.S.

investors and U.S. businesses in Japan

and other countries with which the

United States has concluded similar

FCN treaties.

‘‘For this reason, the State Department

has interpreted the national treatment

requirement of the FCN treaties broadly

in the past.38 The U.S. interest in

protecting U.S. nationals doing business

abroad, as well as the State

Department’s historical practice in

interpreting the FCN treaties, requires

an interpretation of the U.S.-Japan FCN

which will protect the interests of

foreign enterprises and the U.S.

companies in which they have invested

from the retroactive and discriminatory

prohibitions and restrictions of the AFA

and 46 CFR Part 356.

‘‘6. The Government of Japan has

Determined that Section 202 of the AFA

is Inconsistent with the U.S.-Japan FCN.

‘‘The United States has agreed in

Article XXIV of the Treaty to give

‘‘sympathetic consideration to, and shall

afford adequate opportunity for

consultation regarding, such

representations as the [Government of

Japan] may make with respect to any

matter affecting the operation of the

present Treaty.’’ The Government of

Japan has strongly objected to the

application of the AFA’s new

limitations and restrictions on foreign

ownership, foreign financing and

foreign control of U.S. fishing vessels to

Japanese nationals and companies that

have invested in the U.S. fisheries prior

to the effective date of the Act on the

ground that such application would

violate the U.S.-Japan FCN. In a letter to

Jo Brooks of the Office of Legal Adviser,

U.S. Department of State, dated August

30, 1999, the Minister for Economic

Affairs of the Embassy of Japan stated

that the AFA’s ‘‘new U.S. citizen

ownership and control requirements’’

‘‘if applied without exception, would

impair the legally acquired rights or

interests of Japanese nationals and

corporations in the United States of

11382 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

39Annex, Attachment 12 (August 30, 1999 letter

from the Minister for Economic Affairs, Embassy of

Japan, to Jo Brooks, Attorney-Adviser, Office of

Legal Adviser, U.S. Dep’t. of State) at 1.

40There is no Subsection 202(c) of the AFA. The

reference intended is clearly subsection 202(a),

amending 46 U.S.C. § 12102(c).

41Annex, Attachment 12 at 1–2.

42Annex, Attachment 13 (January 24, 2000 Letter

from the Embassy of Japan to the U.S. Dep’t. of State

at 1.

43 Id.

44 Id. at 2.

45 Id.

America.’’ 39 The Minister for Economic

Affairs noted section 213(g) of the AFA

and stated the position of the

Government of Japan as follows:

As an existing international agreement

relating to foreign investment, we would like

to refer to the Treaty of Friendship,

Commerce and Navigation between Japan

and the United States of America, hereinafter

referred to as ‘‘the Treaty.’’ Paragraph two of

Article VII of the Treaty states that ‘‘***

new limitations imposed by either Party

upon the extent to which aliens are accorded

national treatment, with respect to carrying

on such activities within its territories, shall

not be applied as against enterprises which

are engaged in such activities therein at the

time such new limitations are adopted and

which are owned or controlled by nationals

and companies of the other Party.’’ The

Government of Japan is of the view that since

the new requirements under the provisions of

Subsection 202(c) 40 of the AFA would be

recognized as new limitations imposed by

the United States, such new requirements

would be inconsistent with paragraph two of

Article VII of the Treaty if applied to entities

that are engaged in fishing activities and

owned or controlled by Japanese nationals

and corporations at the time the AFA comes

into force.

Moreover, paragraph one of Article V of the

Treaty states that ‘‘Neither Party shall take

unreasonable or discriminatory measures that

would impair the legally acquired rights or

interests within its territories of nationals

and companies of the other Party in the

enterprises which they have established, in

their capital, in the skills, arts or technology

which they have supplied;—.’’ This

provision indicates that any U.S. government

measure that impairs the legally acquired

rights or interests of Japanese nationals and

companies should not be permitted under

this Treaty. Therefore, the Japanese nationals

and companies that have already invested in

fisheries in the United States should be

exempted from the application of the new

requirements under Subparagraph 202(c) of

the AFA.

Accordingly, the Government of Japan is of

the view that the entities that are engaged in

fishing activities and owned or controlled by

Japanese nationals and corporations should

be exempted from the new requirements set

forth in the Section 202(c). * * * 41

‘‘In a subsequent letter to the

Department of State, dated January 24,

2000, the Embassy of Japan expressed

the ‘‘concern’’ of the Government of

Japan about regulations proposed by

MARAD to implement the AFA.42 In its

January 24, 2000 letter, the Embassy of

Japan reiterated the view of the

Government of Japan that Section 202 of

the AFA is ‘‘inconsistent with paragraph

two of Article VII and paragraph one of

Article V of the Treaty of Friendship,

Commerce and Navigation between

Japan and the United States of America’’

and therefore ‘‘in accordance with the

provision of Section 213(g) of the Act’’

‘‘will not apply to entities that are

engaged in fishery activities and owned

or controlled by Japanese nationals or

corporations.’’ With respect to

MARAD’s proposed regulations, the

Embassy of Japan noted that the

regulations ‘‘would require the

procedure of an annual petition from

Japanese companies that are engaged in

fishery activities even before October 1,

2001, in order for the continuation of

their activities. To impose such a new

burden would be inconsistent with the

aforementioned obligations of the

United States as stipulated by the

Treaty.’’ 43 The Embassy of Japan noted

further:

The proposed regulations would require a

private company to provide interpretations of

the Treaty and the AFA as an attached

document to the petition for exemption from

the AFA, as prescribed in Section

356.53(b)(3). It is rather the obligation of the

Government of the United States as party to

the Treaty to do so.44

The Government of Japan requested

‘‘that the Government of the United

States fully ensure * * * that all

Japanese companies at present engaged

in fishery activities be exempted from

the new requirements prescribed in

Section 202 of the AFA.’’ 45

‘‘Thus, the Government of Japan has

strongly expressed its view that the

AFA’s new restrictions on foreign

investment, foreign financing and

foreign control of U.S. fishing vessels

are inconsistent with the U.S.-Japan

FCN as applied to companies with

existing Japanese investment. In light of

the obligation of the United States under

Article XXIV of the Treaty to give

‘‘sympathetic consideration’’ to the

representations of the Government of

Japan concerning the conflict between

Section 202 of the AFA and the Treaty

and the interest of the United States in

the protection of its own enterprises and

investors abroad, MARAD should

acknowledge the conflict between the

AFA and the U.S.-Japan FCN and issue

an order holding that Petitioners are

exempt from the requirements of

Section 202 of the AFA and the

implementing provisions of Section 203

and 46 CFR Part 356 with respect to the

Vessels.

‘‘B. AFA Section 213(g) Exempts

Japanese Enterprises and U.S.

Enterprises With Japanese Investment

From the AFA’s Limitations and

Restrictions on Foreign Ownership,

Foreign Financing and Foreign

‘‘Control’’ of U.S. Fishing Vessels.

‘‘Sections 202, 203 and 204 of the

AFA and the implementing regulations

published by MARAD on July 19, 2000,

codified at 46 C.F.R. Part 356, impose a

host of new limitations and restrictions

on foreign ownership of fishing vessels,

foreign financing of fishing vessels and

contractual arrangements between

foreign enterprises or U.S. companies

with substantial foreign ownership and

U.S. fishing vessel owners. As

demonstrated above, if applied to

Petitioners, these new limitations and

restrictions would deprive Petitioners of

valuable existing preferred mortgage

interests and contract rights in violation

of the U.S.-Japan FCN. Application of

the new restrictions to bar Petitioner

Alyeska or its Japanese shareholders

from entering into future transactions

with the Vessel Owner, particularly

financing and ancillary contractual

arrangements, such as exclusive

marketing agreements, would also

violate the U.S.-Japan FCN by

substantially impairing the ability of

Alyeska and its shareholders to protect

their existing rights and interests and to

carry on their existing lawful businesses

in the United States in conformity with

past practice and on an equal footing

with U.S. Citizens.

‘‘To avoid these results, Congress

included a provision in the AFA to

ensure that the Act would not

contravene U.S. treaty obligations.

Section 213(g) provides in pertinent

part:

In the event that any provision of section

12102(c) or section 31322(a) of title 46,

United States Code, as amended by this Act,

is determined to be inconsistent with an

existing international agreement relating to

foreign investment to which the United

States is a party with respect to the owner or

mortgagee on October 1, 2001 of a vessel with

a fishery endorsement, such provision shall

not apply to that owner or mortgagee with

respect to such vessel to the extent of any

such inconsistency. * * *

Section 213(g) makes clear that its

reach is intended to extend to every

‘‘owner’’ or ‘‘mortgagee’’ holding an

ownership or mortgage interest on

October 1, 2001, when Sections 202, 203

and 204 of the AFA become effective.

Section 213(g) provides explicitly that

the exemption does not apply to

‘‘subsequent owners and mortgagees’’

who acquire their interests after October

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11383

46See, e.g., Zenith Radio Corp. v. Matsushita

Electric Industrial Co., Ltd., 494 F. Supp 1263, 1266

(E.D.Pa. 1980).

47 McCulloch v. Sociedad Nacional de Marineros

de Honduras, 370 U.S. 10, 21 (1963).

48 Id. See, also, Sumitomo Shoji America, Inc. v.

Avagliano, et al., 457 U.S. 176 (1982).

1A redacted version of the amendment to the

trackage rights agreement between TP&W and P&PU

was filed with the verified notice of exemption. The

full version of the agreement, as required by 49 CFR

1180.6(a)(7)(ii), was concurrently filed under seal

along with a motion for a protective order. A

protective order was served on February 14, 2001.

1, 2001 or ‘‘to the owner [of the vessel]

on October 1, 2001 if any ownership

interest in that owner is transferred to

or otherwise acquired by a foreign

individual or entity after such date,’’

(emphasis added).

‘‘Petitioners are ‘‘owners’’ and

‘‘mortgagees’’ who acquired their

interests in the Vessels prior to October

1, 2001, and who intend to continue to

hold those interests on and after October

1, 2001. The U.S.-Japan FCN is a selfexecuting treaty which is binding on

MARAD as a matter of federal domestic

law.46 Under ordinary principles of

statutory construction, the AFA and the

Treaty should be construed to avoid

conflict and to give effect to each. The

federal courts have recognized that

federal statutes should be construed in

a manner to avoid conflict with

international treaties. Thus, federal

statutes ‘‘ought never to be construed to

violate the law of nations if any other

possible construction remains.’’ 47 Only

where Congress has expressed the clear

intent to depart from the obligations of

a treaty will the provisions of later

federal legislation be found to conflict

with and supersede U.S. treaty

obligations.48 Here, it is apparent from

the terms of Section 213(g) that

Congress affirmatively intended to avoid

conflict with international treaties such

as the U.S.-Japan FCN by exempting

‘‘owners’’ and ‘‘mortgagees’’ from

provisions of the AFA which would

otherwise be inconsistent with U.S.

treaty obligations. The inconsistency

between Sections 202 and 203 of the

AFA and the requirements of the U.S.-

Japan FCN is demonstrated above with

respect to Petitioners. Accordingly,

under Section 213(g) of the Act, the

provisions of Sections 202 and 203

‘‘shall not apply’’ to Petitioners ‘‘to the

extent of * * * such inconsistency.’’

‘‘The exemption provided by Section

213(g) is not limited to ownership or

mortgage interests in existence on

October 1, 2001, but rather applies to an

‘‘owner’’ or ‘‘mortgagee’’ on October 1,

2001 and extends the exemption ‘‘to the

extent of the inconsistency’’ between

the Act and the Treaty ‘‘with respect to’’

the vessel in which the ‘‘owner’’ or

‘‘mortgagee’’ holds an interest.

Petitioners qualify as ‘‘owners’’ and

‘‘mortgagees.’’ Petitioners are, therefore,

exempt from the requirements of the

AFA ‘‘to the extent of the

inconsistency’’ between the AFA and

the Treaty. As demonstrated above, the

‘‘inconsistency’’ between the AFA and

the Treaty is two-fold: (1) The Treaty

protects the existing ownership and

preferred mortgage interests of

Petitioners in the Vessel and related

contract rights (including the exclusive

marketing agreement) which the AFA

would impair, prohibit or restrict; and

(2) the Treaty protects future

transactions between Alyeska or its

Japanese shareholders and the Vessel

Owner, which the AFA would prohibit

or restrict, including future loans,

preferred mortgages and other financing

and contractual arrangements which

Petitioners may deem necessary or

appropriate to protect their existing

businesses and their existing interests in

the Vessel and the Vessel Owner. Thus,

Section 213(g) exempts Petitioners

entirely from the restrictions and

limitations of Sections 202, 203 and 204

of the AFA and MARAD’s implementing

rules with respect to the Vessel.’’

This concludes the analysis submitted

by Petitioner for consideration.

Dated: February 16, 2001.

By order of the Maritime Administrator.

Joel Richard,

Secretary, Maritime Administration.

[FR Doc. 01–4468 Filed 2–22–01; 8:45 am]

BILLING CODE 4910–81–P

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Finance Docket No. 34009]

Toledo, Peoria & Western Railway

Corporation—Trackage Rights

Exemption—Peoria and Pekin Union

Railway Company

Peoria and Pekin Union Railway

Company (P&PU) has agreed to grant

overhead trackage rights to Toledo,

Peoria & Western Railway Corporation

(TP&W) over P&PU’s track between the

point of connection between The

Burlington Northern and Santa Fe

Railway Company and P&PU near Darst

Street in Peoria, IL, milepost 2.1, and

the point of connection between P&PU

and TP&W at North Main Street in East

Peoria, IL, commonly known as P&PU

Junction, milepost 0.0, a distance of

approximately 4 miles.1

The transaction is scheduled to be

consummated on or shortly after

February 16, 2001.

The trackage rights will enable TP&W

to enhance competitive service for

intermodal traffic and provide more

efficient and economical routings and

service for this traffic.

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 sections 11324 and

11325 that involve only Class III rail

carriers. Because this transaction

involves Class III rail carriers only, the

Board, under the statute, may not

impose labor protective conditions for

this transaction.

This notice is filed under 49 CFR

1180.2(d)(7). If it contains false or

misleading information, the exemption

is void ab initio. Petitions to revoke the

exemption under 49 U.S.C. 10502(d)

may be filed at any time. The filing of

a petition to revoke will not

automatically stay the transaction.

An original and 10 copies of all

pleadings, referring to STB Finance

Docket No. 34009 must be filed with the

Surface Transportation Board, Office of

the Secretary, Case Control Unit, 1925 K

Street, N.W., Washington, DC 20423–

0001. In addition, one copy of each

pleading must be served on Louis E.

Gitomer, Esq., Ball Janik LLP, 1455 F

Street, N.W., Suite 225, Washington, DC

20005.

Board decisions and notices are

available on our website at

WWW.STB.DOT.GOV.

Decided: February 15, 2001.

By the Board, David M. Konschnik,

Director, Office of Proceedings.

Vernon A. Williams,

Secretary.

[FR Doc. 01–4524 Filed 2–22–01; 8:45 am]

BILLING CODE 4915–00–P

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and

Firearms

Proposed Collection; Comment

Request

ACTION: Notice and request for

comments.

SUMMARY: The Department of the

Treasury, as part of its continuing effort

to reduce paperwork and respondent

burden, invites the general public and

other Federal agencies to take this

opportunity to comment on proposed

and/or continuing information

collections, as required by the

Paperwork Reduction Act of 1995,