11364 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

60See, e.g., Zenith Radio Corp. v. Matsushita

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

(E.D.Pa. 1980).

61 McCulloch v. Sociedad Nacional de Marineros

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

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

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

63While the Non-Citizen Guarantors do not

currently hold the mortgages on the Vessels, they

have interests in those mortgages by virture of their

guaranties in favor of Bank of America. Their rights

to succeed to the Bank’s interest in the mortgages

is impaired by the AFA and MARAD’s

implementing rules. These rights are protected in

any event by virtue of status of the Non-Citizen

Guarantors as ‘‘owners’’ within the meaning of

Section 213(g).

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 C.F.R. 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 and 203 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, mortgage, contract and other legal

rights and interests in violation of the U.S.-

Japan FCN. Application of the new

restrictions to bar the Japanese Investors or

companies in which they have invested from

entering into future transactions with the

Vessel Owners, particularly financing and

ancillary contractual arrangements, would

also violate the U.S.-Japan FCN by

substantially impairing the ability of the

Japanese Investors to protect their existing

rights and interests and to carry on their

existing lawful business activities in the

United States in conformity with existing law

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 and 203 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 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 self-executing treaty which is

binding on MARAD as a matter of federal

domestic law.60 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.’’ 61 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.62 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 existing property

rights, mortgage interests or investment

interests in existence on October 1, 2001, but

rather applies to fully exempt an ‘‘owner’’ or

‘‘mortgagee’’ on October 1, 2001 ‘‘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 both ‘‘owners’’

and ‘‘mortgagees’’ ‘‘with respect to [the

Vessels].’’ 63 Petitioners are, therefore,

exempt from the requirements of the AFA

‘‘with respect to [the Vessels]’’ ‘‘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

the Petitioners’ existing direct and indirect

ownership interests in the Vessels and the

right of the Vessel Owners to continue to

own and operate the Vessels in the U.S.

fisheries under existing ownership

arrangements—rights and interests which the

AFA would impair, prohibit or restrict; (2)

the Treaty protects the interests of the NonCitizen Guarantors in the Bank of America

preferred mortgages and other loan

documents—interests which the AFA would

impair, prohibit or restrict; and (3) the Treaty

protects the rights of the Japanese Investors

(NOMCO, NAMCO and their Japanese

shareholders), the other Petitioners and the

Vessel Owners to enter into future

transactions between or among themselves

with respect to the Vessels to protect or

further their existing ownership, financial

and other business interests in the Vessels—

rights which the AFA would impair, prohibit

or restrict. Thus, Section 213(g) exempts

Petitioners entirely from the restrictions and

limitations of Sections 202 and 203 of the

AFA and MARAD’s implementing rules with

respect to the Vessels.’’

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. 01–4470 Filed 2–22–01; 8:45 am]

BILLING CODE 4910–81–P

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

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

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

(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, § 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 § 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

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

11366 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

9See 46 U.S.C. § 12102(a)(3) and (c)(1).

10 65 FR 44860 et seq., July 19, 2000.

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 NonCitizen.

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.

‘‘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

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11367

11See 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.

12AFA Section 203(e).

13Herman Walker, Jr., ‘‘Modern Treaties of

Friendship, Commerce and Navigation,’’ 42 Minn.

L. Rev. 805, 806 (1958) (hereinafter, ‘‘Modern

Treaties’’).

14Herman Walker, Jr., ‘‘The Post-War Commercial

Treaty Program of the United States,’’ 73 Pol. Sci.

Q. 57, 67 (1958). 15Sumitomo Shoji America v. Avagliano, 457

U.S. 176, 187–88 (1982). 16 Id. at 188 n. 18.

17Emphasis added.

18Ronny 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.

20Modern Treaties at 809.

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.

‘‘(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

‘‘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

‘‘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

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

11368 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

21Charles H. Sullivan, ‘‘State Department

Standard Draft Treaty of Friendship, Commerce and

Navigation’’ (undated) (hereinafter ‘‘Sullivan

Study’’) at 149 (emphasis added).

22 Id. at 148.

23Annex, Attachment Department of State

Incoming Telegran dated March 20, 1953, p. 1.

24 Annex, Attachment 3, Memorandum from

Franik A. Waring, Counselor of U.S. Embassy for

Economic Affairs (undated excerpt).

25Annex, 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.

26Sullivan Study at 150.

27See AFA Section 202(a), adding 46 U.S.C.

§ 12102(c)(4)(A); see also, 46 CFR §§ 356.15(d) and

356.21(d).

28AFA Section 202(a), codified at 46 U.S.C.

12102(c)(2).

29AFA Section 203(c)(2).

‘‘new limitations,’’ another State

Department study states,

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

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

‘‘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

‘‘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

‘‘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

‘‘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 NonCitizen 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 NonVerDate 11<MAY>2000 18:18 Feb 22, 2001 Jkt 194001 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 E:\FR\FM\23FEN1.SGM pfrm01 PsN: 23FEN1
Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11369

30See, generally, 46 CFR 356.11, 356.13–15,

356.21–25, 356.39–45. 31See 46 CFR 356.15(d), 356.21(d). 32Personal 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’’). 33While 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).

34Compare 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’’)

36The 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

Continued

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.

‘‘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

‘‘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 NonCitizen 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.

‘‘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. 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 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 NonCitizen 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

11370 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

endorsement unless those loans are exempted from

the AFA’s requirements. See AFA Section 203(e).

37Annex, Attachment 5, Memorandum of

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

38Annex, 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.’’

39Annex, Attachment 7, Dept. of State Outgoing

Telegram dated May 21, 1952, p. 3.

40 Id.

41Annex, Attachment 8, Memorandum of

Conversation concerning discussions on the draft

FCN held between October 15, 1952 and March 11,

1953, p. 15.

42Sullivan Study at 144.

43To 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.

44Annex, Attachment 9, Letter to the Chairman

of the House of Representative Committee on

Merchant Marine and Fisheries from Robert Lee,

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.

‘‘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.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.

‘‘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.

‘‘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

‘‘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.

‘‘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

‘‘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

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11371

August 17, 1964, as published in the Jones Study,

p. 80.

45Protocol, ¶ 2 (emphasis added).

46Annex, Attachment 10, Memorandum of

Conversation dated April 15, 1952 at p. 3.

47 Id.

48Sullivan Study at 116 (emphasis added). 49Sullivan Study at 115.

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.

‘‘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 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.’’ 45 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.46

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.

‘‘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.

‘‘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

11372 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

50Herman Walker, Jr., ‘‘Treaties for the

Encouragement and Protection of Foreign

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

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

51Annex, 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.

53Sullivan Study at 115.

54By 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.

55Article XIX.7 defines ‘‘vessel’’ to exclude

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

56Annex, 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.

57Annex, Attachment 13, Memorandum of

Conversation held April 3, 1952, at 5.

58See 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’’).

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

‘‘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.

‘‘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 NonCitizen 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 § 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.

‘‘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.

‘‘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.

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11373

59Annex, 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.

60Sullivan Study a 284 (emphasis added).

61See, generally, Jones Study.

62Annex, 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.

63There is no Subsection 202(c) of the AFA. The

reference intended is clearly subsection 202(a),

amending 46 U.S.C. § 12102(c).

64Annex, 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.

65Annex, Attachment 16 (January 24, 2000 Letter

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

at 1.

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.59

‘‘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.

‘‘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 C.F.R. Part 356.

‘‘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:

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.

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

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

11374 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

66 Id.

67 Id. at 2.

68 Id.

69See 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’’).

70See, 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).

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:

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

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

‘‘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.

‘‘The U.S.-Japan FCN is a selfexecuting 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

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