Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11355

Thus, the entire S.E. Alaskan waterways

area.’’

(4) Date and Place of construction and

(if applicable) rebuilding. Date of

construction: 1973. Place of

construction: Holland—or Foreign.

(5) A statement on the impact this

waiver will have on other commercial

passenger vessel operators. According to

the applicant: ‘‘We feel this will have

little impact on existing operators as we

ALREADY operate a Crewed Charter

Business in S.E. Alaska (FOR THE PAST

THREE YEARS) and are in the process

of SELLING our existing Crewed Charter

Boat ‘‘High Scooter’’ and thus will

ONLY be substituting vessels. Thus, the

real impact is very marginal.

Our current web page is

www.alaskanwcharters.com. There are

other existing boats in the region both

foreign and U.S., which operate similar

operations and most if not all run at 95

to 100% full basis. There are even

vessels, which are currently booked into

2002 because the demand for such

charters is extremely high. As most of

the existing boats have well established

client bases—as do we—the impact of

this—substitution vessel for our existing

vessel will be non-existent.’’

(6) A statement on the impact this

waiver will have on U.S. shipyards.

According to the applicant: ‘‘As the

vessel was built almost 30 years ago and

as new vessels of this size are too

expensive to make a profitable charter

business out of—the impact will again

be nonexistent. Additionally, as we are

planning some changes and

redecorating of the 30 year old vessel—

to bring the vessel into 2001 standards—

it will actually bring additional business

to the vessel and ship builders in the

area.’’

Dated: February 20, 2001.

By Order of the Maritime Administrator.

Joel C. Richard,

Secretary, Maritime Administration.

[FR Doc. 01–4523 Filed 2–22–01; 8:45 am]

BILLING CODE 4910–81–P

DEPARTMENT OF TRANSPORTATION

Maritime Administration

[Docket No. MARAD–2001–8929]

Frontier Spirit, Frontier Mariner, and

Frontier Explorer—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’’) is soliciting public

comments on a petition from the owners

and mortgagees of the vessels

FRONTIER SPIRIT—Official Number

951441, FRONTIER MARINER—Official

Number 951440, and FRONTIER

EXPLORER—Official Number 975015

(hereinafter the ‘‘Vessels’’). 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 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, DC 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, DC

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

which permits foreign control of

companies owning certain fishing

vessels.

11356 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

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 § 2(b) of the 1916

Act in order to hold a preferred

mortgage on a vessel with a fishery

endorsement. Entities other than state or

federally chartered financial institutions

must either meet the 75% ownership

and control requirements of section 2(c)

of the 1916 Act or utilize an approved

U.S.-Citizen Trustee that meets the 75%

ownership and control requirements to

hold the preferred mortgage for the

benefit of the non-citizen lender.

Section 213(g) of the AFA provides

that if the new ownership and control

provisions or the mortgagee provisions

are determined to be inconsistent with

an existing international agreement

relating to foreign investment to which

the United States is a party, such

provisions of the AFA shall not apply to

the owner or mortgagee on October 1,

2001, with respect to the particular

vessel and to the extent of the

inconsistency. MARAD’s regulations at

46 CFR 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

Spirit Limited Partnership, Mariner

Limited Partnership and Explorer

Limited Partnership (each a ‘‘Vessel

Owner’’ and collectively, the ‘‘Vessel

Owners’’) are the owners respectively of

the Frontier Spirit, Frontier Mariner and

Frontier Explorer. The Vessel Owners,

in conjunction with Frontier Spirit

Company, Frontier Mariner Company,

Frontier Explorer Company, Alaska

Frontier Company (‘‘AFCO’’), North

American Maritime Corporation

(‘‘NAMCO’’) and North Japan Maritime

Corporation (‘‘NOMCO’’), the owners of

direct or indirect interest in the Vessel

Owners and indirect interests in the

Vessels, are hereinafter collectively

referred to as ‘‘Petitioner’’ or

‘‘Petitioners.’’

Ownership, Mortgage Structure, and

Contractual Arrangements for the

Vessels

The ownership and financing

structures of the Vessels are

substantially identical. The Petitioner

provided the following information

about the ownership, mortgage structure

and other contractual obligations of the

Vessels:

A. Ownership Structure

Spirit Limited Partnership, a

Washington limited partnership, is the

owner of the Frontier Spirit. The general

partner, Frontier Spirit Company, is a

Washington corporation that owns 51%

of the interest in the partnership.

Frontier Spirit Company is wholly

owned by AFCO. A majority of AFCO’s

stock is owned by U.S. Citizens;

however, it does not qualify as a U.S.

Citizen under the AFA because Japanese

entities and individuals own more than

25% of AFCO’s capital stock.

The sole limited partner of Spirit

Limited Partnership is NAMCO, a

Washington corporation owned by an

individual Japanese citizen and

NOMCO, a Japanese Corporation.

NAMCO owns 49% of the interest in the

partnership.

The Frontier Mariner is owned by

Mariner Limited Partnership, a

Washington limited partnership. The

general partner, Frontier Mariner

Company, is a Washington corporation

which owns 51% of the partnership

interest. Frontier Mariner Company is

also wholly owned by AFCO. NAMCO

is the sole limited partner and owns

49% of the partnership interest.

The Frontier Explorer is owned by

Explorer Limited Partnership, a

Washington limited partnership. The

general partner, Frontier Explorer

Company, is a Washington corporation

which owns 51% of the partnership

interest. Frontier Explorer Company is

also wholly owned by AFCO. NAMCO

is the sole limited partner and owns

49% of the partnership interest.

B. Financing Structure

The Petitioners set forth certain loan

and currency swap agreements that the

Vessel Owners have entered into with

Bank of America, N.A., a U.S. financial

institution, to finance the remaining

obligations of the Vessel Owners related

to the construction of the Vessels. Under

these agreements and related loan

documents, each of the Vessel Owners

is jointly and severally obligated to

Bank of America. These agreements are

secured by preferred mortgages on each

of the Vessels. The Petitioners note that

Vessel Owners have also executed

security agreements granting UCC

security interests in the Vessels, their

appurtenances and fishing rights to

Bank of America to secure these loans.

In addition to the above, the

Petitioners state that the Vessel Owners

have entered into a loan agreement with

Bank of America pursuant to which

Bank of America has agreed to provide

them jointly a $1 million line of credit

for working capital. Each of the Vessel

Owners is jointly and severally

obligated to Bank of America under this

line of credit loan agreement and related

loan documents. The obligations of the

Vessel Owners to Bank of America

under the line of credit are secured by

second preferred mortgages on the

Vessels. The Vessel Owners have also

executed security agreements granting

security interests in the Vessels, their

appurtenances and fishing rights to

Bank of America to secure these

obligations.

Except as described above, Petitioners

state that no other mortgages, security

interests or other consensual liens affect

the assets of the Vessel Owners.

Frontier Spirit Company, Frontier

Mariner Company, Frontier Explorer

Company, NAMCO, NOMCO, AFCO

and AFCO’s U.S. Citizen and NonCitizen shareholders have each

guaranteed all of the obligations of the

Vessel Owners to Bank of America

pursuant to substantially identical

Commercial Guaranty agreements in

favor of Bank of America.

C. Other Contractual Arrangements

1. Management Agreement

The Petitioners state that each of the

Vessel Owners has entered into a

Management Agreement with AFCO.

Under the agreement, AFCO provides an

extensive array of vessel management

services to the Vessel Owners including:

identifying and recommending qualified

licensed officers and other navigational

personnel for employment by the Vessel

Owner; performing accounting services,

including maintenance of payroll

records, preparation of tax returns,

keeping the general ledger, managing

accounts payable and receivable,

reconciling bank records and preparing

financial statements; coordinating and

directing the victualling, supplying

fueling and repairing of the Vessel,

including the procurement of bait,

outfit, equipment and spare or

replacement parts; arranging for the

payment of all expenses incident to the

Vessel’s operation; periodic drydocking

of the Vessel; making travel

arrangements for the licensed officers

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11357

3As used herein, ‘‘Non-Citizen’’ has the meaning

specified at 46 CFR § 356.3(o).

4See 46 U.S.C. 12102(c)(1), as amended. The AFA

makes two primary changes to the existing

limitation on foreign ownership of fishing vessels:

(1) The required percentage of U.S. citizen

ownership is increased from a ‘‘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 indirect foreign interests ‘‘in

the aggregate’’ to exceed 50%, so long as majority

U.S. citizen 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 majority

ownership standard). Compare, 46 U.S.C. 12102(c),

as now in effect, 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. The Vessels are ownered

by entities which satisfy the majority U.S.

ownership standard of current law at each ‘‘tier’’ of

Continued

and other navigational personnel,

including airfare, transportation and

lodging incidental to rotation of relevant

personnel to and from the Vessel; and

any other activities incidental to the

management of the Vessel.

2. Vessel Manning Agreement.

Petitioners state that each of the

Vessel Owners has entered into a Vessel

Manning Agreement with NAMCO,

dated as of January 1, 2001, under

which NAMCO identifies, hires and

employs unlicensed processing

personnel and quality control

technicians for service aboard the

Vessels and provides certain related

services. Licensed officers and other

navigational personnel are not covered

by the Vessel Manning Agreement

according to the Petitioners, as they are

employed directly by the Vessel Owner.

The Petitioners assert that the Vessel

Manning Agreement contains no terms

giving NAMCO or any other NonCitizen the right to manage, control or

direct the Vessel’s operations.

3. Marketing Agreement.

The Petitioners submit that each of

the Vessel Owners has entered into a

marketing Agreement with NOMCO,

effective January 1, 2000, governing

sales and purchases by the parties of

Pacific Cod and other groundfish sold

by the Vessel Owners to NOMCO.

Petitioners state that these marketing

Agreements do not require that any

quantity or percentage of a Vessel’s

catch be sold to NOMCO or the Japanese

market; however, NOMCO has a right of

first refusal on all fish products sold by

the Vessel Owners in the Japanese

market. Each of these Agreements is for

a term of one year, but is renewed

annually unless either party gives notice

of termination to the other in writing at

least 60 days prior to the end or the

term, including any renewal term. The

Petitions submit that the Agreements

contain no terms giving NOMCO or any

other Non-Citizen the right to manage,

control or direct the operations of the

Vessels.

D. Services Agreement

The Petitioners note that each of the

Vessel Owners has entered into a

Services Agreement with NOMCO,

dated as of January 1, 2001, whereby

NOMCO has agreed (1) to supply

current market information to the Vessel

Owners concerning market demand,

processing and handling requirements,

prices and trends; and (2) to provide an

unsecured, subordinated standby line of

credit to the Vessel Owners.

Requested Action

The Petitioners have requested a

consolidated filing for the Vessels.

MARAD’s regulations require at 46 CFR

356.53(c) that a separate petition be

filed for each vessel for which the

owner or mortgagee is requesting an

exemption unless the Chief Counsel

authorizes a consolidated filing. The

Chief Counsel hereby authorizes the

consolidated filing by Petitioners

relating to the three Vessels.

The Petitioners seek a determination

from MARAD under 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;

(2) the existing exclusive marketing

agreements, loan guaranties, financing

and other contractual arrangements

between or among the Petitions with

respect to the Vessels; and

(3) future loan, financing and other

contractual arrangements between or

among the Petitioners with respect to

the Vessels.

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 Restrictions on Foreign

Ownership Violate Article VII. 

‘‘a. The AFA’s Restrictions on Foreign

Investment Impair Petitioners’ Existing

Ownership Interests.

‘‘The AFA’s new restrictions on foreign

investment in fishing vessels will prohibit

the Vessel Owners from employing their

Vessels in the U.S. fisheries on and after

October 1, 2001, because the extent of the

investment by Japanese nationals and

Japanese companies in the Vessel Owners

exceeds the maximum investment permitted

by the AFA to be held by Non-Citizens.3

‘‘A vessel cannot be employed lawfully in

the fisheries of the United States unless it is

documented as a vessel of the United States

with a fishery endorsement issued by the

U.S. Coast Guard 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.

‘‘The Vessels are fishing vessels, designed

and constructed for use in the U.S. fisheries

and operated in the U.S. fisheries of the

North Pacific Ocean and Bering Sea. The

Vessels have no other economically

productive uses. Each of the Vessel Owners

is eligible to own a vessel with a fishery

endorsement under the current standards of

46 U.S.C. Chapter 121 and each of the

Vessels is documented as a vessel of the

United States with a fishery endorsement.

However, the Vessel Owners will be

prohibited from owning or operating the

Vessels 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 (65 FR 44860 et seq., July 19, 2000). The

aggregate of the ownership interests held,

directly or indirectly, in the Vessel Owners

by Japanese companies and Japanese

nationals exceeds 25%—the maximum

percentage interest permitted to be held by

Non-Citizens under Section 202(a) of the

AFA, effective on and after October 1, 2001.4

11358 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

ownership but which do not meet the new 75%

U.S. ownership requirements of the AFA.

5As used herein, the ‘‘Japanese Investors’’ are

NOMCO, NAMCO, their Japanese shareholders and

the Japanese shareholders of AFCO.

6Herman Walker, Jr., ‘‘Modern Treaties of

Friendship, Commerce and Navigation,’’ 42 Minn.

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

Treaties’’).

7Herman Walker, Jr., ‘‘The Post-War Commercial

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

Q. 57, 67 (1958).

8Sumitomo Shoji America v. Avagliano, 457 U.S.

176, 187–88 (1982).

9 Id. at 188 n. 18.

10Ronny E. Jones, ‘‘State Department Practices

Under U.S. Treaties of Friendship, Commerce, and

Navigation’’ (1981) (hereinafter ‘‘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.

11 Id. at 107.

12Modern Treaties at 809.

13Charles H. Sullivan, ‘‘State Department

Standard Draft Treaty of Friendship, Commerce and

Navigation’’ (undated) (hereinafter ‘‘Sullivan

Study’’) at 149 (emphasis added).

14 Id. at 148.

15Annex, Attachment 2, Department of State

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

The AFA requires MARAD to revoke the

fishery endorsement of any fishing vessel

whose owner does not comply with this new

requirement. AFA Section 203(e).

Accordingly, unless exempted from the

AFA’s new requirements, the Vessel Owners

will no longer be permitted to own and

operate their Vessels in the U.S. fisheries as

of October 1, 2001. As a result, the Vessel

Owners will be deprived of income from

their Vessels, will be driven into insolvency

and will default under the terms of their loan

and currency swap agreements with Bank of

America, triggering the obligations of their

limited partners, general partners and the

direct and indirect shareholders of the

general partners under their guaranties.

Alternatively, the Vessel Owners will be

forced to sell the Vessels or their Japanese

Investors 5 will be forced to sell some or all

of their direct and indirect interests in the

Vessel Owners, assuming a buyer for their

minority interests can be found.

‘‘b. The Impairment of Petitioners’ Existing

Ownership Interests Violates Article VII.1

and the Grandfather Provision of Article

VII.2.

‘‘The impairment of Petitioners’ existing

ownership interests in the Vessels 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.’’ 6 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.’’ 7 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.’’ 8 ‘‘[N]ational treatment of

corporations means equal treatment with

domestic corporations.’’ 9

‘‘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

ownership interests acquired by the Japanese

Investors in compliance with existing law

clearly denies national treatment to them, to

the Vessel Owners and to the other

Petitioners. 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.

Emphasis added. The grandfather provision

of Article VII.2 thus provides that any new

limitations on national treatment placed on

alien participation in the sectors covered by

the first sentence of Article VII.2 shall not

apply to existing enterprises engaged in

business within those sectors at the time

such new limitations are adopted.

‘‘A study commissioned by the State

Department of its past interpretations of the

FCN treaties notes that, under the grandfather

provision of Article VII.2, ‘‘protection is

afforded to any privilege granted * * * prior

to a change in national treatment; hence at

a minimum these foreign enterprises are

guaranteed the maintenance of their existing

operations. 10 ‘‘[R]egulations that force

divestiture of interests already acquired or

established prior to promulgation of such

regulation * * * raise Art. VII questions.’’ 11

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.’’ 12 In describing

the import of the phrase ‘‘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. 13

‘‘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.’’ 14

‘‘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 limitations to

companies already engaged in relevant

business activities.15

‘‘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

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11359

16Annex, Attachment 3, Memorandum from

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

Economic Affairs (undated excerpt). 17Annex, Attachment 2, Department of State

Incoming Telegram dated March 20, 1953, p. 1, and

Attachment 4, Department of State Office

Memorandum dated March 23, 1953, pp. 1–2.

18Sullivan Study at 150.

19Through its wholly owned subsidiaries,

Frontier Spirit Company, Frontier Mariner

Company and Frontier Explorer Company. 20See, generally, 46 U.S.C. Chapter 313.

21Compare 46 U.S.C. 31322(a), as now in effect,

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

202(b) of the AFA.

22Restatement, Third, Suretyship and Guaranty

Section 27 (1996); Restatement of Security Section

141 (1941); Dobbs Law of Remedies Section 4.3(4)

(2d ed. 1993); 73 Am.Jur., 2d Subrogation Section

106 (1974); Petro Paint Mfg. Co. v. Freeman, 170

Wash. 390, 392, 16 P.2d 609 (1932). See also,

Mahler v. Szucs, 135 Wn.2d 398, 412, 957 P.2d 632

(1998); Livingston v. Shelton, 85 Wn.2d 615, 619,

537 P.2d 774 (1975); Timms v. James, 28 Wn.App.

76, 80, 621 P.2d 798 (1980); MGIC Financial Corp.

v. H.A. Briggs Co., 24 Wn.App. 1, 6, 600 P. 2d 573

(1979).

23 46 U.S.C. § 31322(a)(4), as amended by Section

202(b) of the AFA, and 46 C.F.R. § 356.19.

24 46 U.S.C. § 12102(c)(4)(A), as amended by

Section 202(a) of the AFA, and 46 C.F.R.

§§ 356.15(d) and 356.21(d).

25 46 U.S.C. 12102(c)(4)(A), as amended by the

AFA, and AFA Section 203(e). 46 C.F.R. 356.45

would not apply, among other reasons, because the

Bank’s loans are secured by preferred mortgages on

the Vessels.

26AFA Section 202(a), codified at 46 U.S.C.

12102(c)(2).

granting grandfather rights to existing

businesses were deleted.16 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.2.17

‘‘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. * * * ‘‘18

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

NAMCO, NOMCO and their Japanese

shareholders the right to continue to hold

their direct and indirect investments in the

Vessel Owners and, more generally, to

continue to transact business with the Vessel

Owners on the same basis as permitted prior

to passage of the AFA. Similarly, the Article

VII.2 grandfather provision guarantees the

Vessel Owners the right to own and operate

the Vessels in the U.S. fisheries on equal

terms with wholly U.S. Citizen-owned

enterprises.

‘‘NOMCO and the individual Japanese

citizens who have invested in the Vessel

Owners are clearly entitled to protection as

Japanese nationals which, at the time the

AFA was adopted, were ‘‘engaged in * * *

activities’’ within the United States which

the AFA, but for Section 213(g), would

prohibit, limit or restrict. NAMCO, Frontier

Spirit Company, Frontier Mariner Company,

Frontier Explorer Company, the Vessel

Owners and AFCO 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 the

Japanese Investors. Thus, the Article VII.2

grandfather provision protects the ownership

interests of NOMCO and the Japanese

Investors in AFCO and NAMCO; the

ownership interests of AFCO19 and NAMCO

in the Vessel Owners; and the Vessel

Owners’ right to continue to own and operate

their respective Vessels in the U.S. fisheries.

‘‘However, as noted above, the Article VII.2

grandfather provision not only protects preexisting rights and interests acquired,

directly or indirectly, by Japanese nationals

prior to a discriminatory change in the law,

but protects existing enterprises from such

changes. Accordingly, the Article VII.2

grandfather provision, together with Section

213(g) of the AFA, exempts the Vessel

Owners and the Japanese Investors from the

new restrictions of Section 202 and 203 of

the AFA and 46 C.F.R. Part 356 with respect

to (a) the Japanese Investors’ existing direct

and indirect ownership and financial

interests in the Vessel Owners and the

Vessels, (b) the continued operations of the

Vessels by the Vessel Owners in the U.S.

fisheries; and (c) future transactions between

or among the Japanese Investors and the

Petitioners to further or protect their existing

rights and interests in the Vessels and the

Vessel Owners, such as by extending loans,

taking preferred mortgages or other security

in the Vessels or entering into contractual

arrangements in furtherance of their existing

ownership, financial or other business

interests with respect to the Vessels.

‘‘2. The AFA’s Restrictions on Foreign

Financing and Foreign ‘‘Control’’ of Fishing

Vessels Violate Article VII.

‘‘a. The AFA’s Restrictions on Foreign

Financing and Foreign ‘‘Control’’ of Fishing

Vessels Impair Petitioners’ Existing Rights

and Interests With Respect to the Vessels.

‘‘The AFA’s restrictions on foreign

financing and foreign ‘‘control’’ of fishing

vessels imposed by Sections 202 and 203 of

the AFA impair the existing rights and

interests of Frontier Spirit Company, Frontier

Mariner Company, Frontier Explorer

Company, NOMCO, NAMCO, AFCO and

AFCO’s Non-Citizen shareholders (the ‘‘NonCitizen Guarantors’’) under their guaranties

in favor of Bank of America and impair the

ability of the Japanese Investors to protect

and further their existing investment and

business interests in the Vessels and the

Vessel Owners.

‘‘The harm to Petitioners caused by the

AFA consists of three types.

‘‘First, the AFA impairs the existing rights

and interests of Petitioners as guarantors of

the obligations of the Vessel Owners to Bank

of America.

‘‘A ‘‘preferred mortgage’’ is a creature of

federal statute and gives the mortgagee a lien

on the mortgaged vessel, enforceable in U.S.

District Court under a priority scheme that

protects the mortgagee from most maritime

and non-maritime liens.20 46 U.S.C.

31326(b)(1) gives the preferred mortgage lien

priority over all liens arising after filing of

the mortgage except a limited number of

‘‘preferred maritime liens’’ listed at 46 U.S.C.

31301(5) and provides that a sale of the

vessel by order of the District Court

terminates all liens or other claims against

the vessel, thus ensuring the purchaser clear

title and allowing the mortgagee to realize

maximum value for its security. Since

maritime liens in favor of suppliers,

materialmen, repairmen others arise in the

course of the ordinary operations of the

vessel, protection against such liens is

essential to the mortgagee’s security, as is the

ability to terminate those liens on foreclosure

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

liens. Absent ‘‘preferred mortgage’’ status, a

mortgage provides no protection against

maritime liens and little or no security for the

lender. Thus, Bank of America’s rights under

the existing preferred mortgages on the

Vessels are valuable rights.

‘‘Current law permits wholly or partly

Japanese-owned lenders, such as the NonCitizen Guarantors, to hold preferred

mortgage interests in U.S. fishing vessels

directly.21 As guarantors of the loan and

currency swap agreements between the

Vessel Owners and Bank of America, the

Non-Citizen Guarantors may be required to

pay off the obligations of the Vessel Owners

in the event they default on repayment of

their loans. In this situation, under the law

of subrogation, the guarantors will step into

the shoes of Bank of America with respect to

its existing loan documents, including the

preferred mortgages on the Vessels.22 While

neither the AFA nor MARAD’s implementing

rules expressly address the rights of a

guarantor in this situation, the AFA prohibits

a Non-Citizen, such as the Non-Citizen

Guarantors, (1) from directly acquiring Bank

of America’s interests in the preferred

mortgages;23 and (2) from holding even a

beneficial interest in the mortgages (i.e., as

the beneficiary under a mortgage trust

arrangement) unless MARAD has previously

reviewed and approved the terms of all

related loan documents.24 Acquisition by the

Non-Citizen Guarantors of Bank of America’s

position vis-a`-vis the Vessel Owners

pursuant to their existing rights under the

law of subrogation would result in the

invalidation of the Vessels’ fishery

endorsements.25

‘‘The AFA contains a new definition of

impermissible Non-Citizen ‘‘control’’ 26 and

requires transfers of ‘‘control’’ of fishing

vessels to be ‘‘rigorously scrutinized’’ by

11360 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

27AFA Section 203(c)(2).

28See, generally, 46 C.F.R. 356.11, 356.13–15,

356.21–25, 356.39–45.

29See 46 U.S.C. 12102(c)(4)(A), 46 C.F.R.

356.15(d), 356.21(d) and AFA Section 203(e).

30Of course, if AFCO and the Vessel Owners are

exempt from the ownership requirements of the

AFA, then they should also be exempt with respect

to their contractual arrangements.

31Annex, Attachment 5, Memorandum of

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

32Annex, Attachment 6, Dept. of State Outgoing

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

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

paragraph of Article 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.’’

MARAD under this new standard.27 MARAD

has implemented the AFA’s new ‘‘control’’

standard by adopting a host of new

restrictions and limitations on contractual

and other business arrangements between

fishing vessel owners and Non-Citizens,

including financing transactions,

management agreements and marketing

agreements.28 Unless MARAD reviews and

approves the loan agreements, preferred

mortgages and other financing documents

previously executed by the Vessel Owners in

favor of Bank of America under these new

standards, the Vessels will lose their fishery

endorsements and the Vessel Owners will no

longer be permitted to own or operate the

Vessels in the U.S. fisheries, if the NonCitizen Guarantors succeed to the rights and

interests of Bank of America—even through

a qualified Mortgage Trustee.29 This, in turn,

will destroy the value of the Vessels as

security under the mortgages and destroy the

ability of the Vessel Owners to pay the debts

which the mortgages secure. By prohibiting

the Non-Citizen Guarantors from succeeding

to the interests of Bank of America under the

law of subrogation and imposing new

conditions and restrictions on the terms of

their existing financing arrangements,

including a new requirement of

administrative review and approval of the

loan documents under AFA’s new ‘‘control’’

standards, the AFA and MARAD’s

implementing regulations impair the rights

and interests of the Non-Citizen Guarantors

under their guaranties and under the existing

preferred mortgages and related loan

documents.

‘‘The second way in which the AFA’s new

restrictions on foreign ‘‘control’’ harm the

Petitioners is by impairing, prohibiting or

restricting their existing contractual

arrangements with respect to the Vessels. The

Management Agreements between the Vessel

Owners and AFCO may be impermissible

because of the role played by AFCO, a NonCitizen, in managing the Vessels. It is

similarly uncertain whether the Vessel

Manning Agreements between the Vessel

Owners and NAMCO and the Marketing

Agreements and Services Agreements

between the Vessel Owners and NOMCO are

permissible. The standards for evaluating

such agreements under the AFA and Part

356—individually, in combination with one

another and in combination with other

factors—are so vague that the permissibility

of Petitioners’ existing contract arrangements

under the AFA cannot be determined except

by obtaining an ad hoc decision by MARAD.

Accordingly, the AFA requires Petitioners to

seek MARAD approval of all of these

agreements, unless Petitioners are exempted

from the AFA’s requirements with respect to

these agreements.30

‘‘The third way in which the AFA’s new

restrictions on foreign financing and foreign

‘‘control’’ harm the Petitioners is by

restricting the ability of the Japanese

Investors and the U.S. companies in which

they have invested to enter into future

financing and other contractual arrangements

with the Vessel Owners in order to protect

and further their existing investment and

other business interests in the Vessel Owners

and the Vessels. The AFA’s restrictions on

foreign ‘‘control’’ and foreign financing of

fishing vessels will limit the ability of the

Japanese Investors and the U.S. companies in

which they have invested to protect their

investments and interests in the Vessels by

entering into management agreements,

exclusive marketing agreements or by

offering the Vessel Owners financing for

vessel operations, repairs or improvements.

The ability of the Japanese Investors to make

loans to support the Vessels’ continuing

operations or necessary repairs or

improvements may be the only means to

protect the Vessel Owners from insolvency

and default on their loans from Bank of

America, potentially jeopardizing Petitioners’

investments and triggering the obligations of

the Non-Citizen Guarantors on their

guaranties. Thus, the AFA’s restrictions on

the ability of the Japanese Investors to make

loans to the Vessel Owners, to take security

in the Vessels and to enter into other

contractual arrangements related to the

Vessels jeopardize the existing financial and

business interests of all of the Petitioners.

‘‘The provisions of 46 C.F.R. 356.45 which

approve certain loans by Non-Citizens to

fishing vessel owners are too restrictive to

permit the types of loans which may be

necessary to permit Petitioners to protect

their ownership and other business interests

in the Vessels. Section 356.45(a)(2) permits

advances to vessel owners by Non-Citizens

‘‘[w]here the basis of the advancement is an

agreement between the Non-Citizen and the

vessel owner * * * to sell all or a portion of

the vessel’s catch to the Non-Citizen’’ but

prohibits the lender from taking security in

the vessel and limits such loans to the annual

‘‘value of the product to be supplied to the

[Non-Citizen].’’ These limitations are not

found in existing law and significantly

restrict the ability of the Japanese Investors

to make loans which business circumstances

may require. Section 356.45(b) permits

certain types of loans but only if the loan is

wholly unsecured and only if the NonCitizen lender ‘‘is not affiliated with any

party with whom [the vessel owner] has

entered into a mortgage, long-term or

exclusive sales or purchase agreement, or

other similar contract.’’ Thus, future

financing arrangements between the Vessel

Owners and the Japanese Investors are

severely limited and restricted under these

provisions.

‘‘b. The Restrictions on Foreign Financing

and Foreign ‘‘Control’’ of Fishing Vessels

Imposed by the AFA and MARAD’s

Implementing Rules Violate Article VII.1.

‘‘The new restrictions on foreign financing

and foreign ‘‘control’’ of fishing vessels

imposed by the AFA and MARAD’s

implementing regulations violate Article

VII.1’s national treatment guaranty by (1)

Impairing the existing legal rights and

interests of the Non-Citizen Guarantors under

Bank of America’s existing preferred

mortgages and related loan documents; (2)

subjecting the rights of the Non-Citizen

Guarantors under Bank of America’s existing

loan documents to a new requirement of

administrative review and approval by

MARAD under the new ‘‘control’’ standards

of the AFA and MARAD’s implementing

rules; (3) impairing the existing rights and

interests of Petitioners under existing

contracts ancillary to their ownership and

financing arrangements with respect to the

Vessels; and (4) restricting the ability of

Petitioners and the Japanese Investors to

extend credit to the Vessel Owners, take

preferred mortgages on the Vessels or enter

into other contractual arrangements with

respect to the Vessels or the Vessel Owners

necessary to further or protect the existing

financial and business interests of the

Japanese Investors.

‘‘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. It follows that

the rights and interests of Non-Citizen

Guarantors who succeed to the rights of the

lender under existing loan documentation are

also protected.

‘‘At the fourth informal meeting of the U.S.

and Japanese negotiators, the Japanese

negotiators argued that foreign-owned banks

should be denied national treatment, as well

as most-favored-nation protection. One

reason given was that their loans could result

in the foreign-owned bank lender controlling

key industries.31 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.’’ 32 The

State Department opposed any change that

would delete the word ‘‘financial’’ from the

first sentence of Article VII.1. Subsequently,

the Japanese side suggested instead adding

the word ‘‘lending’’ to the exception

provided in the first sentence of Article VII.2,

so that the exception would extend to

‘‘banking involving depository, lending or

fiduciary functions.’’ In response, the State

Department reiterated its opposition to any

change that would deny foreign lenders the

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11361

33Annex, Attachment 7, Dept. of State Outgoing

Telegram dated May 21, 1952, p. 3.

34 Id.

35Annex, Attachment 8, Memorandum of

Conversation concerning discussions on the draft

FCN held between October 15, 1952 and March 11,

1953, p. 15.

36Sullivan Study at 144.

37To the extent that it could be argued that the

first sentence of Article VII.2 might permit

restrictions on foreign financing or ‘‘control’’ of

fishing vessels, the grandfather provision of Article

VII.2 would clearly protect the Japanese Investors

and the Non-Citizen Guarantors with respect to

their existing rights and interests, as the holders of

ownership interests and contingent mortgage

interests in the Vessels and rights under existing

contracts—and with respect to future financing and

contractual arrangements undertaken to further or

protect those interests. The Japanese Investors and

Non-Citizen Guarantors ‘‘acquired interests’’ in the

Vessel Owners and the Vessels in reliance on

existing law and are thus entitled to national

treatment with respect to both their existing rights

and interests and with respect to future dealings

with the Vessel Owners to further or protect those

existing rights and interests.

38Sullivan Study at 115.

39Herman Walker, Jr., ‘‘Treaties for the

Encouragement and Protection of Foreign

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

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

40Annex, 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).

41 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.’’

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.33 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.’’ 34

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.35

‘‘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).’’ 36 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 financing

activities of the Non-Citizen Guarantors or

the Japanese Investors. 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.1.37

‘‘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, to

enter into contracts with the vessel owner or

to make loans or enter into contracts with a

vessel owner without prior MARAD approval

of the loan or contract terms are inconsistent

with the guaranty of national treatment in

Article VII.1. The rationale that such

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 Non-Citizen lending

activities. The control argument presented by

Japan at that time is the same argument used

to justify the restrictions of the AFA.

Although the negotiating history deals largely

with banking, the language of Article VII.1

extends the protections of national treatment

broadly to ‘‘all types of commercial * * *

financial and other business activities.’’

Under Article VII.1, neither State Party may

restrict loans by nationals of the other to a

fishing vessel owner or other contractual

arrangements between such foreign nationals

and vessel owners.

‘‘The AFA and MARAD’s implementing

rules impose new restrictions on the ability

of the Petitioners and the Japanese Investors,

going forward, to protect their existing

investments, financial interests and other

business interests in the Vessel Owners and

the Vessels by, e.g., refinancing existing

loans, advancing new loans for operation,

repair or improvement of the Vessels or

entering into other financing or contractual

arrangements with the Vessel Owners. These

restrictions are not permitted by Article VII.1

of the Treaty. Article VII.1 extends the

Treaty’s protection both to loans, mortgages

and other financing or contractual

arrangements that are now outstanding under

the terms of existing financing documents or

contracts and to future financing and

contractual arrangements by the Japanese

Investors with respect to the Vessels or the

Vessel Owners.

‘‘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 rights

and interests of the Non-Citizen Guarantors

under preferred mortgages on the Vessels and

associated loan, guaranty and security

documents previously executed by the Vessel

Owners and the Non-Citizen Guarantors in

favor of Bank of America; (b) contracts

entered into with respect to the Vessels

between or among the Petitioners or the

Japanese Investors prior to the effective date

of the AFA; and (c) future financing and

contractual arrangements between or among

the Petitioners or the Japanese Investors with

respect to the Vessels.

‘‘3. The AFA and MARAD’s Implementing

Rules Impair Petitioners’ Legally Acquired

Rights in Violation of Article V.

‘‘The new restrictions imposed by Sections

202 and 203 of 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.’’ 38 Herman Walker observed

that this language is designed ‘‘to account for

the possibility of injurious governmental

harassments short of expropriation or

sequestration.’’ 39 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.’’ 40

‘‘The negotiating history confirms that

Article V was intended as a general provision

prohibiting discrimination against foreignowned 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.41

‘‘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

11362 Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices

42See § 356.45(a)(2)(i).

43See § 356.45(b)(1).

44Annex, Attachment 10, Memorandum of

Conversation dated April 15, 1952 at p. 3.

45 Id.

46Article XIX.7 defines ‘‘vessel’’ to exclude

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

47Annex, Attachment 9, Letter to the chairman of

the House of Representatives Committee on

Merchant Marine and Fisheries from Robert Lee,

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

p. 80.

48See Annex, Attachment 13, Memorandum of

Conversation held April 3, 1952, at 5.

49Annex, Attachment 14, Department of State

Outgoing Airgram, dated 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’’).

deprivations of both most-favored nation

treatment and national treatment. Sullivan

Study at 115. Thus, it would apply to the

variety of discriminatory prohibitions and

restrictions that the AFA and MARAD’s

implementing regulations impose on

Petitioners, based on the Japanese Investors’

ownership interests, preferred mortgage

interests and other contract rights and

interests, and on the ability of the Japanese

Investors to protect those rights and interests

by entering into future transactions with the

Vessel Owners.

‘‘The intrusive and discriminatory

restrictions imposed by the AFA and

MARAD’s implementing rules on financing

and other business transactions between

Non-Citizens, such as the Japanese Investors,

and U.S. fishing vessel owners place NonCitizens and vessel owners in which they

have invested at a significant competitive

disadvantage. U.S. Citizen investors are free

to make loans and to enter into contracts

with the fishing vessel owners in which they

have invested without restriction. Under 46

CFR 356.45, a Non-Citizen lender is not even

permitted to make an unsecured loan to a

fishing vessel owner, if (a) the loan exceeds

the annual value of the vessel’s catch (where

an exclusive marketing agreement is

involved; 42 or (b) the lender is ‘‘affiliated

with any party with whom the owner * * *

has entered into a mortgage, long-term or

exclusive sales or purchase agreement, or

other similar contract.***’’ 43 Under these

standards, the Japanese Investors will not be

permitted to make future loans to the Vessel

Owners, secured or unsecured, to protect

their existing ownership and other financial

interests. Further, the requirement of

MARAD review and approval is itself an

unreasonable and discriminatory burden,

particularly in the absence of coherent

standards. The AFA and MARAD’s rules thus

impose ‘‘unreasonable or discriminatory

measures’’ on the Japanese Investors and the

companies in which they have invested,

impairing their legally acquired rights and

interests and their ongoing ability to protect

those interests in violation of Article V of the

U.S.-Japan FCN.

‘‘4. 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 the Petitioners from holding their

pre-existing ownership interests, their rights

and interests as guarantors under the Bank of

America mortgages and other loan

documents and their rights under ancillary

contracts with the Vessel Owners would

deprive them of their property in violation of

Article VI.3.

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

includes not simply direct ownership but

also a wide variety of property interests, such

as those which the Non-Citizen Petitioners

have in the Vessel Owners and in the

Vessels. The Protocol to the U.S.-Japan FCN

explicitly states that ‘‘[t]he provisions of

Article VI, paragraph 3 * * * shall extend to

interests held directly or indirectly by

nationals and companies of either Party in

property which is taken within the territories

of the other Party.’’ Protocol, ¶ 2 (emphasis

added). 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.44

In short, ‘‘all property interests are

contemplated by the provision.’’45 This

necessarily includes the direct and indirect

ownership interests which the Petitioners

have in the Vessel Owners and in the Vessels

and the interests of the Non-Citizen

Guarantors, as potential subrogees, under

Bank of America’s preferred mortgages and

other loan documents, together with ancillary

contract rights.

‘‘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.’’ Sullivan Study at 116 (emphasis

added). Here, the AFA’s new restrictions on

foreign investment and foreign financing will

prohibit the Vessel Owners from using their

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

AFA will either deprive the Petitioners of the

economic value of their interests in the

Vessels by prohibiting their productive use or

force divestiture. The impairment of the

presently existing rights of the Vessel Owners

to use their Vessels in the U.S. fisheries—and

the rights of the other Petitioners to hold

their existing direct and indirect ownership

interests in the Vessel Owners and their

contingent mortgage interests in the

Vessels—is a sufficient impairment of those

rights and interests as to constitute a

violation of Article VI.3.

‘‘Further, a taking is permitted under the

Treaty only for a ‘‘public purpose,’’ and it is

clear that application of the AFA’s ownership

restrictions to the Vessel Owners so as to

force a divestiture of the interests of the

Japanese Investors to a private party which

qualifies as a U.S. Citizen would not satisfy

the ‘‘public purpose’’ requirement of the

U.S.-Japan FCN. Even if such a forced sale to

a private party could be characterized as

having a ‘‘public purpose,’’ the AFA makes

no provision for the ‘‘prompt payment of just

compensation,’’ as required by Article VI.3.

The fact that the AFA and 46 C.F.R. 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.

‘‘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 and financing contained in the

AFA and MARAD’s implementing rules.

‘‘Even if Article XIX.6 is interpreted as

applying to fishing vessels,46 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.’’ 47 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.’’ 48 The State Department

understood the Japanese suggestion as an

attempt to obtain a blanket exception from

the entire Treaty for national fisheries.49 The

U.S rejected the Japanese proposal and the

language of Article XIX.6 remained

unchanged. The issue of Japanese investment

in and other dealings with enterprises

Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 / Notices 11363

50See fn. 45. See also, Jones Study at 80–81.

51Sullivan Study at 284 (emphasis added).

52See, generally, Jones Study.

53Annex, 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.

54There is no Subsection 202(c) of the AFA. The

reference intended is clearly subsection 202(a),

amending 46 U.S.C. 12102(c).

55Annex, Attachment 15 at 1–2.

56Annex, Attachment 16 (January 24, 2000 Letter

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

at 1.

57 Id.

58 Id. at 2.

59 Id.

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.50

Thus, the text, negotiating history and

subsequent State Department practice and

understanding all explicitly confirm that

Article XIX.6 is irrelevant to laws restricting

foreign ownership and control of fishing

vessel owners and thus does not override the

other provisions of the U.S.-Japan FCN

dealing with foreign investment and business

activity. Article XIX.6 does not exempt the

AFA’s foreign ownership, financing and

control restrictions from Articles V, VI.3, VII

or IX.2, each of which bars application of

those restrictions to Petitioners with respect

to the Vessel Owners and the Vessels.

‘‘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.’’ 51

‘‘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.52 The U.S. interest in protecting

U.S. nationals doing business abroad, as well

as the State Department’s historical practice

in interpreting the FCN treaties, requires an

interpretation of the U.S.-Japan FCN which

will protect the interests of foreign

enterprises and the U.S. companies in which

they have invested from the retroactive and

discriminatory prohibitions and restrictions

of the AFA and 46 CFR Part 356.

‘‘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 Jo Brooks of the Office of

Legal Adviser, U.S. Department of State,

dated August 30, 1999, the Minister for

Economic Affairs of the Embassy of Japan

stated that the AFA’s ‘‘new U.S. citizen

ownership and control requirements’’ ‘‘if

applied without exception, would impair the

legally acquired rights or interests of

Japanese nationals and corporations in the

United States of America.’’ 53 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) 54 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). * * * 55

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.56 In its January 24, 2000 letter, the

Embassy of Japan reiterated the view of the

Government of Japan that Section 202 of the

AFA is ‘‘inconsistent with paragraph two of

Article VII and paragraph one of Article V of

the Treaty of Friendship, Commerce and

Navigation between Japan and the United

States of America’’ and therefore ‘‘in

accordance with the provision of Section

213(g) of the Act’’ ‘‘will not apply to entities

that are engaged in fishery activities and

owned or controlled by Japanese nationals or

corporations.’’ With respect to MARAD’s

proposed regulations, the Embassy of Japan

noted that the regulations ‘‘would require the

procedure of an annual petition from

Japanese companies that are engaged in

fishery activities even before October 1, 2001,

in order for the continuation of their

activities. To impose such a new burden

would be inconsistent with the

aforementioned obligations of the United

States as stipulated by the Treaty.’’ 57 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. 58

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.’’ 59

‘‘Thus, the Government of Japan has

strongly expressed its view that the AFA’s

new restrictions on foreign investment,

foreign financing and foreign control of U.S.

fishing vessels are inconsistent with the U.S.-

Japan FCN as applied to companies with

existing Japanese investment. In light of the

obligation of the United States under Article

XXIV of the Treaty to give ‘‘sympathetic

consideration’’ to the representations of the

Government of Japan concerning the conflict

between Section 202 of the AFA and the

Treaty and the interest of the United States

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