[Federal Register Volume 66, Number 37 (Friday, February 23, 2001)]
[Notices]
[Pages 11364-11375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-4469]


-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Maritime Administration

[Docket No. MARAD-2001-8928]


GREAT PACIFIC--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 GREAT PACIFIC--Official No. 608458 (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, Pub. L. 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

[[Page 11365]]

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 <a href="/cdn-cgi/l/email-protection#206a4f484e0e6d41525155455a604d415241440e444f540e474f56"><span class="__cf_email__" data-cfemail="aae0c5c2c484e7cbd8dbdfcfd0eac7cbd8cbce84cec5de84cdc5dc">[email protected]</span></a>.

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 (greater than 50%) of section 2(b) of Shipping Act, 
1916 (``1916 Act''), as amended, 46 App. U.S.C. Sec. 802(b), to the 
standard contained in section 2(c) of the 1916 Act, 46 App. U.S.C. 
Sec. 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 Anti-Reflagging Act of 1987, Public Law 
100-239, Sec. 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 
Sec. 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 non-citizen 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 Sec. 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

    Great Pacific Limited Partnership (the ``Vessel Owner'' or the 
``Partnership''), Wards Cove Packing Company (``Wards Cove''), Dall 
Head, Inc. (``DHI''), Western Alaska Fisheries, Inc. (``WAF'') and 
Maruha Corporation (``Maruha'') are owners of direct and indirect 
interests in the Vessel Owner and the Vessel. Alyeska Seafoods, Inc. 
(``Alyeska'') is a seafood processor that has entered into loans and 
other contractual arrangements with the Partnership and its partners 
and that is owned in substantial part by Maruha. (Each of the above 
identified parties is referred to hereinafter individually as a 
``Petitioner'' and collectively as the ``Petitioners.'')

Ownership, Mortgage Structure, and Contractual Arrangements for the 
Vessel

    The Petitioner provided the following information about the 
ownership, mortgage structure and other contractual obligations of the 
Vessel:

A. Ownership Structure

    Great Pacific Limited Partnership, a Washington limited partnership 
formed in 1991 for the purpose of acquiring and operating the GREAT 
PACIFIC, is the owner of the Vessel. DHI, the sole general partner of 
Great Pacific Limited Partnership, is a Washington corporation which 
has a 51% interest in the partnership. All of DHI's officers and 
directors are individual U.S. Citizens and 100% of the issued and 
outstanding capital stock of DHI is owned by Wards Cove. Wards Cove, a 
fish processing company which has been engaged in processing salmon and 
other fish and shellfish species in Alaska since 1912, is owned 
entirely by U.S. Citizens.
    WAF, an Alaska Corporation, is the sole limited partner of Great 
Pacific

[[Page 11366]]

Limited Partnership and has a 49% interest in the partnership. WAF is 
wholly owned by Maruha, a Japanese corporation.

B. Mortgage Structure

    The purchase of the GREAT PACIFIC by Great Pacific Limited 
Partnership was financed in part by unsecured loans provided by Alyeska 
to Wards Cove and WAF. The proceeds of these loans, together with 
additional equity capital provided separately by WAF and Wards Cove, 
were ultimately contributed as capital to Great Pacific Limited 
Partnership in proportion to the partners' resulting ownership 
interests. Great Pacific Limited Partnership used these capital 
contributions to purchase the GREAT PACIFIC. There are no mortgages or 
other security interests encumbering the GREAT PACIFIC.
    Alyeska assisted in financing the acquisition of the Vessel by the 
Vessel Owner with the understanding that the fish harvested by the 
Vessel would be sold to Alyeska and in reliance on the assured revenue 
stream which sales to Alyeska would provide to the Vessel Owner and its 
partners.

C. Working Capital Financing and Other Contractual Arrangements

1. Commercial Revolving Credit Line Loan and Security Agreement
    Great Pacific Limited Partnership entered into a Commercial 
Revolving Credit Line Loan and Security Agreement, dated February 10, 
1999, with Alyeska under which Alyeska agreed to provide the 
Partnership an $800,000 working capital revolving line of credit. This 
line of credit is secured by a security interest in all accounts, 
contract rights and proceeds arising from the Partnership's sale of 
fish to Alyeska. The Petitioners state that Alyeska has no right to 
control the Vessel Owner or the operation, management or harvesting 
activities of the Vessel under the terms of the Commercial Revolving 
Credit Line Loan and Security Agreement.
2. Fishing Commitment Agreement
    Great Pacific Limited Partnership entered into a Fishing Commitment 
Agreement with Alyeska, dated April 28, 2000, in which the Partnership 
agreed that the Vessel will harvest pollock and deliver at least 90% of 
its total pollock catch each year to Alyeska's processing plant at 
Dutch Harbor (Unalaska), Alaska. Petitioners note that the terms of the 
Fishing Commitment Agreement essentially mirror the contractual 
commitments which Alyeska has made to the other vessel owners 
delivering to Alyeska under the auspices of the Unalaska Fleet 
Cooperative. In return for the Partnership's commitment and consistent 
with Alyeska's arrangements with the other vessel owners who have 
agreed to deliver fish to its Dutch Harbor processing plant, Alyeska 
has agreed to pay the Partnership a substantial annual ``commitment 
fee.'' The term of the Fishing Commitment Agreement is from January 1, 
2000 to December 31, 2004, unless sooner terminated by either party. 
The Agreement is terminable by either party at any time by written 
notice to the other, with or without cause. The Petitioners state that 
the Agreement contains no provisions that convey control of the 
Partnership or the Vessel's operation, management or harvesting 
activities to Alyeska or any other Non-Citizen.

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, WAF, or Maruha;
    (2) Alyeska's loans to the Partnership and to the partners of the 
Partnership; and
    (3) the Fishing Commitment Agreement between Alyeska and the 
Partnership.

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 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 Limitations and Restrictions on Foreign Ownership, 
Foreign Financing and Foreign Control Violate Article VII.
    ``(a) The AFA's Restrictions on Foreign Ownership Impair 
Petitioners' Existing Ownership Interests.
    ``The AFA's new restrictions on foreign investment in fishing 
vessels will prohibit the Partnership from employing the Vessel in the 
U.S. fisheries on and after October 1, 2001, because the extent of 
Japanese investment in the Vessel Owners exceeds the maximum permitted 
by the AFA.
    ``A vessel cannot lawfully be employed in the fisheries of the 
United States unless it is documented as a vessel of the United States 
with a fishery endorsement issued pursuant to 46 U.S.C. Chapter 121. 46 
U.S.C. Chapter 121 sets out the requirements which must be met for a 
vessel to be eligible for documentation with a fishery endorsement, 
including requirements related to the citizenship of vessel owners and 
their investors.
    ``The GREAT PACIFIC is a fishing vessel, designed and constructed 
or rebuilt for use in the U.S. fisheries and operated in the U.S. 
fisheries of the North Pacific Ocean and Bering Sea. The Vessel has no 
other significant economic uses. The Partnership is eligible to own a 
vessel with a fishery endorsement under the current standards of 46 
U.S.C. Chapter 121, since DHI, a U.S. Citizen, is the sole general 
partner of the Partnership and owns a majority interest in the 
Partnership.\9\ The Vessel is documented as a vessel of the United 
States with a fishery endorsement.
---------------------------------------------------------------------------

    \9\ See 46 U.S.C. Sec. 12102(a)(3) and (c)(1).
---------------------------------------------------------------------------

    ``However, the Partnership will be prohibited from owning or 
operating the Vessel in the U.S. fisheries on and after October 1, 
2001, under the new restrictions on foreign investment in fishing 
vessels imposed by the AFA and MARAD's implementing rules, codified at 
46 CFR Part 356.\10\ The ownership

[[Page 11367]]

interest held in Great Pacific Limited Partnership by WAF, a Non-
Citizen, is 49%. This exceeds the maximum percentage interest--25%--
permitted to be held by Non-Citizens under Section 202(a) of the AFA, 
effective on and after October 1, 2001.\11\ The AFA requires MARAD to 
revoke the fishery endorsement of any fishing vessel whose owner does 
not comply with this new requirement.\12\ Accordingly, unless exempted 
from the AFA's new requirements, the Partnership will no longer be 
permitted to own and operate the GREAT PACIFIC in the U.S. fisheries as 
of October 1, 2001.
---------------------------------------------------------------------------

    \10\ 65 FR 44860 et seq., July 19, 2000.
    \11\ See 46 U.S. 12102(c)(1), as amended. The AFA makes two 
principal changes to the existing limitation on foreign ownership of 
fishing vessels: (1) The required percentage of U.S. Citizen 
ownership is increased from ``a majority'' to 75%; and (2) this new 
test is to be applied both ``at each tier of ownership and in the 
aggregate,'' whereas the existing standard is applied solely at each 
tier of ownership, allowing foreign interests ``in the aggregate'' 
to exceed 50%, as long as majority U.S. ownership is maintained ``at 
each tier.'' See 46 CFR 221.3(c) (a U.S. citizen is a Person who 
``at each tier of ownership'' satisfies the percentage U.S. 
ownership requirement). Compare, 46 USC 12102(c) and 46 CFR 
67.31(c), with 46 U.S.C. 12102(c)(1), as amended by Section 202(a) 
of the Act, and 46 CFR 356.9. In addition, Section 204 of the AFA 
repeals a provision of prior law which permits 100% foreign owned 
corporations to own vessels, such as the GREAT PACIFIC, that were 
documented with a fishery endorsement and operated in the U.S. 
fisheries prior to July 1987.
    \12\ AFA Section 203(e).
---------------------------------------------------------------------------

    ``(b) The AFA's Impairment of Petitioners' Existing Ownership 
Interests Violates Article VII.1 and the Grandfather Provision of 
Article VII.2.
    ``The AFA's impairment of Petitioners' existing ownership interests 
in the Vessel violates their right to ``national treatment'' under 
Article VII.1 and the grandfather provision of Article VII.2 of the 
U.S.-Japan FCN.
    ``The U.S.-Japan FCN was one of a series of similar Friendship, 
Commerce and Navigation (``FCN'') Treaties entered into by the United 
States with various countries after World War II, based on a standard 
State Department treaty text. All of these treaties reflect U.S. post-
war policy to encourage and protect international trade and investment. 
Herman Walker, Jr., the principal author of the standard FCN treaty 
text and one of the principal State Department negotiators during this 
period, has described the FCN treaties as ``concerned with the 
protection of persons, natural and juridical, and of the property 
interests of such persons.''\13\
---------------------------------------------------------------------------

    \13\ Herman Walker, Jr., ``Modern Treaties of Friendship, 
Commerce and Navigation,'' 42 Minn. L. Rev. 805, 806 (1958) 
(hereinafter, ``Modern Treaties'').
---------------------------------------------------------------------------

    ``Article VII.1 of the U.S.-Japan FCN guarantees broad ``national 
treatment'' for the nationals and enterprises of the U.S. and Japan 
when doing business within the jurisdiction of the other country. 
Article XXII.1 of the U.S.-Japan FCN defines ``national treatment'' as 
``treatment accorded within the territories of a Party upon terms no 
less favorable than the treatment accorded therein, in like situations, 
to nationals, companies, products, vessels or other objects, as the 
case may be, of such Party.'' The principle of national treatment is 
the central principle of all of the post-war FCN treaties. National 
treatment requires that each State Party must treat nationals of the 
other in the same way that it treats its own nationals. The treaties 
focus on business and investment. ``The right of corporations to engage 
in business on a national-treatment basis may be said to constitute the 
heart of the treaty as an investment instrument.''\14\ In a case 
involving interpretation of the U.S.-Japan FCN, the United States 
Supreme Court noted that the purpose of the FCN treaties was ``to 
assure [foreign corporations] the right to conduct business on an equal 
basis without suffering discrimination based on their alienage.''\15\ 
``[N]ational treatment of corporations means equal treatment with 
domestic corporations.''\16\
---------------------------------------------------------------------------

    \14\ Herman Walker, Jr., ``The Post-War Commercial Treaty 
Program of the United States,'' 73 Pol. Sci. Q. 57, 67 (1958).
    \15\ Sumitomo Shoji America v. Avagliano, 457 U.S. 176, 187-88 
(1982).
    \16\ Id. at 188 n. 18.
---------------------------------------------------------------------------

    ``The Preamble of the U.S.-Japan FCN provides that guaranteeing 
nationals of each Party ``national * * * treatment unconditionally'' is 
one of the two general principles upon which the U.S.-Japan FCN was 
based. Use of the word ``unconditionally'' in this context clearly 
demonstrates the strength of the drafters' general intent. Accordingly, 
the exceptions to the principle of national treatment stated in the 
U.S.-Japan FCN must be narrowly construed.
    ``The AFA's retroactive prohibition of the ownership interest in 
the Partnership acquired by WAF in compliance with existing law clearly 
denies national treatment to WAF, Maruha and the Partnership. The AFA's 
new limitation on foreign ownership of fishing vessels is thus 
inconsistent with the most fundamental principle of the U.S.-Japan FCN.
    ``The first sentence of Article VII.2 of the U.S.-Japan FCN 
provides a limited exception to the principle of national treatment for 
enterprises engaged in ``the exploitation of land or other natural 
resources.'' Even in that context, however, the second sentence of 
Article VII.2 (referred to as the ``grandfather'' provision of Article 
VII.2) prohibits application of new restrictions and limitations to 
Japanese nationals or enterprises which have previously ``acquired 
interests'' in enterprises owning U.S. fishing vessels or have 
previously engaged in the business activities now to be restricted. 
Article VII.2 provides in pertinent part:

    Each Party reserves the right to limit the extent to which 
aliens may within its territories establish, acquire interests in, 
or carry on * * * enterprises engaged in * * * the exploitation of 
land or other natural resources. However, 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.\17\

    \17\ Emphasis added.
---------------------------------------------------------------------------

The grandfather provision of Article VII.2 thus provides that any new 
limitations on national treatment placed on alien participation in the 
sectors covered by the first sentence of Article VII.2 shall not apply 
to existing enterprises engaged in business within those sectors at the 
time such new limitations are adopted.
    ``A study commissioned by the State Department of its past 
interpretations of the FCN treaties notes that, under the grandfather 
provision of Article VII.2, ``protection is afforded to any privilege 
granted * * * prior to a change in national treatment; hence at a 
minimum these foreign enterprises are guaranteed the maintenance of 
their existing operations.''\18\ ``[R]egulations that force divestiture 
of interests already acquired or established prior to promulgation of 
such regulation * * * raise Art. VII questions.''\19\ Herman Walker, 
Jr. stated the purpose of the Article VII.2 grandfather provision 
clearly: ``The aim is to * * * guarantee duly established investors 
against subsequent discrimination. The failure to find a welcome as to 
entry is of much less importance than would be a failure, once having 
entered and invested in good faith, to be protected against subsequent 
harsh treatment.''\20\ In describing the import of the phrase

[[Page 11368]]

``new limitations,'' another State Department study states,

    \18\ Ronny E. Jones, ``State Department Practices Under U.S. 
Treaties of Friendship, Commerce, and Navigation'' (1981) 
(hereinfafter ``Jones Study'') at 57. Petitioners presume that MARAD 
has access to the Jones Study and to the Sullivan Study referenced 
below. Petitioners will provide copies of these studies to MARAD on 
request.
    \19\ Id. at 107.
    \20\ Modern Treaties at 809.

    The net effect [of the second sentence of Article VII.2] is 
that, although not obligated to allow alien interests to become 
established in those fields of activity, rights which have been 
extended in the past shall be respected and exempted from the 
---------------------------------------------------------------------------
application of new restrictions.\21\

    \21\ Charles H. Sullivan, ``State Department Standard Draft 
Treaty of Friendship, Commerce and Navigation'' (undated) 
(hereinafter ``Sullivan Study'') at 149 (emphasis added).
---------------------------------------------------------------------------

    The second sentence of Article VII(2) is a grandfather clause 
intended in the interest of fairness to protect legitimately 
established alien enterprises against retroactive impairment.''\22\
---------------------------------------------------------------------------

    \22\ Id. at 148.
---------------------------------------------------------------------------

    ``Both State Parties placed great importance on the grandfather 
provision of Article VII.2 because they recognized that it would not 
only protect existing property rights but would entitle foreign-owned 
enterprises to continue to operate in the same manner as before, 
notwithstanding later limitations placed on the rights of foreign-owned 
entities to engage in such business activities. It was a ``principal 
negotiating point'' of the U.S. side to ensure that the reservations in 
Article VII.2 would not permit retroactive application of any new 
limits to companies already engaged in relevant business 
activities.\23\
---------------------------------------------------------------------------

    \23\ Annex, Attachment Department of State Incoming Telegran 
dated March 20, 1953, p. 1.
---------------------------------------------------------------------------

    ``The U.S. negotiators therefore resisted efforts to modify the 
grandfather provision of Article VII.2, despite strong Japanese efforts 
to restrict its application. As an indication of the importance the 
Japanese negotiators attached to the provision, the Japanese Embassy at 
one point late in the negotiations indicated that the Ministry of 
Finance might be persuaded to withdraw ``all other objections'' to the 
draft treaty if the sentence granting grandfather rights to existing 
businesses were deleted.\24\ Eventually, the Japanese negotiators 
accepted the language in Article VII.2 without any change after the 
U.S. agreed to the language appearing in the second sentence of 
Paragraph 4 of the Protocol. The U.S. State Department agreed to the 
Protocol language only on the understanding that it in no way 
undermined the prohibition against application of discriminatory laws 
to existing enterprises in the second sentence of Article VII.2.\25\
---------------------------------------------------------------------------

    \24\ Annex, Attachment 3, Memorandum from Franik A. Waring, 
Counselor of U.S. Embassy for Economic Affairs (undated excerpt).
    \25\ Annex, Attachment 2, Department of State Incoming Telegram 
dated March 20, 1953, p. 1, and Attachment 4, Office Memorandum 
dated March 23, 1953, pp. 1-2.
---------------------------------------------------------------------------

    ``As adopted, the second sentence of Article VII.2 follows the 
standard treaty text developed by the State Department and used as the 
basis for more than a dozen FCN treaties. The Sullivan Study notes the 
breadth of the protection this sentence affords existing companies 
otherwise subject to VII.2. The Sullivan Study indicates that an 
enterprise protected by the Article VII.2 grandfather provision is not 
only protected as to existing property interests or contract rights, 
but ``is able to enjoy what may be considered normal business growth in 
terms of acquiring new customers and increasing the dollar volume of 
its business, but it cannot claim expanded privileges. * * *''\26\
---------------------------------------------------------------------------

    \26\ Sullivan Study at 150.
---------------------------------------------------------------------------

    ``In short, the protections afforded existing investments and 
existing businesses by the second sentence of Article VII.2 were seen 
by the U.S. as a key part of the U.S.-Japan FCN and similar FCN 
treaties, providing substantial protections to foreign investors and 
businesses. The provision affords WAF and Maruha the right to continue 
to hold their direct and indirect investments in the Partnership and 
the Vessel and, more generally, to continue to transact business with 
the Partnership on the same basis as permitted prior to passage of the 
AFA. Similarly, the Article VII.2 grandfather provision guarantees the 
Partnership the right to own and operate the Vessel in the U.S. 
fisheries on equal terms with wholly domestic enterprises.
    ``Maruha is clearly entitled to protection as a Japanese enterprise 
which, at the time the AFA was adopted, was ``engaged in * * * 
activities'' within the United States which the AFA, but for Section 
213(g), would prohibit, limit or restrict. WAF, Alyeska and the 
Partnership likewise come within the protection of the Article VII.2 
grandfather provision by reason of the direct and indirect ownership 
interests in them held by Maruha and, in the case of Alyeska, by 
Marubeni. Thus, the Article VII.2 grandfather provision protects the 
rights of Maruha, WAF, Marubeni and Alyeska to invest in or transact 
business with the Partnership and protects the Partnership's right to 
continue to own and operate the Vessels in the U.S. fisheries.
    ``As noted above, the Article VII.2 grandfather provision not only 
protects pre-existing rights and interests acquired, directly or 
indirectly, by Japanese nationals prior to a discriminatory change in 
the law, but protects pre-existing enterprises from such changes. 
Accordingly, the Article VII.2 grandfather provision, together with 
Section 213(g) of the AFA, exempts the Petitioners from the 
restrictions of Sections 202, 203 and 204 of the AFA and 46 CFR Part 
356, not only (a) with respect to their existing direct and indirect 
ownership interests in the Partnership and/or the Vessel, but also (b) 
with respect to existing loan, financing and other contractual 
arrangements related to the Vessel and (c) with respect to future 
dealings between or among the Petitioners related to the Vessel and 
deemed necessary or appropriate to protect or further the existing 
interests of the Petitioners in the Vessel.
    ``2. The AFA's Restrictions on Foreign Financing of Fishing Vessels 
Violate Article VII.
    ``(a) The AFA's Restrictions on Foreign Financing of Fishing 
Vessels Impair Petitioners' Rights and Interests With Respect to Vessel 
Financing.
    ``The AFA and MARAD's implementing regulations impair the existing 
loan, working capital financing and other contractual arrangements 
described above between Alyeska, WAF, Wards Cove and the Partnership by 
requiring that all such arrangements be reviewed and approved by MARAD 
prior to October 1, 2001, under the new standards imposed by the AFA 
and MARAD's implementing rules. Failure to obtain MARAD approval will 
result in disqualification of the Partnership to own and operate the 
Vessel in the U.S. fisheries. Application to Petitioners of the AFA's 
new restrictions on foreign financing and ``control'' of fishing 
vessels impairs Petitioners'' rights in violation of Article VII.1.
    ``The AFA and MARAD's implementing rules require that the terms of 
all loans provided by a Non-Citizen to a fishing vessel owner must be 
approved by MARAD under the AFA's new ``control'' standards.\27\ The 
AFA contains a new definition of impermissible Non-Citizen ``control'' 
\28\ and requires transfers of ``control'' of fishing vessels to be 
``rigorously scrutinized'' by MARAD under this new standard.\29\ MARAD 
has implemented the AFA's new ``control'' standard by adopting a host 
of new restrictions and limitations on financing, contract and other 
business arrangements between fishing vessel owners and Non-

[[Page 11369]]

Citizens.\30\ Unless MARAD reviews and approves the terms of the loan 
documents and contracts previously executed by the Partnership and its 
partners in favor of Alyeska prior to October 1, 2001 under these new 
standards, the Vessel will lose its fishery endorsement and the 
Partnership will no longer be permitted to own or operate the Vessel in 
the U.S. fisheries.\31\ This, in turn, will destroy the value of the 
Vessel and destroy the ability of the Partnership to generate income to 
repay the loans. By imposing new conditions and restrictions on the 
terms of existing loan documents and contracts, including a new 
requirement of administrative review and approval of those documents 
and contracts under AFA's new ``control'' standards, the AFA and 
MARAD's implementing regulations will impair the contract rights of 
Petitioners under existing loan documents and contracts.
---------------------------------------------------------------------------

    \27\ See AFA Section 202(a), adding 46 U.S.C. 
Sec. 12102(c)(4)(A); see also, 46 CFR Secs. 356.15(d) and 356.21(d).
    \28\ AFA Section 202(a), codified at 46 U.S.C. 12102(c)(2).
    \29\ AFA Section 203(c)(2).
    \30\ See, generally, 46 CFR 356.11, 356.13-15, 356.21-25, 
356.39-45.
    \31\ See 46 CFR 356.15(d), 356.21(d).
---------------------------------------------------------------------------

    ``MARAD has taken the position that loans by a Non-Citizen minority 
investor to the U.S. Citizen general partner of a vessel-owning limited 
partnership are likely to involve an impermissible degree of Non-
Citizen control.\32\ Presumably, MARAD would take the same position 
with respect to a loan provided by a parent company or other affiliate 
of the minority investor, such as Maruha or Alyeska, to fund a portion 
of the equity contribution of a U.S. Citizen general partner, such as 
Wards Cove or Dall Head, Inc. Thus, the MARAD is unlikely to approve 
Alyeska's existing loans to the Vessel Owner and its partners under 
MARAD's interpretation of the AFA.\33\
---------------------------------------------------------------------------

    \32\ Personal communication with MARAD Office of General 
Counsel, January 9, 2001 (to the effect that, as a general rule, 
MARAD does not allow a non-citizen to provide the start up capital 
to the U.S. Citizen general partner of a vessel-owning limited 
partnership). See also, 46 CFR 356.11(b)(6) (provision of start up 
capital by Non-Citizen may imply impermissible Non-Citizen control); 
356.21 (approval of standard loan documents limited to the loan 
documents of financial institutions); 356.23 (approval of standard 
loan convents limited to loans from an ``unrelated Non-Citizen 
Lender'') and 356.45(b) (approval of unsecured loans to vessal 
owners from Non-Citizens limited to loans from Non-Citizens ``not 
affiliated with any party with whom the owner * * * have entered 
into a mortgage, long-term or exclusive sales or purchase agreement, 
or other similar contract'').
    \33\ While the amount of the line of credit provided to the 
Vessel Owner under the Commercial Revolving Line of Credit Loan and 
Security Agreement is less than the annual value of the fish sold to 
Alyeska by the Vessel Owner, the sum of the outstanding balance on 
Alyeska's loan to Wards Cove and the line of credit exceeds that 
amount. Thus, these loans, in combination, would not be permitted 
under 46 CFR 356.45(a).
---------------------------------------------------------------------------

    ``Further, the AFA's restrictions on future financing transactions 
between Alyeska or other Non-Citizen Petitioners and the Partnership or 
its U.S. Citizen partners will substantially impair the rights and 
interests of the Non-Citizen Petitioners in violation of Article VII.1. 
Existing law permits a Non-Citizen to make loans to the owner of a 
fishing vessel, secured by a preferred mortgage on the vessel.\34\ 
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.\35\ Thus, in the case of 
Alyeska, the AFA's requirements will prevent Alyeska from making future 
secured loans to the Partnership, if that should become necessary or 
desirable to preserve the Partnership's ability to provide fish to 
Alyeska or to allow the Partnership to make repairs or improvements to 
the Vessel.
---------------------------------------------------------------------------

    \34\ Compare 46 U.S.C. 31322(a), as now in effect, with 46 
U.S.C. 31322(a), as amended by AFA Section 202(b).
    \35\ 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'')
---------------------------------------------------------------------------

    ``The AFA's restrictions on foreign financing of fishing vessels 
will limit and restrict the ability of Maruha and WAF, directly or 
through Alyeska, to protect their existing investment in the Vessel 
Owner by offering future financing for major vessel repairs or 
improvements which may become necessary to permit the Vessel Owner to 
operate profitably--or at all. Since financing from a financial 
institution may be unavailable to the Vessel Owner, the ability of 
Alyeska, WAF and/or Maruha to make loans to support the Vessel's 
continuing operations may be the only means available to protect the 
Vessel Owner from insolvency. Thus, the AFA's restrictions on the 
ability of the Non-Citizen Petitioners to make loans to the Vessel 
Owner without MARAD approval or to take security in the Vessel 
jeopardize the existing financial and business interests of Alyeska, 
WAF and Maruha 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 the Vessel Owner 
will disrupt Alyeska's ability to ensure a reliable supply of fish to 
its processing facility. Alyeska's ability to provide financing for 
operations and for the repair or improvement of the Vessel is a 
necessary means to ensure a stable supply of fish to its processing 
plant. A processor's agreement to provide financing to qualified U.S. 
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 their working capital needs and the 
acquisition, repair or improvement of their vessels and by which 
processors secure a reliable supply of fish to their plants. Such 
financing arrangements between vessel owners and processors, both 
wholly domestic and Non-Citizen processors, are common and traditional 
in the Alaska fishing industry. Further, the continued ability of the 
Vessel Owner to supply fish to Alyeska may depend on the ongoing 
availability of financing from Alyeska for operating funds, emergency 
repairs or improvements for which bank financing is not available or 
not available on a timely basis. Non-Citizen 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 and protect the 
supply of fish to their plants by financing the repair, improvement or 
operation of fishing vessels in return for continuing fish deliveries. 
Just as the Petitioners' existing ownership and loan arrangements with 
respect to the Vessel are protected by the Treaty, the Treaty protects 
the ongoing ability of the Non-Citizen Petitioners to modify and 
restructure existing loans and security arrangements with the Vessel 
Owner and Wards Cove or Dall Head and to make new loans to and enter 
into ancillary contractual arrangements with the Vessel Owner and its 
general partner to protect or further their existing business interests 
in the Vessel.
    ``(b) The Restrictions on Foreign Financing of Fishing Vessels 
Imposed by the AFA and MARAD's Implementing Rules Violate Article 
VII.1.
    ``The new restrictions on foreign financing of fishing vessels 
imposed by the AFA and MARAD's implementing regulations violate Article 
VII.1's national treatment guaranty by (1) subjecting the terms of 
existing and future loans provided to the Partnership by Alyeska, WAF 
or Maruha to a new requirement of administrative review and approval by 
MARAD under the new foreign ``control'' restrictions of the AFA and 
MARAD's implementing rules;\36\

[[Page 11370]]

and (2) prohibiting Alyeska, WAF or Maruha from making loans to the 
Vessel Owner or taking preferred mortgages or other security interests 
in the Vessel as security for existing or future loans.
---------------------------------------------------------------------------

    \36\ The requirement of MARAD review and approval clearly 
impairs the Petitioners' existing financing arrangements. Since 
MARAD has made clear that it generally will not approve loans by a 
Non-Citizen minority investor to fund equity contributions by a U.S. 
Citizen generally partner, Alyeska's loans to Wards Cove here will 
almost certainly result in revocation of the Vessel's fishery 
endorsement unless those loans are exempted from the AFA's 
requirements. See AFA Section 203(e).
---------------------------------------------------------------------------

    ``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 foreign-owned banks 
should be denied national treatment, as well as most-favored-nation 
protection. One reason given was that their loans could result in the 
foreign-owned bank lender controlling key industries.\37\ 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.
---------------------------------------------------------------------------

    \37\ Annex, Attachment 5, Memorandum of Conversation held March 
4, 1952, pp. 2-3.
---------------------------------------------------------------------------

    ``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.''\38\ 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 the phrase would have read 
``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.
---------------------------------------------------------------------------

    \38\ Annex, Attachment 6, Dept. of State Outgrown Telegram dated 
March 10, 1952, p. 1. See also Annex, Attachment 5 at p. 3, noting 
that the ``* * *'' first paragraph of Article VII 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.''
---------------------------------------------------------------------------

    ``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.\39\ 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.''\40\ 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.\41\
---------------------------------------------------------------------------

    \39\ Annex, Attachment 7, Dept. of State Outgoing Telegram dated 
May 21, 1952, p. 3.
    \40\ Id.
    \41\ Annex, Attachment 8, Memorandum of Conversation concerning 
discussions on the draft FCN held between October 15, 1952 and March 
11, 1953, p. 15.
---------------------------------------------------------------------------

    ``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).''\42\ 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.
---------------------------------------------------------------------------

    \42\ Sullivan Study at 144.
---------------------------------------------------------------------------

    ``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, its 
shareholders or affiliates. 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.\43\
---------------------------------------------------------------------------

    \43\ To 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, as the holder of existing debt 
obligations of the Partnership or its partners. Since Maruha, 
Marubeni and Western Alaska Fisheries clearly ``acquired interests'' 
in Alyeska and the Partnership prior to enhancement of the AFA, 
those enterprises would be protected from discrimination in the 
ongoing conduct of their businesses.
---------------------------------------------------------------------------

    ``The provisions of the AFA and MARAD's implementing rules which 
restrict the right of Japanese-owned entities to make loans secured by 
mortgages on U.S. vessels or to make such loans without prior MARAD 
approval of the loan 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 * * * 
financial * * * activities.'' Under Article VII.1, neither State Party 
may restrict loans by foreign-owned entities, whether secured by 
vessels of their national flag or otherwise.
    ``The AFA and MARAD's implementing rules impose new restrictions on 
the ability of Alyeska, Maruha and WAF, going forward, to protect their 
existing financial interests in the Partnership and the Vessel by, 
e.g., re-financing existing loans, advancing new loans for repair or 
improvement of the Vessel or entering into other financing or 
contractual arrangements with the Vessel Owner. These restrictions are 
inconsistent with 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, 
Maruha or WAF involving the Vessel or the Vessel Owner.
    Application of the AFA's new ``control'' standards to restrict the 
ability of Alyeska, its shareholders or affiliates to do business with 
the fishing vessel owners that supply fish to Alyeska's processing 
plant, as they have done in the past and on the same terms as Alyeska's 
U.S. Citizen competitors, would deny national treatment to Alyeska and 
its Japanese investors. 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.\44\ Article VII.1 
applies, and

[[Page 11371]]

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 the ability of 
Alyeska, to enter into future financing and other contractual 
arrangements with the Vessel Owners clearly violate Article VII.1.
---------------------------------------------------------------------------

    \44\ Annex, Attachment 9, Letter to the Chairman of the House of 
Representative Committee on Merchant Marine and Fisheries from 
Robert Lee, August 17, 1964, as published in the Jones Study, p. 80.
---------------------------------------------------------------------------

    ``For these reasons, Petitioners seek a determination by MARAD that 
Sections 202 and 203 of the AFA and MARAD's implementing regulations do 
not apply to Petitioners with respect to (a) existing loans, loan 
documents and security agreements previously executed by the Vessel 
Owner in favor of Alyeska, including the vessel acquisition loans, the 
revolving line of credit and the Fishing Commitment Agreement; or (b) 
future financing, marketing or other contractual arrangements between 
the Non-Citizen Petitioners and the Vessel Owner with respect to the 
Vessel, including loans for repair, improvement or replacement of the 
Vessel, working capital financing and exclusive marketing agreements.
    3. 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 WAF from holding its pre-existing ownership interest in the 
Vessel Owner or to subject Alyeska's contractual rights under the terms 
of existing loans to the Vessel Owner and its partners to a new 
condition of MARAD review and approval--particularly, since MARAD has 
made clear that it will not approve such loans--would deprive WAF and 
Alyeska of their property in violation of Article VI.3. Similarly, 
applying the AFA's new restrictions to prohibit the Vessel Owner from 
owning and operating the Vessel in the U.S. fisheries would deprive the 
Vessel Owner and its Japanese investors of their property interests in 
the Vessel and its fishery endorsement 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 Non-Citizen 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.'' \45\ As the United States delegates made clear during 
the negotiation of the Treaty, the phrase ``interests held directly or 
indirectly''

    \45\ Protocol, para. 2 (emphasis added).
---------------------------------------------------------------------------

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.\46\
---------------------------------------------------------------------------

    \46\ Annex, Attachment 10, Memorandum of Conversation dated 
April 15, 1952 at p. 3.

    In short, ``all property interests are contemplated by the 
provision.'' \47\ This necessarily includes the direct and indirect 
ownership interests which Maruha and WAF have in the Vessel Owner and 
in the Vessel, as well as the rights of Alyeska, an affiliate of Maruha 
and WAF, under promissory notes, a loan agreement and a marketing 
agreement executed by the Vessel Owner.
---------------------------------------------------------------------------

    \47\ Id.
---------------------------------------------------------------------------

    ``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.'' \48\ Here, the AFA's new restrictions on 
foreign investment and foreign financing will deprive the Vessel Owner 
of its fishery endorsement and prohibit the Vessel Owner from using its 
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 only productive use or force divestiture of those 
interests. The impairment of the Vessel Owner's property interest in 
its fishery endorsement and the Vessel Owner's presently existing right 
to use its Vessel in the U.S. fisheries; the impairment of WAF's 
existing ownership interest in the Vessel Owner; and the impairment of 
Alyeska's right to hold the debt obligations of the partners of the 
Vessel Owner, free from discriminatory conditions subsequently attached 
by law, are each a sufficient impairment of Petitioner's rights and 
interests as to constitute a violation of Article VI.3.
---------------------------------------------------------------------------

    \48\ Sullivan Study at 116 (emphasis added).
---------------------------------------------------------------------------

    ``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 
by WAF or the Vessel Owner to a private party which qualifies as a U.S. 
Citizen under the AFA 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''--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.
    ``4. The AFA and MARAD's Implementing Rules Impair Petitioners' 
Legally Acquired Rights and Interests 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.'' \49\ Herman Walker 
observed that this language is designed ``to account for the 
possibility of injurious governmental harassments short of 
expropriation or

[[Page 11372]]

sequestration.'' \50\ 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.'' \51\ 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.\52\
---------------------------------------------------------------------------

    \49\ Sullivan Study at 115.
    \50\ Herman Walker, Jr., ``Treaties for the Encouragement and 
Protection of Foreign Investment: Present United States Practice,'' 
5 Am. J. Comp. Law 229 at 236 (1956).
    \51\ Annex, Attachment 11, 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).
    \52\ Id. See also Annex, Attachment 12, Department of State 
Division of Communications & Records Outgoing Airgram dated October 
28, 1952, pp. 2-3. 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.
---------------------------------------------------------------------------

    ``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.\53\ Thus, it would apply to 
the discriminatory prohibitions and restrictions which the AFA and 
MARAD's implementing regulations impose on the Non-Citizen Petitioners' 
existing ownership interests and other contract rights and on the Non-
Citizen Petitioners' ongoing ability to protect those rights and 
interests by entering into future financing and other transactions with 
the Vessel Owner.
---------------------------------------------------------------------------

    \53\ Sullivan Study at 115.
---------------------------------------------------------------------------

    ``The intrusive and discriminatory restrictions imposed by the AFA 
and MARAD's implementing rules on transactions between Non-Citizens 
processors, such as Alyeska, and U.S. fishing vessel owners place Non-
Citizen processors 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 secure a reliable supply of fish 
by making loans, unrestricted in amount, for fishing vessel 
acquisitions, conversions and improvements in return for exclusive 
marketing relationships while Non-Citizen processors are prohibited 
from making similar arrangements. 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), a Non-Citizen lender is not even 
permitted to make an unsecured loan to a fishing vessel owner, if the 
amount of the loan exceeds the annual value of the vessel's catch. 
Under Sec. 356.45(b), a Non-Citizen lender is not permitted to make an 
unsecured loan, if 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. * * * .'' On 
their face, these provisions severely restrict permissible future loans 
by Alyeska, WAF or Maruha to the Vessel Owner. Thus, loans by Alyeska, 
WAF or Maruha to the Vessel Owner, which may be necessary to protect 
their existing interests, are severely restricted under MARAD's 
interpretation of the AFA.
    ``Further, the requirement of MARAD review and approval is itself 
an unreasonable and discriminatory burden, particularly in the absence 
of coherent published standards.\54\ The AFA and MARAD's rules thus 
impose ``unreasonable or discriminatory measures'' on Non-Citizen fish 
processors and other lenders with Japanese ownership, such as Alyeska, 
WAF and Maruha, 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.
---------------------------------------------------------------------------

    \54\ By requiring review and approval of all financing 
transactions with Non-Citizens, MARAD in effect prohibits all 
transactions it has not expressly permitted. The ``safe harbors'' 
specified in the regulations are narrow indeed. For most 
transactions, then, Non-Citizens and vessel owners will be subjected 
to ad hoc decision making by MARAD on the basis of vague and 
indeterminate standards.
---------------------------------------------------------------------------

    ``5. 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, financing and related contractual arrangements 
contained in the AFA and MARAD's implementing rules.
    ``Even if Article XIX.6 is interpreted as applying to fishing 
vessels,\55\ 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.'' \56\ 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.
---------------------------------------------------------------------------

    \55\ Article XIX.7 defines ``vessel'' to exclude ``fishing 
vessels'' for purposes of Article XIX.6.
    \56\ Annex, Attachment 9, Letter to the Chairman of the House of 
Representatives Committee on Merchant Marine and Fisheries from 
Robert Lee, August 17, 1964. See fn. 44.
---------------------------------------------------------------------------

    ``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.'' \57\ The State Department 
understood the Japanese suggestion as an attempt to obtain a blanket 
exception from the entire Treaty for national fisheries.\58\ The U.S 
rejected the Japanese proposal and the language of Article XIX.6 
remained unchanged.

[[Page 11373]]

The issue of Japanese investment in and other dealings with enterprises 
owning or operating U.S. flag fishing vessels was left to Article VII.
---------------------------------------------------------------------------

    \57\ Annex, Attachment 13, Memorandum of Conversation held April 
3, 1952, at 5.
    \58\ See Annex, Attachment 14, U.S. Dept. of State, Outgoing 
Airgram to U.S. Embassy in Tokyo (June 12, 1952) at 1-2 (noting 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'').
---------------------------------------------------------------------------

    ``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.\59\
---------------------------------------------------------------------------

    \59\ Annex, Attachment 9, Letter to the Chairman of the House of 
Representatives Committee on Merchant Marine and Fisheries from 
Robert Lee, August 17, 1964. See fn. 44. See also. Jones Study at 
80-81.
---------------------------------------------------------------------------

    ``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.'' \60\ 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 or VII, each of which bars application of those 
restrictions to Petitioners with respect to the Vessel Owner and the 
Vessel.
---------------------------------------------------------------------------

    \60\ Sullivan Study a 284 (emphasis added).
---------------------------------------------------------------------------

    ``6. 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.\61\ 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.
---------------------------------------------------------------------------

    \61\ See, generally, Jones Study.
---------------------------------------------------------------------------

    ``7. 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 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 America.'' \62\ The Minister for 
Economic Affairs noted Section 213(g) of the AFA and stated the 
position of the Government of Japan as follows:
---------------------------------------------------------------------------

    \62\ Annex, Attachment 15, 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.

    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) \63\ 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.
---------------------------------------------------------------------------

    \63\ There is no Subsection 202(c) of the AFA. The reference 
intended is clearly subsection 202(a), amending 46 U.S.C. 
Sec. 12102(c).
---------------------------------------------------------------------------

    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) * * * \64\
---------------------------------------------------------------------------

    \64\ Annex, Attachment 15, 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 
1-2.

    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.\65\ 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

[[Page 11374]]

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.'' \66\ 
The Embassy of Japan noted further:
---------------------------------------------------------------------------

    \65\ Annex, Attachment 16 (January 24, 2000 Letter from the 
Embassy of Japan to the U.S. Dep't. of State at 1.
    \66\ Id.

    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.\67\
---------------------------------------------------------------------------

    \67\ Id. at 2.

    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.'' \68\
---------------------------------------------------------------------------

    \68\ Id.
---------------------------------------------------------------------------

    ``Thus, the Government of Japan has strongly expressed the 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 New 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 CFR 
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 
ownership and contract rights and interests in violation of the U.S.-
Japan FCN. Application of the new restrictions to bar Petitioners 
Alyeska, WAF or Maruha 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 
these Non-Citizen Petitioners to protect their existing rights and 
interests and to carry on their established 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 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 WAF, Maruha, Wards Cove and the Vessel Owner are 
``owners'' who acquired their interests in the Vessel prior to October 
1, 2001, and who intend to continue to hold those interests on and 
after October 1, 2001.\69\ Petitioners WAF, Maruha, Wards Cove and the 
Vessel Owner have an interest in ensuring that their investments in the 
Vessel are protected. Such Petitioners also have an interest in 
ensuring that their interests as ``owners'' of the Vessel are not 
adversely affected by the Alyeska loans. Further, Maruha's common 
ownership interests in both Alyeska and WAF allow Maruha and WAF to 
assert the interests of Alyeska in the context of this Petition. In 
short, Maruha's common ownership interests in Alyeska and WAF are 
sufficient to bring Alyeska within the protection afforded by Section 
213(g) to WAF and Maruha as ``owners'' of the Vessel. Alyeska's loans 
and the ownership interest acquired by WAF in the Partnership are 
clearly elements of a financing plan implemented by Maruha and Wards 
Cove to support acquisition and operation of the Vessel. As such, the 
Section 213(g) exemption applicable to the ``owners'' of the Vessel 
extends to Alyeska and Alyeska's loans. In any event, the interests of 
the ``owners'' in protecting their interests in the Vessel and its 
fishery endorsement permits them to assert the Treaty's protection for 
the Alyeska loans.
---------------------------------------------------------------------------

    \69\ See 65 Fed. Reg. at 44874c.1 (``[T]he commenters stated 
that the rule should make clear that anyone that has an ownership 
interest may utilize the petition process, e.g., a minority 
shareholder with a direct or indirect interest. We agree that a 
minority shareholder should be allowed to petition for an 
exemption'').
---------------------------------------------------------------------------

    ``The U.S.-Japan FCN is a self-executing treaty which is binding on 
MARAD as a matter of federal domestic law.\70\ 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.''\71\ 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 U.S. treaty obligations.\72\ Here, it is apparent from the express 
terms of Section 213(g) that Congress affirmatively intended to avoid 
conflict with international treaties such as the U.S.-Japan FCN. The 
inconsistency between Sections 202, 203 and 204 of

[[Page 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.''
---------------------------------------------------------------------------

    \70\ See, e.g., Zenith Radio Corp. v. Matsushita Electric 
Industrial Co., Ltd., 494 F. Supp 1263, 1266 (E.D.Pa. 1980).
    \71\ McCulloch v. Sociedad Nacional de Marineros de Honduras, 
370 U.S. 10, 21 (1963).
    \72\ Id. See also, Sumitomo Shoji America, Inc. v. Avagliano, et 
al., 457 U.S. 176 (1982).
---------------------------------------------------------------------------

    ``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


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>