116 
retary shall take possession at the institution and thereafter may provide 
the vessel to another institution under this section or dispose of the vessel. 
‘‘CHAPTER 519—MERCHANT MARINE AWARDS 
‘‘Sec. 
‘‘51901.
Awards for individual acts or service. 
‘‘51902.
Gallant Ship Award. 
‘‘51903.
Multiple awards. 
‘‘51904.
Presentation to representatives. 
‘‘51905.
Flags and grave markers. 
‘‘51906.
Special certificates for civilian service to armed forces. 
‘‘51907.
Manufacture and sale of awards and replacements. 
‘‘51908.
Prohibition against unauthorized manufacture, sale, possession, or display of awards. 
‘‘§ 51901. Awards for individual acts or service 
‘‘(a) GENERAL AUTHORITY.—The Secretary of Transportation may award 
decorations and medals of appropriate design (including ribbons, ribbon bars, 
emblems, rosettes, miniature facsimiles, plaques, citations, or other suitable 
devices or insignia) for individual acts or service in the merchant marine of 
the United States. The design may be similar to the design of a decoration 
or medal authorized for members of the armed forces for similar acts or serv-
ice. 
‘‘(b) SPECIFIC AUTHORITY.—The Secretary may award— 
‘‘(1) a Merchant Marine Distinguished Service Medal to an individual 
for outstanding acts, conduct, or valor beyond the line of duty; 
‘‘(2) a Merchant Marine Meritorious Service Medal to an individual 
for meritorious acts, conduct, or valor in the line of duty, but not of the 
outstanding character that would warrant the award of the Merchant 
Marine Distinguished Service Medal; 
‘‘(3) a decoration or medal to an individual for service during a war, 
national emergency proclaimed by the President or Congress, or oper-
ations by the armed forces outside the continental United States under 
conditions of danger to life and property; and 
‘‘(4) a decoration or medal to an individual for other acts or service 
of conspicuous gallantry, intrepidity, and extraordinary heroism under 
conditions of danger to life and property that would warrant a similar 
decoration or medal for a member of the armed forces. 
‘‘§ 51902. Gallant Ship Award 
‘‘(a) AWARDS TO VESSELS.—The Secretary of Transportation may award 
a Gallant Ship Award and a citation to a vessel (including a foreign vessel) 
participating in outstanding or gallant action in a marine disaster or other 
emergency to save life or property at sea. The Secretary may award a plaque 
to the vessel, and a replica of the plaque may be preserved as a permanent 
historical record.
117 
‘‘(b) AWARDS TO CREWS.—The Secretary of Transportation may award an 
appropriate citation ribbon bar to the master and each individual serving, 
at the time of the action, on a vessel issued an award under subsection (a). 
‘‘(c) CONSULTATION.—The Secretary of Transportation shall consult with 
the Secretary of State before awarding an award or citation to a foreign ves-
sel or its crew under this section. 
‘‘§ 51903. Multiple awards 
‘‘An individual may not be awarded more than one of any type of decora-
tion or medal under this chapter. For each succeeding act or service justifying 
the same decoration or medal, a suitable device may be awarded to be worn 
with the decoration or medal. 
‘‘§ 51904. Presentation to representatives 
‘‘If an individual to be issued an award under this chapter is unable to 
accept the award personally, the Secretary of Transportation may present the 
award to an appropriate representative. 
‘‘§ 51905. Flags and grave markers 
‘‘Except as authorized under another law, the Secretary of Transportation 
may issue, at no cost, a flag of the United States and a grave marker to the 
family or personal representative of a deceased individual who served in the 
merchant marine of the United States in support of the armed forces of the 
United States or its allies during a war or national emergency. 
‘‘§ 51906. Special certificates for civilian service to armed 
forces 
‘‘(a) GENERAL AUTHORITY.—The Maritime Administrator may issue a 
special certificate to an individual, or the personal representative of an indi-
vidual, in recognition of service of that individual in the merchant marine 
of the United States, if the service has been determined to be active duty 
under section 401 of the GI Bill Improvement Act of 1977 (Public Law 95– 
202; 38 U.S.C. 106 note). 
‘‘(b) RELATIONSHIP TO OTHER LAWS.—Issuance of a certificate under sub-
section (a) does not entitle an individual to any rights, privileges, or benefits 
under a law of the United States. 
‘‘§ 51907. Manufacture and sale of awards and replacements 
‘‘The Secretary of Transportation may— 
‘‘(1) authorize private persons to manufacture decorations and medals 
authorized under this chapter or a prior law; and 
‘‘(2) provide at cost, or authorize private persons to sell at reasonable 
prices, replacements for those decorations and medals.
118 
‘‘§ 51908. Prohibition against unauthorized manufacture, 
sale, possession, or display of awards 
‘‘(a) PROHIBITION.—Except as authorized under this chapter, a person 
may not manufacture, sell, possess, or display a decoration or medal provided 
for in this chapter. 
‘‘(b) CIVIL PENALTY.—A person violating this section is liable to the 
United States Government for a civil penalty of not more than $2,000. 
‘‘CHAPTER 521—MISCELLANEOUS 
‘‘Sec. 
‘‘52101.
Reemployment rights for certain merchant seamen. 
‘‘§ 52101. Reemployment rights for certain merchant seamen 
‘‘(a) IN GENERAL.—An individual who is certified by the Secretary of 
Transportation under subsection (c) shall be entitled to reemployment rights 
and other benefits substantially equivalent to the rights and benefits provided 
for by chapter 43 of title 38 for any member of a reserve component of the 
armed forces of the United States who is ordered to active duty. 
‘‘(b) TIME FOR APPLICATION.—An individual may submit an application 
for certification under subsection (c) to the Secretary not later than 45 days 
after the date the individual completes a period of employment described in 
subsection (c)(1)(A) with respect to which the application is submitted. 
‘‘(c) CERTIFICATION DETERMINATION.—Not later than 20 days after the 
date the Secretary receives from an individual an application for certification 
under this subsection, the Secretary shall— 
‘‘(1) determine whether the individual— 
‘‘(A) was employed in the activation or operation of a vessel— 
‘‘(i) in the National Defense Reserve Fleet maintained under 
section 11 of the Merchant Ship Sales Act of 1946 (50 App. 
U.S.C. 1744) in a period in which the vessel was in use or 
being activated for use under subsection (b) of that section; 
‘‘(ii) requisitioned or purchased under chapter 563 of this 
title; or 
‘‘(iii) owned, chartered, or controlled by the United States 
Government and used by the Government for a war, armed 
conflict, national emergency, or maritime mobilization need 
(including for training purposes or testing for readiness and 
suitability for mission performance); and 
‘‘(B) during the period of that employment, possessed a valid li-
cense, certificate of registry, or merchant mariner’s document issued 
under chapter 71 or 73 of this title; and 
‘‘(2) if the Secretary makes affirmative determinations under subpara-
graphs (A) and (B) of paragraph (1), certify that individual under this 
subsection.
119 
‘‘(d) EQUIVALENCE
TO MILITARY SELECTIVE SERVICE ACT CERTIFI-
CATE.—For purposes of reemployment rights and benefits provided by this 
section, a certification under subsection (c) shall be considered to be the equiv-
alent of a certificate described in section 9(a) of the Military Selective Service 
Act (50 App. U.S.C. 459(a)). 
‘‘PART C—FINANCIAL ASSISTANCE PROGRAMS’’. 
(c) CHAPTERS FOLLOWING CHAPTER 531.—Subtitle V of title 46, United 
States Code, is amended by adding at the end the following: 
‘‘CHAPTER 533—CONSTRUCTION RESERVE FUNDS 
‘‘Sec. 
‘‘53301.
Definitions. 
‘‘53302.
Authority for construction reserve funds. 
‘‘53303.
Persons eligible to establish funds. 
‘‘53304.
Vessel ownership. 
‘‘53305.
Eligible fund deposits. 
‘‘53306.
Recognition of gain for tax purposes. 
‘‘53307.
Basis for determining gain or loss and for depreciating new vessels. 
‘‘53308.
Order and proportions of deposits and withdrawals. 
‘‘53309.
Accumulation of deposits. 
‘‘53310.
Obligation of deposits and period for construction of certain vessels. 
‘‘53311.
Taxation of deposits on failure of conditions. 
‘‘53312.
Assessment and collection of deficiency tax. 
‘‘§ 53301. Definitions 
‘‘(a) IN GENERAL.—In this chapter: 
‘‘(1) CONSTRUCTION CONTRACT.—The term ‘construction contract’ in-
cludes, for a taxpayer constructing a new vessel in a shipyard owned by 
that taxpayer, an agreement between the taxpayer and the Secretary of 
Transportation for that construction containing provisions the Secretary 
considers advisable to carry out this chapter. 
‘‘(2) NEW VESSEL.—The term ‘new vessel’ means— 
‘‘(A) a vessel— 
‘‘(i) constructed in the United States after December 31, 
1939, constructed with a construction-differential subsidy 
under title V of the Merchant Marine Act, 1936, or constructed 
with financing or a financing guarantee under chapter 537 or 
575 of this title; 
‘‘(ii) documented or agreed with the Secretary to be docu-
mented under the laws of the United States; and 
‘‘(iii)(I) of a type, size, and speed that the Secretary deter-
mines is suitable for use on the high seas or Great Lakes in 
carrying out this subtitle, but not less than 2,000 gross tons or 
less than 12 knots speed unless the Secretary certifies in each 
case that a vessel of lesser tonnage or speed is desirable for use 
by the United States Government in case of war or national 
emergency; or
120 
‘‘(II) constructed to replace a vessel bought or requisitioned 
by the Government; and 
‘‘(B) a vessel reconstructed or reconditioned for use only on the 
Great Lakes, including the Saint Lawrence River and Gulf, if the 
Secretary finds that the reconstruction or reconditioning will pro-
mote the objectives of this subtitle. 
‘‘(b) ADDITIONAL TAX-RELATED TERMS.—Other terms used in this chapter 
have the same meaning as in chapter 1 of the Internal Revenue Code of 1986 
(26 U.S.C. ch. 1). 
‘‘§ 53302. Authority for construction reserve funds 
‘‘(a) GENERAL AUTHORITY.—An eligible person under section 53303 of this 
title may establish a construction reserve fund for the construction, recon-
struction, reconditioning, or acquisition of a new vessel or for other purposes 
authorized by this chapter. 
‘‘(b) APPLICATION OF CERTAIN LAWS AND REGULATIONS.—The fund shall 
be established, maintained, expended, and used as provided by this chapter 
and regulations prescribed jointly by the Secretary of Transportation and the 
Secretary of the Treasury. 
‘‘§ 53303. Persons eligible to establish funds 
‘‘A construction reserve fund may be established by a citizen of the United 
States that— 
‘‘(1) is operating a vessel in the foreign or domestic commerce of the 
United States or in the fisheries; 
‘‘(2) owns, in whole or in part, a vessel being operated in the foreign 
or domestic commerce of the United States or in the fisheries; 
‘‘(3) was operating a vessel in the foreign or domestic commerce of the 
United States or in the fisheries when it was bought or requisitioned by 
the United States Government; 
‘‘(4) owned, in whole or in part, a vessel being operated in the foreign 
or domestic commerce of the United States or in the fisheries when it 
was bought or requisitioned by the Government; or 
‘‘(5) had acquired or was having constructed a vessel to operate in the 
foreign or domestic commerce of the United States or in the fisheries 
when it was bought or requisitioned by the Government. 
‘‘§ 53304. Vessel ownership 
‘‘In this chapter, a vessel is deemed to be constructed or acquired by a tax-
payer if constructed or acquired by a corporation when the taxpayer owns 
at least 95 percent of each class of stock of the corporation. 
‘‘§ 53305. Eligible fund deposits 
‘‘A construction reserve fund may include deposits of— 
‘‘(1) the proceeds from the sale of a vessel;
121 
‘‘(2) indemnities for the loss of a vessel; 
‘‘(3) earnings from the operation of a documented vessel and from 
services incident to the operation; and 
‘‘(4) interest or other amounts accrued on deposits in the fund. 
‘‘§ 53306. Recognition of gain for tax purposes 
‘‘(a) DEFINITIONS.—In this section, the terms ‘net proceeds’ and ‘net in-
demnity’ mean the sum of— 
‘‘(1) the adjusted basis of the vessel; and 
‘‘(2) the amount of gain the taxpayer would recognize without regard 
to this section. 
‘‘(b) RECOGNITION OF GAIN.—In computing net income under the income 
or excess profits tax laws of the United States, a taxpayer does not recognize 
a gain on the sale or the actual or constructive total loss of a vessel if the 
taxpayer— 
‘‘(1) deposits an amount equal to the net proceeds of the sale or the 
net indemnity for the loss in a construction reserve fund within 60 days 
after receiving the payment of proceeds or indemnity; and 
‘‘(2) elects under this section not to recognize the gain. 
‘‘(c) WHEN ELECTION MUST BE MADE.— 
‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the taxpayer 
must make the election referred to in subsection (b) in the taxpayer’s in-
come tax return for the taxable year in which the gain was realized. 
‘‘(2) RECEIPT AFTER TAXABLE YEAR.—If the vessel is bought or requi-
sitioned by the United States Government, or is lost, and the taxpayer 
receives payment for the vessel or indemnity for the loss from the Govern-
ment after the end of the taxable year in which it was bought, requi-
sitioned, or lost, the taxpayer must make the election referred to in sub-
section (b) within 60 days after receiving the payment or indemnity, on 
a form prescribed by the Secretary of the Treasury. 
‘‘(d) EFFECT OF STATUTE OF LIMITATION.—If the taxpayer makes an elec-
tion under subsection (c)(2), and computation or recomputation under this 
section is otherwise allowable but is prevented by a statute of limitation on 
the date the election is made or within 6 months thereafter, the computation 
or recomputation nevertheless shall be made notwithstanding the statute if the 
taxpayer files a claim for the computation or recomputation within 6 months 
after the date of making the election. 
‘‘§ 53307. Basis for determining gain or loss and for depre-
ciating new vessels 
‘‘Under the income or excess profits tax laws of the United States, the basis 
for determining a gain or loss and for depreciation of a new vessel con-
structed, reconstructed, reconditioned, or acquired by the taxpayer, or for
122 
which purchase-money indebtedness is liquidated as provided in section 53310 
of this title, with amounts from a construction reserve fund, shall be reduced 
by that part of the deposits in the fund expended in the construction, recon-
struction, reconditioning, acquisition, or liquidation of purchase-money in-
debtedness of the new vessel that represents a gain not recognized for tax pur-
poses under section 53306 of this title. 
‘‘§ 53308. Order and proportions of deposits and withdrawals 
‘‘In this chapter— 
‘‘(1) if the net proceeds of a sale or the net indemnity for a loss is 
deposited in more than one deposit, the amount consisting of the gain 
shall be deemed to be deposited first; 
‘‘(2) amounts expended, obligated, or otherwise withdrawn shall be ap-
plied against the amounts deposited in the fund in the order of deposit; 
and 
‘‘(3) if a deposit consists in part of a gain not recognized under sec-
tion 53306 of this title, any expenditure, obligation, or withdrawal ap-
plied against that deposit shall be deemed to be a gain in the proportion 
that the part of the deposit consisting of a gain bears to the total amount 
of the deposit. 
‘‘§ 53309. Accumulation of deposits 
‘‘For any taxable year, amounts on deposit in a construction reserve fund 
on the last day of the taxable year, for which the requirements of section 
53310 of this title have been satisfied (to the extent they apply on the last 
day of the taxable year), are deemed to have been retained for the reasonable 
needs of the business within the meaning of section 537(a) of the Internal 
Revenue Code of 1986 (26 U.S.C. 537(a)). 
‘‘§ 53310. Obligation of deposits and period for construction 
of certain vessels 
‘‘(a) APPLICATION OF SECTIONS 53306 AND 53309.—Sections 53306 and 
53309 of this title apply to a deposit in a construction reserve fund only if, 
within 3 years after the date of the deposit (and any extension under sub-
section (c))— 
‘‘(1)(A) a contract is made for the construction or acquisition of a new 
vessel or, with the approval of the Secretary of Transportation, for a 
part interest in a new vessel or for the reconstruction or reconditioning 
of a new vessel; 
‘‘(B) the deposit is expended or obligated for expenditure under that 
contract; 
‘‘(C) at least 12.5 percent of the construction or contract price of the 
vessel is paid or irrevocably committed for payment; and
123 
‘‘(D) the plans and specifications for the vessel are approved by the 
Secretary to the extent the Secretary considers necessary; or 
‘‘(2) the deposit is expended or obligated for expenditure for the liq-
uidation of existing or subsequently incurred purchase-money indebted-
ness to a person not a parent company of, or a company affiliated or 
associated with, the mortgagor on a new vessel. 
‘‘(b) ADDITIONAL REQUIREMENTS FOR CERTAIN VESSELS.—In addition to 
the requirements of subsection (a)(1), for a vessel not constructed under a con-
struction-differential subsidy contract or not bought from the Secretary of 
Transportation— 
‘‘(1) at least 5 percent of the construction (or, if the contract covers 
more than one vessel, at least 5 percent of the construction of the first 
vessel) must be completed within 6 months after the date of the construc-
tion contract (or within the period of an extension under subsection (c)), 
as estimated by the Secretary and certified by the Secretary to the Sec-
retary of the Treasury; and 
‘‘(2) construction under the contract must be completed with reason-
able dispatch thereafter. 
‘‘(c) EXTENSIONS.—The Secretary of Transportation may grant extensions 
of the period within which the deposits must be expended or obligated or with-
in which the construction must have progressed to the extent of 5 percent com-
pletion under this section. However, the extensions may not be for a total of 
more than 2 years for the expenditure or obligation of deposits or one year 
for the progress of construction. 
‘‘§ 53311. Taxation of deposits on failure of conditions 
‘‘A deposited gain, if otherwise taxable income under the law applicable to 
the taxable year in which the gain was realized, shall be included in gross 
income for that taxable year, except for purposes of the declared value excess 
profits tax and the capital stock tax, if— 
‘‘(1) the deposited gain is not expended or obligated within the appro-
priate period under section 53310 of this title; 
‘‘(2) the deposited gain is withdrawn before the end of that period; 
‘‘(3) the construction related to that deposited gain has not progressed 
to the extent of 5 percent of completion within the appropriate period 
under section 53310 of this title; or 
‘‘(4) the Secretary of Transportation finds and certifies to the Sec-
retary of the Treasury that, for causes within the control of the taxpayer, 
the entire construction related to that deposited gain is not completed 
with reasonable dispatch.
124 
‘‘§ 53312. Assessment and collection of deficiency tax 
‘‘Notwithstanding any other provision of law, a deficiency in tax for a tax-
able year resulting from the inclusion of an amount in gross income as pro-
vided by section 53311 of this title, and the amount to be treated as a defi-
ciency under section 53311 instead of as an adjustment for the declared value 
excess profits tax, may be assessed or a civil action may be brought to collect 
the deficiency without assessment, at any time. Interest on a deficiency or 
amount to be treated as a deficiency does not begin until the date the depos-
ited gain or part of the deposited gain in question is required to be included 
in gross income under section 51111. 
‘‘CHAPTER 535—CAPITAL CONSTRUCTION FUNDS 
‘‘Sec. 
‘‘53501.
Definitions. 
‘‘53502.
Regulations. 
‘‘53503.
Establishing a capital construction fund. 
‘‘53504.
Deposits and withdrawals. 
‘‘53505.
Ceiling on deposits. 
‘‘53506.
Investment and fiduciary requirements. 
‘‘53507.
Nontaxation of deposits. 
‘‘53508.
Separate accounts within a fund. 
‘‘53509.
Qualified withdrawals. 
‘‘53510.
Tax treatment of qualified withdrawals and basis of property. 
‘‘53511.
Tax treatment of nonqualified withdrawals. 
‘‘53512.
FIFO and LIFO withdrawals. 
‘‘53513.
Corporate reorganizations and partnership changes. 
‘‘53514.
Relationship of old fund to new fund. 
‘‘53515.
Records and reports. 
‘‘53516.
Termination of agreement after change in regulations. 
‘‘53517.
Reports. 
‘‘§ 53501. Definitions 
‘‘In this chapter: 
‘‘(1) AGREEMENT VESSEL.—The term ‘agreement vessel’ means— 
‘‘(A) an eligible vessel or a qualified vessel that is subject to an 
agreement under this chapter; and 
‘‘(B) a barge or container that is part of the complement of a 
vessel described in subparagraph (A) if provided for in the agree-
ment. 
‘‘(2) ELIGIBLE VESSEL.—The term ‘eligible vessel’ means— 
‘‘(A) a vessel— 
‘‘(i) constructed in the United States (and, if reconstructed, 
reconstructed in the United States), constructed outside the 
United States but documented under the laws of the United 
States on April 15, 1970, or constructed outside the United 
States for use in the United States foreign trade pursuant to 
a contract made before April 15, 1970; 
‘‘(ii) documented under the laws of the United States; and 
‘‘(iii) operated in the foreign or domestic trade of the United 
States or in the fisheries of the United States; and
125 
‘‘(B) a commercial fishing vessel— 
‘‘(i) constructed in the United States and, if reconstructed, 
reconstructed in the United States; 
‘‘(ii) of at least 2 net tons but less than 5 net tons; 
‘‘(iii) owned by a citizen of the United States; 
‘‘(iv) having its home port in the United States; and 
‘‘(v) operated in the commercial fisheries of the United 
States. 
‘‘(3) JOINT REGULATIONS.—The term ‘joint regulations’ means regula-
tions prescribed jointly by the Secretary and the Secretary of the Treas-
ury under section 53502(b) of this title. 
‘‘(4) NONCONTIGUOUS
TRADE.—The term ‘noncontiguous trade’ 
means— 
‘‘(A) trade between— 
‘‘(i) one of the contiguous 48 States; and 
‘‘(ii) Alaska, Hawaii, Puerto Rico, or an insular territory 
or possession of the United States; and 
‘‘(B) trade between— 
‘‘(i) a place in Alaska, Hawaii, Puerto Rico, or an insular 
territory or possession of the United States; and 
‘‘(ii) another place in Alaska, Hawaii, Puerto Rico, or an 
insular territory or possession of the United States. 
‘‘(5) QUALIFIED VESSEL.—The term ‘qualified vessel’ means— 
‘‘(A) a vessel— 
‘‘(i) constructed in the United States (and, if reconstructed, 
reconstructed in the United States), constructed outside the 
United States but documented under the laws of the United 
States on April 15, 1970, or constructed outside the United 
States for use in the United States foreign trade pursuant to 
a contract made before April 15, 1970; 
‘‘(ii) documented under the laws of the United States; and 
‘‘(iii) agreed, between the Secretary and the person main-
taining the capital construction fund established under section 
53503 of this title, to be operated in the United States foreign, 
Great Lakes, or noncontiguous domestic trade or in the fish-
eries of the United States; and 
‘‘(B) a commercial fishing vessel— 
‘‘(i) constructed in the United States and, if reconstructed, 
reconstructed in the United States; 
‘‘(ii) of at least 2 net tons but less than 5 net tons; 
‘‘(iii) owned by a citizen of the United States;
126 
‘‘(iv) having its home port in the United States; and 
‘‘(v) operated in the commercial fisheries of the United 
States. 
‘‘(6) SECRETARY.—The term ‘Secretary’ means— 
‘‘(A) the Secretary of Commerce with respect to an eligible vessel 
or a qualified vessel operated or to be operated in the fisheries of 
the United States; and 
‘‘(B) the Secretary of Transportation with respect to other vessels. 
‘‘(7) UNITED STATES FOREIGN TRADE.—The term ‘United States for-
eign trade’ includes those areas in domestic trade in which a vessel built 
with a construction-differential subsidy is allowed to operate under the 
first sentence of section 506 of the Merchant Marine Act, 1936. 
‘‘(8) VESSEL.—The term ‘vessel’ includes— 
‘‘(A) cargo handling equipment that the Secretary determines is 
intended for use primarily on the vessel; and 
‘‘(B) an ocean-going towing vessel, an ocean-going barge, or a 
comparable towing vessel or barge operated on the Great Lakes. 
‘‘§ 53502. Regulations 
‘‘(a) IN GENERAL.—Except as provided in subsection (b), the Secretary 
shall prescribe regulations to carry out this chapter. 
‘‘(b) TAX LIABILITY.—The Secretary and the Secretary of the Treasury 
shall prescribe joint regulations for the determination of tax liability under 
this chapter. 
‘‘§ 53503. Establishing a capital construction fund 
‘‘(a) IN GENERAL.—A citizen of the United States owning or leasing an 
eligible vessel may make an agreement with the Secretary under this chapter 
to establish a capital construction fund for the vessel. 
‘‘(b) ALLOWABLE PURPOSE.—The purpose of the agreement shall be to pro-
vide replacement vessels, additional vessels, or reconstructed vessels, built in 
the United States and documented under the laws of the United States, for 
operation in the United States foreign, Great Lakes, or noncontiguous domes-
tic trade or in the fisheries of the United States. 
‘‘§ 53504. Deposits and withdrawals 
‘‘(a) REQUIRED DEPOSITS.—An agreement to establish a capital construc-
tion fund shall provide for the deposit in the fund of the amounts agreed to 
be appropriate to provide for qualified withdrawals under section 53509 of 
this title. 
‘‘(b) APPLICABLE REQUIREMENTS.—Deposits in and withdrawals from the 
fund are subject to the requirements included in the agreement or prescribed 
by the Secretary by regulation. However, the Secretary may not require a 
person to deposit in the fund for a taxable year more than 50 percent of that
127 
portion of the person’s taxable income for that year (as determined under sec-
tion 53505(a)(1) of this title) that is attributable to the operation of an agree-
ment vessel. 
‘‘§ 53505. Ceiling on deposits 
‘‘(a) MAXIMUM DEPOSITS.—The amount deposited in a capital construc-
tion fund for a taxable year may not exceed the sum of— 
‘‘(1) that portion of the taxable income of the owner or lessee for the 
taxable year (computed under chapter 1 of the Internal Revenue Code 
of 1986 (26 U.S.C. ch. 1) but without regard to the carryback of net op-
erating loss or net capital loss or this chapter) that is attributable to the 
operation of agreement vessels in the foreign or domestic trade of the 
United States or in the fisheries of the United States; 
‘‘(2) the amount allowable as a deduction under section 167 of such 
Code (26 U.S.C. 167) for the taxable year for agreement vessels; 
‘‘(3) if the transaction is not taken into account for purposes of para-
graph (1), the net proceeds (as defined in joint regulations) from the dis-
position of an agreement vessel or from insurance or indemnity attrib-
utable to an agreement vessel; and 
‘‘(4) the receipts from the investment or reinvestment of amounts held 
in the fund. 
‘‘(b) REDUCTIONS FOR LESSEES.—For a lessee, the maximum amount that 
may be deposited for an agreement vessel under subsection (a)(2) for any pe-
riod shall be reduced by any amount the owner is required or permitted, 
under the capital construction fund agreement, to deposit for that period for 
the vessel under subsection (a)(2). 
‘‘§ 53506. Investment and fiduciary requirements 
‘‘(a) IN GENERAL.—Amounts in a capital construction fund shall be kept 
in the depository specified in the agreement and shall be subject to trustee 
and other fiduciary requirements prescribed by the Secretary. Except as pro-
vided in subsection (b), amounts in the fund may be invested only in interest- 
bearing securities approved by the Secretary. 
‘‘(b) STOCK INVESTMENTS.— 
‘‘(1) IN GENERAL.—With the approval of the Secretary, an agreed per-
centage (but not more than 60 percent) of the assets of the fund may be 
invested in the stock of domestic corporations that— 
‘‘(A) is fully listed and registered on an exchange registered with 
the Securities and Exchange Commission as a national securities 
exchange; and 
‘‘(B) would be acquired by a prudent investor seeking a reason-
able income and the preservation of capital.
128 
‘‘(2) PREFERRED STOCK.—The preferred stock of a corporation is 
deemed to satisfy the requirements of this subsection, even though it may 
not be registered and listed because it is nonvoting stock, if the common 
stock of the corporation satisfies the requirements and the preferred stock 
otherwise would satisfy the requirements. 
‘‘(c) MAINTAINING AGREED PERCENTAGE.—If at any time the fair market 
value of the stock in the fund is more than the agreed percentage of the assets 
in the fund, any subsequent investment of amounts deposited in the fund, and 
any subsequent withdrawal from the fund, shall be made in a way that tends 
to restore the fair market value of the stock to not more than the agreed per-
centage. 
‘‘§ 53507. Nontaxation of deposits 
‘‘(a) TAX TREATMENT.—Subject to subsection (b), under the Internal Rev-
enue Code of 1986 (26 U.S.C. 1 et seq.)— 
‘‘(1) taxable income (determined without regard to this chapter and 
section 7518 of such Code (26 U.S.C. 7518)) for the taxable year shall 
be reduced by the amount deposited for the taxable year out of amounts 
referred to in section 53505(a)(1) of this title; 
‘‘(2) a gain from a transaction referred to in section 53505(a)(3) of 
this title shall not be taken into account if an amount equal to the net 
proceeds (as defined in joint regulations) from the transaction is depos-
ited in the fund; 
‘‘(3) the earnings (including gains and losses) from the investment and 
reinvestment of amounts held in the fund shall not be taken into account; 
‘‘(4) the earnings and profits of a corporation (within the meaning 
of section 316 of such Code (26 U.S.C. 316)) shall be determined without 
regard to this chapter and section 7518 of such Code (26 U.S.C. 7518); 
and 
‘‘(5) in applying the tax imposed by section 531 of such Code (26 
U.S.C. 531), amounts held in the fund shall not be taken into account. 
‘‘(b) CONDITION.—This section applies to an amount only if the amount 
is deposited in the fund under the agreement within the time provided in 
joint regulations. 
‘‘§ 53508. Separate accounts within a fund 
‘‘(a) IN GENERAL.—A capital construction fund shall have three accounts: 
‘‘(1) The capital account. 
‘‘(2) The capital gain account. 
‘‘(3) The ordinary income account. 
‘‘(b) CAPITAL ACCOUNT.—The capital account shall consist of— 
‘‘(1) amounts referred to in section 53505(a)(2) of this title;
129 
‘‘(2) amounts referred to in section 53505(a)(3) of this title, except 
that portion representing a gain not taken into account because of sec-
tion 53507(a)(2) of this title; 
‘‘(3) the percentage applicable under section 243(a)(1) of the Internal 
Revenue Code of 1986 (26 U.S.C. 243(a)(1)) of any dividend received by 
the fund for which the person maintaining the fund would be allowed 
(were it not for section 53507(a)(3) of this title) a deduction under sec-
tion 243 of such Code (26 U.S.C. 243); and 
‘‘(4) interest income exempt from taxation under section 103 of such 
Code (26 U.S.C. 103). 
‘‘(c) CAPITAL GAIN ACCOUNT.—The capital gain account shall consist of— 
‘‘(1) amounts representing capital gains on assets held for more than 
6 months and referred to in section 53505(a)(3) or (4) of this title; 
minus 
‘‘(2) amounts representing capital losses on assets held in the fund for 
more than 6 months. 
‘‘(d) ORDINARY INCOME ACCOUNT.—The ordinary income account shall 
consist of— 
‘‘(1) amounts referred to in section 53505(a)(1) of this title; 
‘‘(2)(A) amounts representing capital gains on assets held for not more 
than 6 months and referred to in section 53505(a)(3) or (4) of this title; 
minus 
‘‘(B) amounts representing capital losses on assets held in the fund for 
not more than 6 months; 
‘‘(3) interest (except tax-exempt interest referred to in subsection 
(b)(4)) and other ordinary income (except any dividend referred to in 
paragraph (5)) received on assets held in the fund; 
‘‘(4) ordinary income from a transaction described in section 
53505(a)(3) of this title; and 
‘‘(5) that portion of any dividend referred to in subsection (b)(3) not 
taken into account under subsection (b)(3). 
‘‘(e) WHEN LOSSES ALLOWED.—Except on termination of a fund, capital 
losses referred to in subsection (c) or (d)(2) shall be allowed only as an offset 
to gains referred to in subsection (c) or (d)(2), respectively. 
‘‘§ 53509. Qualified withdrawals 
‘‘(a) IN GENERAL.—Subject to subsection (b), a withdrawal from a capital 
construction fund is a qualified withdrawal if it is made under the terms of 
the agreement and is for— 
‘‘(1) the acquisition, construction, or reconstruction of a qualified ves-
sel or a barge or container that is part of the complement of a qualified 
vessel; or
130 
‘‘(2) the payment of the principal on indebtedness incurred in the ac-
quisition, construction, or reconstruction of a qualified vessel or a barge 
or container that is part of the complement of a qualified vessel. 
‘‘(b) BARGES AND CONTAINERS.—Except as provided in regulations pre-
scribed by the Secretary, subsection (a) applies to a barge or container only 
if it is constructed in the United States. 
‘‘(c) TREATMENT AS NONQUALIFIED WITHDRAWAL.—Under joint regula-
tions, if the Secretary determines that a substantial obligation under an 
agreement is not being fulfilled, the Secretary, after notice and opportunity 
for a hearing to the person maintaining the fund, may treat any amount in 
the fund as an amount withdrawn from the fund in a nonqualified with-
drawal. 
‘‘§ 53510. Tax treatment of qualified withdrawals and basis 
of property 
‘‘(a) ORDER OF WITHDRAWALS.—A qualified withdrawal from a capital 
construction fund shall be treated as made— 
‘‘(1) first from the capital account; 
‘‘(2) second from the capital gain account; and 
‘‘(3) third from the ordinary income account. 
‘‘(b) ORDINARY INCOME ACCOUNT WITHDRAWALS.—If a portion of a quali-
fied withdrawal for a vessel, barge, or container is made from the ordinary 
income account, the basis of the vessel, barge, or container shall be reduced 
by an amount equal to that portion. 
‘‘(c) CAPITAL GAIN ACCOUNT WITHDRAWALS.—If a portion of a qualified 
withdrawal for a vessel, barge, or container is made from the capital gain 
account, the basis of the vessel, barge, or container shall be reduced by an 
amount equal to that portion. 
‘‘(d) WITHDRAWALS TO PAY PRINCIPAL.—If a portion of a qualified with-
drawal to pay the principal on indebtedness is made from the ordinary in-
come account or the capital gain account, an amount equal to the total reduc-
tion that would be required by subsections (b) and (c) if the withdrawal were 
a qualified withdrawal for a purpose described in those subsections shall be 
applied, in the order provided in joint regulations, to reduce the basis of ves-
sels, barges, and containers owned by the person maintaining the fund. The 
remaining amount of the withdrawal shall be treated as a nonqualified with-
drawal. 
‘‘(e) GAIN ON PROPERTY WITH REDUCED BASIS.—If property, the basis of 
which was reduced under subsection (b), (c), or (d), is disposed of, any gain 
realized on the disposition, to the extent it does not exceed the total reduction 
in the basis of the property under those subsections, shall be treated as an 
amount referred to in section 53511(c)(1) of this title withdrawn on the date
131 
of disposition of the property. Subject to conditions prescribed in joint regula-
tions, this subsection does not apply to a disposition if there is a redeposit, 
in an amount determined under joint regulations, that restores the fund as 
far as practicable to the position it was in before the withdrawal. 
‘‘§ 53511. Tax treatment of nonqualified withdrawals 
‘‘(a) IN GENERAL.—Except as provided in section 53513 of this title, a 
withdrawal from a fund that is not a qualified withdrawal shall be treated 
as a nonqualified withdrawal. 
‘‘(b) ORDER OF WITHDRAWALS.—A nonqualified withdrawal shall be treat-
ed as made— 
‘‘(1) first from the ordinary income account; 
‘‘(2) second from the capital gain account; and 
‘‘(3) third from the capital account. 
‘‘(c) TAX TREATMENT.—For purposes of the Internal Revenue Code of 1986 
(26 U.S.C. 1 et seq.)— 
‘‘(1) a nonqualified withdrawal from the ordinary income account 
shall be included in income as an item of ordinary income for the tax-
able year in which the withdrawal is made; 
‘‘(2) a nonqualified withdrawal from the capital gain account shall 
be included in income for the taxable year in which the withdrawal is 
made as an item of gain realized during that year from the disposition 
of an asset held for more than 6 months; and 
‘‘(3) for the period through the last date prescribed for payment of tax 
for the taxable year in which the withdrawal is made— 
‘‘(A) no interest shall be payable under section 6601 of such Code 
(26 U.S.C. 6601) and no addition to the tax shall be payable under 
section 6651 of such Code (26 U.S.C. 6651); 
‘‘(B) interest on the amount of the additional tax attributable to 
an amount treated as a nonqualified withdrawal from the ordinary 
income account or the capital gain account shall be paid at the rate 
determined under subsection (d) from the last date prescribed for 
payment of the tax for the taxable year for which the amount was 
deposited in the fund; and 
‘‘(C) no interest shall be payable on amounts treated as with-
drawn on a last-in-first-out basis under section 53512 of this title. 
‘‘(d) INTEREST RATE.—The rate of interest under subsection (c)(3)(B) for 
a nonqualified withdrawal made in a taxable year beginning after 1971 shall 
be determined and published jointly by the Secretary and the Secretary of the 
Treasury. The rate shall be such that its relationship to 8 percent is com-
parable, as determined by the Secretaries under joint regulations, to the rela-
tionship between—
132 
‘‘(1) the money rates and investment yields for the calendar year im-
mediately before the beginning of the taxable year; and 
‘‘(2) the money rates and investment yields for the calendar year 1970. 
‘‘(e) NONQUALIFIED WITHDRAWALS.— 
‘‘(1) IN
GENERAL.—The following applicable percentage of any 
amount that remains in a capital construction fund at the close of the 
following specified taxable year following the taxable year for which the 
amount was deposited shall be treated as a nonqualified withdrawal: 
‘‘If the amount remains in the fund at 
The applicable 
the close of the— 
percentage is— 
‘‘26th taxable year ...................................................................................................
20 percent
‘‘27th taxable year ...................................................................................................
40 percent
‘‘28th taxable year ...................................................................................................
60 percent
‘‘29th taxable year ...................................................................................................
80 percent
‘‘30th taxable year ...................................................................................................
100 percent. 
‘‘(2) EARNINGS.—The earnings of a capital construction fund for any 
taxable year (except net gains) shall be treated under this subsection as 
an amount deposited for the taxable year. 
‘‘(3) CONTRACT FOR QUALIFIED WITHDRAWAL.—Under paragraph (1), 
an amount shall not be treated as remaining in a capital construction 
fund at the close of a taxable year to the extent there is a binding con-
tract at the close of the taxable year for a qualified withdrawal of the 
amount for an identified item for which the withdrawal may be made. 
‘‘(4) EXCESS EARNINGS.—If the Secretary determines that the balance 
in a capital construction fund exceeds the amount appropriate to meet 
the vessel construction program objectives of the person that established 
the fund, the amount of the excess shall be treated as a nonqualified 
withdrawal under paragraph (1) unless the person develops appropriate 
program objectives within 3 years to dissipate the excess. 
‘‘(5) AMOUNTS IN FUND ON JANUARY 1, 1987.—Under this subsection, 
amounts in a capital construction fund on January 1, 1987, shall be 
treated as having been deposited in that fund on that date. 
‘‘(f) TAX DETERMINATIONS.— 
‘‘(1) IN GENERAL.—For a taxable year for which there is a non-
qualified withdrawal (including an amount treated as a nonqualified 
withdrawal under subsection (e)), the tax imposed by chapter 1 of the 
Internal Revenue Code of 1986 (26 U.S.C. ch. 1) shall be determined 
by— 
‘‘(A) excluding the withdrawal from gross income; and 
‘‘(B) increasing the tax imposed by chapter 1 of such Code by the 
product of the amount of the withdrawal and the highest tax rate 
specified in section 1 (or section 11 for a corporation) of such Code 
(26 U.S.C. 1, 11).
133 
‘‘(2) MAXIMUM TAX RATE.—For that portion of a nonqualified with-
drawal made from the capital gain account during a taxable year to 
which section 1(h) or 1201(a) of such Code (26 U.S.C. 1(h), 1201(a)) ap-
plies, the tax rate used under paragraph (1)(B) may not exceed 15 per-
cent (or 34 percent for a corporation). 
‘‘(3) TAX BENEFIT RULE.—If any portion of a nonqualified with-
drawal is properly attributable to deposits (except earnings on deposits) 
made by the taxpayer in a taxable year that did not reduce the tax-
payer’s liability for tax under chapter 1 of such Code (26 U.S.C. ch. 1) 
for a taxable year before the taxable year in which the withdrawal oc-
curs— 
‘‘(A) that portion shall not be taken into account under para-
graph (1); and 
‘‘(B) an amount equal to that portion shall be allowed as a de-
duction under section 172 of such Code (26 U.S.C. 172) for the tax-
able year in which the withdrawal occurs. 
‘‘(4) COORDINATION WITH DEDUCTION FOR NET OPERATING LOSSES.— 
A nonqualified withdrawal excluded from gross income under paragraph 
(1) shall be excluded in determining taxable income under section 
172(b)(2) of such Code (26 U.S.C. 172(b)(2)). 
‘‘§ 53512. FIFO and LIFO withdrawals 
‘‘(a) FIFO.—Except as provided in subsection (b), an amount withdrawn 
from an account under this chapter shall be treated as withdrawn on a first- 
in-first-out basis. 
‘‘(b) LIFO.—An amount withdrawn from an account under this chapter 
shall be treated as withdrawn on a last-in-first-out basis if it is— 
‘‘(1) a nonqualified withdrawal for research, development, and design 
expenses incident to new and advanced vessel design, machinery, and 
equipment; or 
‘‘(2) an amount treated as a nonqualified withdrawal under section 
53510(d) of this title. 
‘‘§ 53513. Corporate 
reorganizations 
and 
partnership 
changes 
‘‘Under joint regulations— 
‘‘(1) a transfer of a capital construction fund from one person to an-
other person in a transaction to which section 381 of the Internal Rev-
enue Code of 1986 (26 U.S.C. 381) applies may be treated as if the 
transaction is not a nonqualified withdrawal; and 
‘‘(2) a similar rule shall be applied to a continuation of a partnership 
(within the meaning of subchapter K of chapter 1 of such Code (26 
U.S.C. 701 et seq.)).
134 
‘‘§ 53514. Relationship of old fund to new fund 
‘‘(a) DEFINITION.—In this section, the term ‘old fund’ means a capital con-
struction fund maintained before October 21, 1970. 
‘‘(b) ELECTION TO MAINTAIN OLD FUND.—A person maintaining an old 
fund may elect to continue the old fund, but may not— 
‘‘(1) hold amounts in the old fund beyond the expiration date provided 
in the agreement under which the old fund is maintained (determined 
without regard to an extension or renewal made after April 14, 1970); 
or 
‘‘(2) maintain simultaneously the old fund and a new fund established 
under this chapter. 
‘‘(c) APPLICATION OF NEW FUND AGREEMENT TO OLD FUND AMOUNTS.— 
If a person makes an agreement under this chapter to establish a new fund, 
the person may agree to extend the agreement to some or all of the amounts 
in an old fund. Each item in the old fund to be transferred shall be trans-
ferred in a nontaxable transaction to the appropriate account in the new 
fund. For purposes of section 53511(c)(3) of this title, the date of the deposit 
of an item so transferred shall be July 1, 1971, or the date of the deposit 
in the old fund, whichever is later. 
‘‘§ 53515. Records and reports 
‘‘A person maintaining a fund under this chapter shall keep records and 
make reports as required by the Secretary or the Secretary of the Treasury. 
‘‘§ 53516. Termination of agreement after change in regula-
tions 
‘‘If, after an agreement has been made under this chapter, a change is made 
either in the joint regulations or in the regulations prescribed by the Sec-
retary under this chapter that could have a substantial effect on the rights 
or duties of a person maintaining a fund under this chapter, that person may 
terminate the agreement. 
‘‘§ 53517. Reports 
‘‘(a) IN GENERAL.—Within 120 days after the close of each calendar year, 
the Secretary of Transportation and the Secretary of Commerce each shall 
provide the Secretary of the Treasury a written report on the capital con-
struction funds under the particular Secretary’s jurisdiction for the calendar 
year. 
‘‘(b) CONTENTS.—The report shall state the name and taxpayer identifica-
tion number of each person— 
‘‘(1) establishing a capital construction fund during the calendar year; 
‘‘(2) maintaining a capital construction fund on the last day of the 
calendar year;
135 
‘‘(3) terminating a capital construction fund during the calendar 
year; 
‘‘(4) making a deposit to or withdrawal from a capital construction 
fund during the calendar year, and the amount of the deposit or with-
drawal; or 
‘‘(5) having been determined during the calendar year to have failed 
to fulfill a substantial obligation under a capital construction fund 
agreement to which the person is a party. 
‘‘CHAPTER 537—LOANS AND GUARANTEES 
‘‘SUBCHAPTER I—GENERAL 
‘‘Sec. 
‘‘53701.
Definitions. 
‘‘53702.
General authority. 
‘‘53703.
Application procedures. 
‘‘53704.
Funding limits. 
‘‘53705.
Pledge of United States Government. 
‘‘53706.
Eligible purposes of obligations. 
‘‘53707.
Findings related to obligors and operators. 
‘‘53708.
Findings related to economic soundness. 
‘‘53709.
Amount of obligations. 
‘‘53710.
Contents of obligations. 
‘‘53711.
Security interest. 
‘‘53712.
Monitoring financial condition and operations of obligor. 
‘‘53713.
Administrative fees. 
‘‘53714.
Guarantee fees. 
‘‘53715.
Escrow fund. 
‘‘53716.
Deposit fund. 
‘‘53717.
Management of funds in the Treasury. 
‘‘53718.
Annual report to Congress. 
‘‘SUBCHAPTER II—DEFAULT PROVISIONS 
‘‘53721.
Rights of obligee. 
‘‘53722.
Actions by Secretary. 
‘‘53723.
Payments by Secretary and issuance of obligations. 
‘‘53724.
Rights to secured property. 
‘‘53725.
Actions against obligor. 
‘‘SUBCHAPTER III—PARTICULAR PROJECTS 
‘‘53731.
Commercial demonstration ocean thermal energy conversion facilities and plantships. 
‘‘53732.
Eligible export vessels. 
‘‘53733.
Shipyard modernization and improvement. 
‘‘53734.
Replacement of vessels because of changes in operating standards. 
‘‘53735.
Fisheries financing and capacity reduction. 
‘‘SUBCHAPTER I—GENERAL 
‘‘§ 53701. Definitions 
‘‘In this chapter: 
‘‘(1) ACTUAL COST.—The term ‘actual cost’ means the sum of— 
‘‘(A) all amounts paid by or for the account of the obligor as of 
the date on which a determination is made under section 
53715(d)(1) of this title; and 
‘‘(B) all amounts that the Secretary reasonably estimates the obli-
gor will become obligated to pay from time to time thereafter, for 
the construction, reconstruction, or reconditioning of the vessel, in-
cluding guarantee fees that will become payable under section 53714
136 
of this title in connection with all obligations issued for construc-
tion, reconstruction, or reconditioning of the vessel or equipment to 
be delivered, and all obligations issued for the delivered vessel or 
equipment. 
‘‘(2) CONSTRUCTION, RECONSTRUCTION, AND RECONDITIONING.—The 
terms ‘construction’, ‘reconstruction’, and ‘reconditioning’ include de-
signing, inspecting, outfitting, and equipping. 
‘‘(3) DEPRECIATED ACTUAL COST.—The term ‘depreciated actual cost’ 
of a vessel means— 
‘‘(A) if the vessel was not reconstructed or reconditioned, the ac-
tual cost of the vessel depreciated on a straight line basis over the 
useful life of the vessel as determined by the Secretary, not to exceed 
25 years from the date of delivery by the builder; or 
‘‘(B) if the vessel was reconstructed or reconditioned, the sum of— 
‘‘(i) the actual cost of the vessel depreciated on a straight 
line basis from the date of delivery by the builder to the date 
of the reconstruction or reconditioning, using the original use-
ful life of the vessel, and from the date of the reconstruction or 
reconditioning, using a useful life of the vessel determined by 
the Secretary; and 
‘‘(ii) any amount paid or obligated to be paid for the recon-
struction or reconditioning, depreciated on a straight line basis 
using a useful life of the vessel determined by the Secretary. 
‘‘(4) ELIGIBLE
EXPORT
VESSEL.—The term ‘eligible export vessel’ 
means a vessel that— 
‘‘(A) is constructed, reconstructed, or reconditioned in the United 
States for use in world-wide trade; and 
‘‘(B) will, on delivery or redelivery, become or remain docu-
mented under the laws of a country other than the United States. 
‘‘(5) FISHERY FACILITY.— 
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the term ‘fish-
ery facility’ means— 
‘‘(i) for operations on land— 
‘‘(I) a structure or appurtenance thereto designed for 
the unloading and receiving from vessels, the processing, 
the holding pending processing, the distribution after 
processing, or the holding pending distribution, of fish 
from a fishery; 
‘‘(II) the land necessary for the structure or appur-
tenance; and
137 
‘‘(III) equipment that is for use with the structure or 
appurtenance and that is necessary for performing a func-
tion referred to in subclause (I); 
‘‘(ii) for operations not on land, a vessel built in the United 
States and used for, equipped to be used for, or of a type nor-
mally used for, the processing of fish; or 
‘‘(iii) for aquaculture, including operations on land or else-
where— 
‘‘(I) a structure or appurtenance thereto designed for 
aquaculture; 
‘‘(II) the land necessary for the structure or appur-
tenance; 
‘‘(III) equipment that is for use with the structure or 
appurtenance and that is necessary for performing a func-
tion referred to in subclause (I); and 
‘‘(IV) a vessel built in the United States and used for, 
equipped to be used for, or of a type normally used for, 
aquaculture. 
‘‘(B) REQUIRED
OWNERSHIP.—Under subparagraph (A), the 
structure, appurtenance, land, equipment, or vessel must be owned 
by— 
‘‘(i) an individual who is a citizen of the United States; or 
‘‘(ii) an entity that is a citizen of the United States under 
section 50501 of this title and that is at least 75 percent owned 
(as determined under that section) by citizens of the United 
States. 
‘‘(6) FISHING VESSEL.—The term ‘fishing vessel’ has the meaning 
given that term in section 3 of the Magnuson-Stevens Fishery Conserva-
tion and Management Act (16 U.S.C. 1802), and any reference in this 
chapter to a vessel designed principally for commercial use in the fishing 
trade or industry is deemed to be a reference to a fishing vessel. 
‘‘(7) MORTGAGE.—The term ‘mortgage’ includes— 
‘‘(A) a preferred mortgage as defined in section 31301 of this 
title; and 
‘‘(B) a mortgage on a vessel that will become a preferred mort-
gage when filed or recorded under chapter 313 of this title. 
‘‘(8) OBLIGATION.—The term ‘obligation’ means an instrument of in-
debtedness issued for a purpose described in section 53706 of this title, 
except— 
‘‘(A) an obligation issued by the Secretary under section 53723 
of this title; and
138 
‘‘(B) an obligation eligible for investment of funds under section 
53715(f) or 53717 of this title. 
‘‘(9) OBLIGEE.—The term ‘obligee’ means the holder of an obligation. 
‘‘(10) OBLIGOR.—The term ‘obligor’ means a party primarily liable 
for payment of the principal of or interest on an obligation. 
‘‘(11) 
OCEAN
THERMAL
ENERGY
CONVERSION
FACILITY
OR 
PLANTSHIP.—The term ‘ocean thermal energy conversion facility or 
plantship’ means an at-sea facility or vessel, whether mobile, floating 
unmoored, moored, or standing on the seabed, that uses temperature dif-
ferences in ocean water to produce electricity or another form of energy 
capable of being used directly to perform work, and includes— 
‘‘(A) equipment installed on the facility or vessel to use the elec-
tricity or other form of energy to produce, process, refine, or manu-
facture a product; 
‘‘(B) a cable or pipeline used to deliver the electricity, freshwater, 
or product to shore; and 
‘‘(C) other associated equipment and appurtenances of the facility 
or vessel to the extent they are located seaward of the high water 
mark. 
‘‘(12) SECRETARY.—The term ‘Secretary’ means— 
‘‘(A) the Secretary of Commerce with respect to fishing vessels 
and fishery facilities; and 
‘‘(B) the Secretary of Transportation with respect to other vessels 
and general shipyard facilities (as defined in section 53733(a) of 
this title). 
‘‘(13) VESSEL.—The term ‘vessel’ means any type of vessel, whether 
in existence or under construction, including— 
‘‘(A) a cargo vessel; 
‘‘(B) a passenger vessel; 
‘‘(C) a combination cargo and passenger vessel; 
‘‘(D) a tanker; 
‘‘(E) a tug or towboat; 
‘‘(F) a barge; 
‘‘(G) a dredge; 
‘‘(H) a floating drydock with a capacity of at least 35,000 lifting 
tons and a beam of at least 125 feet between the wing walls; 
‘‘(I) an oceanographic research vessel; 
‘‘(J) an instruction vessel; 
‘‘(K) a pollution treatment, abatement, or control vessel;
139 
‘‘(L) a fishing vessel whose ownership meets the citizenship re-
quirements under section 50501 of this title for documenting vessels 
to operate in the coastwise trade; and 
‘‘(M) an ocean thermal energy conversion facility or plantship 
that is or will be documented under the laws of the United States. 
‘‘§ 53702. General authority 
‘‘(a) IN GENERAL.—The Secretary, on terms the Secretary may prescribe, 
may guarantee or make a commitment to guarantee the payment of the prin-
cipal of and interest on an obligation eligible to be guaranteed under this 
chapter. A guarantee or commitment to guarantee shall cover 100 percent of 
the principal and interest. 
‘‘(b) DIRECT LOANS FOR FISHERIES.— 
‘‘(1) IN GENERAL.—Notwithstanding any other provision of this chap-
ter, any obligation involving a fishing vessel, fishery facility, aquaculture 
facility, individual fishing quota, or fishing capacity reduction program 
issued under this chapter after October 11, 1996, shall be a direct loan 
obligation for which the Secretary shall be the obligee, rather than an 
obligation issued to an obligee other than the Secretary and guaranteed 
by the Secretary. A direct loan obligation under this subsection shall be 
treated in the same manner and to the same extent as an obligation 
guaranteed under this chapter except with respect to provisions of this 
chapter that by their nature can only be applied to obligations guaran-
teed under this chapter. 
‘‘(2) INTEREST RATE.—Notwithstanding any other provision of this 
chapter, the annual rate of interest an obligor shall pay on a direct loan 
obligation under this subsection is 2 percent plus the additional percent 
the Secretary must pay as interest to borrow from the Treasury the funds 
to make the loan. 
‘‘§ 53703. Application procedures 
‘‘(a) TIME FOR DECISION.— 
‘‘(1) IN GENERAL.—The Secretary shall approve or deny an applica-
tion for a loan guarantee under this chapter within 270 days after the 
date on which the signed application is received by the Secretary. 
‘‘(2) EXTENSION.—On request by an applicant, the Secretary may ex-
tend the 270-day period in paragraph (1) to a date not later than 2 
years after the date on which the signed application was received by the 
Secretary. 
‘‘(b) CERTIFICATION OF REVIEW.—The Secretary may not guarantee or 
make a commitment to guarantee an obligation under this chapter unless the 
Secretary certifies that a full and fair consideration of all the regulatory re-
quirements, including economic soundness and financial requirements appli-
140 
cable to the obligor and related parties, and a thorough assessment of the tech-
nical, economic, and financial aspects of the loan application, has been made. 
‘‘§ 53704. Funding limits 
‘‘(a) GENERAL LIMITATIONS.—The total unpaid principal amount of obli-
gations guaranteed under this chapter and outstanding at one time may not 
exceed $12,000,000,000. Of that amount— 
‘‘(1) $850,000,000 shall be limited to obligations related to fishing ves-
sels and fishery facilities; and 
‘‘(2) $3,000,000,000 shall be limited to obligations related to eligible 
export vessels. 
‘‘(b) ADDITIONAL LIMITATIONS.—Additional limitations may not be im-
posed on new commitments to guarantee loans for any fiscal year, except in 
amounts established in advance by annual authorization laws. A vessel eligi-
ble for a guarantee under this chapter may not be denied eligibility because 
of its type. 
‘‘(c) LIMITS BASED ON RISK FACTORS.— 
‘‘(1) DEFINITION.—In this subsection, the term ‘cost’ has the meaning 
given that term in section 502 of the Federal Credit Reform Act of 1990 
(2 U.S.C. 661a). 
‘‘(2) SYSTEM OF RISK CATEGORIES.—The Secretary shall— 
‘‘(A) establish, and update annually, a system of risk categories 
for obligations guaranteed under this chapter that categorizes the 
relative risk of guarantees based on the risk factors set forth in 
paragraph (4); 
‘‘(B) determine annually for each risk category a subsidy rate 
equivalent to the cost of obligations in the category, expressed as a 
percentage of the amount guaranteed for obligations in the category; 
and 
‘‘(C) ensure that each risk category is comprised of loans that are 
relatively homogeneous in cost and share characteristics predictive 
of defaults and other costs, given the facts known at the time of obli-
gation or commitment, using a risk category system that is based 
on historical analysis of program data and statistical evidence con-
cerning the likely costs of defaults or other costs that are expected 
to be associated with the loans in the category. 
‘‘(3) USE OF SYSTEM.— 
‘‘(A) PLACING
OBLIGATION
IN
CATEGORY.—Before making a 
guarantee under this chapter for an obligation, and annually for 
projects subject to a guarantee, the Secretary shall apply the risk 
factors specified in paragraph (4) to place the obligation in a risk 
category established under paragraph (2).
141 
‘‘(B) REDUCTION OF AVAILABLE AMOUNT.—The Secretary shall 
consider the total amount available to the Secretary for making 
guarantees under this chapter to be reduced by the amount deter-
mined by multiplying— 
‘‘(i) the amount guaranteed under this chapter for an obliga-
tion; by 
‘‘(ii) the subsidy rate for the category in which the obligation 
is placed under subparagraph (A). 
‘‘(C) ESTIMATED COST.—The estimated cost to the United States 
Government of a guarantee under this chapter for an obligation is 
deemed to be the amount determined under subparagraph (B) for 
the obligation. 
‘‘(D) RESTRICTION ON FURTHER GUARANTEES.—The Secretary 
may not guarantee obligations under this chapter after the total 
amount available to the Secretary under appropriations laws for the 
cost of loan guarantees is considered to be reduced to zero under sub-
paragraph (B). 
‘‘(4) RISK FACTORS.—The risk factors referred to in this subsection 
are— 
‘‘(A) if applicable, the country risk for each eligible export vessel 
financed or to be financed by an obligation; 
‘‘(B) the period for which an obligation is guaranteed or to be 
guaranteed; 
‘‘(C) the amount of an obligation guaranteed or to be guaranteed 
in relation to the total cost of the project financed or to be financed 
by the obligation; 
‘‘(D) the financial condition of an obligor or applicant for a 
guarantee; 
‘‘(E) if applicable, other guarantees related to the project; 
‘‘(F) if applicable, the projected employment of each vessel or 
equipment to be financed with an obligation; 
‘‘(G) if applicable, the projected market that will be served by 
each vessel or equipment to be financed with an obligation; 
‘‘(H) the collateral provided for a guarantee for an obligation; 
‘‘(I) the management and operating experience of an obligor or 
applicant for a guarantee; 
‘‘(J) whether a guarantee under this chapter is or will be in effect 
during the construction period of the project; and 
‘‘(K) the concentration risk presented by an unduly large percent-
age of loans outstanding by any one borrower or group of affiliated 
borrowers.
142 
‘‘§ 53705. Pledge of United States Government 
‘‘(a) FULL FAITH AND CREDIT.—The full faith and credit of the United 
States Government is pledged to the payment of a guarantee made under this 
chapter, for both principal and interest, including interest (as may be pro-
vided for in the guarantee) accruing between the date of default under a guar-
anteed obligation and the date of payment in full of the guarantee. 
‘‘(b) INCONTESTABILITY.—A guarantee or commitment to guarantee made 
under this chapter is conclusive evidence of the eligibility of the obligation for 
the guarantee. The validity of a guarantee or commitment to guarantee made 
under this chapter is incontestable. 
‘‘§ 53706. Eligible purposes of obligations 
‘‘(a) IN GENERAL.—To be eligible for a guarantee under this chapter, an 
obligation must aid in any of the following: 
‘‘(1)(A) Financing (including reimbursement of an obligor for expend-
itures previously made for) the construction, reconstruction, or recondi-
tioning of a vessel (including an eligible export vessel) designed prin-
cipally for research, or for commercial use— 
‘‘(i) in the coastwise or intercoastal trade; 
‘‘(ii) on the Great Lakes, or on bays, sounds, rivers, harbors, or 
inland lakes of the United States; 
‘‘(iii) in foreign trade as defined in section 109(b) of this title; 
‘‘(iv) as an ocean thermal energy conversion facility or plantship; 
‘‘(v) as a floating drydock in the construction, reconstruction, re-
conditioning, or repair of vessels; or 
‘‘(vi) as an eligible export vessel in worldwide trade. 
‘‘(B) A guarantee under subparagraph (A) may not be made more 
than one year after delivery of the vessel (or redelivery if the vessel was 
reconstructed or reconditioned) unless the proceeds of the obligation are 
used to finance the construction, reconstruction, or reconditioning of a 
vessel or of facilities or equipment related to marine operations. 
‘‘(2) Financing (including reimbursement of an obligor for expendi-
tures previously made for) the construction, reconstruction, recondi-
tioning, or purchase of a vessel owned by citizens of the United States 
and designed principally for research, or for commercial use in the fish-
ing industry. 
‘‘(3) Financing the purchase, reconstruction, or reconditioning of a 
vessel or fishery facility— 
‘‘(A) for which an obligation was guaranteed under this chapter; 
and 
‘‘(B) that, under subchapter II of this chapter—
143 
‘‘(i) is a vessel or fishery facility for which an obligation 
was accelerated and paid; 
‘‘(ii) was acquired by the Federal Ship Financing Fund or 
successor account under section 53717 of this title; or 
‘‘(iii) was sold at foreclosure begun or intervened in by the 
Secretary. 
‘‘(4) Financing any part of the repayment to the United States Gov-
ernment of any amount of a construction-differential subsidy paid for 
a vessel. 
‘‘(5) Refinancing an existing obligation (regardless of whether guaran-
teed under this chapter) issued for a purpose described in paragraphs 
(1)–(4), including a short-term obligation incurred to obtain temporary 
funds with the intention of refinancing. 
‘‘(6) Financing or refinancing (including reimbursement of an obligor 
for expenditures previously made for) the construction, reconstruction, re-
conditioning, or purchase of a fishery facility. 
‘‘(7) Financing or refinancing (including reimbursement of an obligor 
for expenditures previously made for) the purchase of an individual fish-
ing quota in accordance with section 303(d)(4) of the Magnuson-Stevens 
Fishery Conservation and Management Act (16 U.S.C. 1853(d)(4)). 
‘‘(b) NON-VESSELS TREATED
AS VESSELS.—An obligation guaranteed 
under subsection (a)(6) or (7) shall be treated, for purposes of this chapter, 
in the same manner and to the same extent as an obligation that aids in 
financing the construction, reconstruction, reconditioning, or purchase of a 
vessel, except with respect to provisions that by their nature can only be ap-
plied to vessels. 
‘‘(c) PRIORITIES FOR CERTAIN VESSELS.—In guaranteeing or making a 
commitment to guarantee an obligation under this chapter, the Secretary 
shall give priority to— 
‘‘(1) a vessel that is otherwise eligible for a guarantee and is con-
structed with assistance under subtitle D of the Maritime Security Act 
of 2003 (46 U.S.C. 53101 note); and 
‘‘(2) after applying paragraph (1), a vessel that is otherwise eligible 
for a guarantee and that the Secretary of Defense determines— 
‘‘(A) is suitable for service as a naval auxiliary in time of war 
or national emergency; and 
‘‘(B) meets a shortfall in sealift capacity or capability. 
‘‘§ 53707. Findings related to obligors and operators 
‘‘(a) RESPONSIBLE OBLIGOR.—The Secretary may not guarantee or make 
a commitment to guarantee an obligation under this chapter unless the Sec-
retary finds that the obligor is responsible and has the ability, experience, fi-
144 
nancial resources, and other qualifications necessary for the adequate oper-
ation and maintenance of each vessel that will serve as security for the guar-
antee. 
‘‘(b) OPERATORS OF LINER VESSELS.—The Secretary of Transportation 
may not guarantee or make a commitment to guarantee a loan for the con-
struction, reconstruction, or reconditioning of a liner vessel under this chapter 
unless the Chairman of the Federal Maritime Commission certifies that the 
operator of the vessel has not been found by the Commission to have com-
mitted, within the previous 5 years— 
‘‘(1) a violation of part A of subtitle IV of this title that involves un-
just or unfair discriminatory treatment or undue or unreasonable preju-
dice or disadvantage with respect to a United States shipper, ocean 
transportation intermediary, ocean common carrier, or port; or 
‘‘(2) a violation of part B of subtitle IV of this title. 
‘‘(c) OPERATORS OF FISHING VESSELS.—The Secretary of Commerce may 
not guarantee or make a commitment to guarantee a loan for the construc-
tion, reconstruction, or reconditioning of a fishing vessel under this chapter 
if the operator of the vessel has been— 
‘‘(1) held liable, or the vessel has been held liable in rem, for a civil 
penalty under section 308 of the Magnuson-Stevens Fishery Conservation 
and Management Act (16 U.S.C. 1858) and the operator has not paid 
the penalty; 
‘‘(2) found guilty of an offense under section 309 of the Magnuson-Ste-
vens Fishery Conservation and Management Act (16 U.S.C. 1859) and 
not paid the assessed fine or served the assessed sentence; 
‘‘(3) held liable for a civil or criminal penalty under section 105 of 
the Marine Mammal Protection Act of 1972 (16 U.S.C. 1375) and not 
paid the assessed fine or served the assessed sentence; or 
‘‘(4) held liable for a civil penalty by the Coast Guard under this title 
or title 33 and not paid the assessed fine. 
‘‘(d) WAIVERS CONCERNING FINANCIAL CONDITION.—The Secretary shall 
prescribe regulations concerning circumstances under which waivers of, or ex-
ceptions to, otherwise applicable regulatory requirements concerning financial 
condition can be made. The regulations shall require that— 
‘‘(1) the economic soundness requirements in section 53708(a) of this 
title are met after the waiver of the financial condition requirement; and 
‘‘(2) the waiver shall provide for the imposition of other requirements 
on the obligor designed to compensate for the increased risk associated 
with the obligor’s failure to meet regulatory requirements applicable to 
financial condition.
145 
‘‘§ 53708. Findings related to economic soundness 
‘‘(a) BY SECRETARY OF TRANSPORTATION.—The Secretary of Transpor-
tation may not guarantee or make a commitment to guarantee an obligation 
under this chapter unless the Secretary finds that the property or project for 
which the obligation will be executed will be economically sound. In making 
that finding, the Secretary shall consider— 
‘‘(1) the need in the particular segment of the maritime industry for 
new or additional capacity, including any impact on existing equipment 
for which a guarantee under this chapter is in effect; 
‘‘(2) the market potential for employment of the vessel over the life of 
the guarantee; 
‘‘(3) projected revenues and expenses associated with employment of 
the vessel; 
‘‘(4) any charter, contract of affreightment, transportation agreement, 
or similar agreement or undertaking relevant to the employment of the 
vessel; 
‘‘(5) other relevant criteria; and 
‘‘(6) for inland waterways, the need for technical improvements, in-
cluding increased fuel efficiency or improved safety. 
‘‘(b) BY SECRETARY OF COMMERCE.—The Secretary of Commerce may not 
guarantee or make a commitment to guarantee an obligation under this chap-
ter unless the Secretary finds, at or prior to the time the commitment is made 
or the guarantee becomes effective, that— 
‘‘(1) the property or project for which the obligation will be executed 
will be economically sound; and 
‘‘(2) for a fishing vessel, the purpose of the financing or refinancing 
is consistent with— 
‘‘(A) the wise use of the fisheries resources and the development, 
advancement, management, conservation, and protection of the fish-
eries resources; or 
‘‘(B) the need for technical improvements, including increased 
fuel efficiency or improved safety. 
‘‘(c) USED FISHING VESSELS AND FACILITIES.—The Secretary of Com-
merce may not guarantee or make a commitment to guarantee an obligation 
under this chapter for the purchase of a used fishing vessel or used fishery 
facility unless the vessel or facility will be— 
‘‘(1) reconstructed or reconditioned in the United States and will con-
tribute to the development of the United States fishing industry; or 
‘‘(2) used— 
‘‘(A) in the harvesting of fish from an underused fishery; or
146 
‘‘(B) for a purpose described in the definition of ‘fishery facility’ 
in section 53701 of this title with respect to an underused fishery. 
‘‘(d) INDEPENDENT ANALYSIS.—The Secretary may make a determination 
that aspects of an application under this chapter require independent anal-
ysis to be conducted by third party experts due to risk factors associated with 
markets, technology, financial structures, or other risk factors identified by the 
Secretary. Any independent analysis conducted under this subsection shall be 
performed by a party chosen by the Secretary. 
‘‘(e) ADDITIONAL EQUITY BECAUSE
OF INCREASED RISKS.—Notwith-
standing any other provision of this chapter, the Secretary may make a deter-
mination that an application under this title requires additional equity be-
cause of increased risk factors associated with markets, technology, financial 
structures, or other risk factors identified by the Secretary. 
‘‘§ 53709. Amount of obligations 
‘‘(a) IN GENERAL.—The principal of an obligation may not be guaranteed 
in an amount greater than the amount determined by multiplying the per-
centage applicable under subsection (b) by— 
‘‘(1) the amount paid by or for the account of the obligor (as deter-
mined by the Secretary, which determination shall be conclusive) for the 
construction, reconstruction, or reconditioning of the vessel used as secu-
rity for the guarantee; or 
‘‘(2) if the obligor creates an escrow fund under section 53715 of this 
title, the actual cost of the vessel. 
‘‘(b) LIMITATIONS ON AMOUNT BORROWED.— 
‘‘(1) IN
GENERAL.—Except as otherwise provided, the principal 
amount of an obligation guaranteed under this chapter may not exceed 
75 percent of the actual cost or depreciated actual cost, as determined 
by the Secretary, of the vessel used as security for the guarantee. 
‘‘(2) CERTAIN APPROVED VESSELS.—The principal amount may not 
exceed 87.5 percent of the actual cost or depreciated actual cost if— 
‘‘(A) the size and speed of the vessel are approved by the Sec-
retary; 
‘‘(B) the vessel is or would have been eligible for mortgage aid 
for construction under section 509 of the Merchant Marine Act, 
1936, or would have been eligible except that the vessel was built 
with a construction-differential subsidy and the subsidy has been re-
paid; and 
‘‘(C) the vessel is of a type described in that section for which 
the minimum down payment required by that section is 12.5 per-
cent of the cost of the vessel.
147 
‘‘(3) BARGES.—For a barge constructed without a construction-dif-
ferential subsidy or for which the subsidy has been repaid, the principal 
amount may not exceed 87.5 percent of the actual cost or depreciated ac-
tual cost. 
‘‘(4) FISHING VESSELS AND FISHERY FACILITIES.—For a fishing vessel 
or fishery facility, the principal amount may not exceed 80 percent of 
the actual cost or depreciated actual cost. However, debt for the vessel 
or facility may not be placed through the Federal Financing Bank. 
‘‘(5) OTEC.—For an ocean thermal energy conversion facility or 
plantship constructed without a construction-differential subsidy, the 
principal amount may not exceed 87.5 percent of the actual cost or de-
preciated actual cost of the facility or plantship. 
‘‘(6) ELIGIBLE EXPORT VESSELS.—For an eligible export vessel, the 
principal amount may not exceed 87.5 percent of the actual cost or de-
preciated actual cost. 
‘‘(c) SECURITY INVOLVING MULTIPLE VESSELS.—The principal amount of 
an obligation having more than one vessel as security for the guarantee may 
not exceed the sum of the principal amounts allowable for all the vessels. 
‘‘(d) PROHIBITION
ON UNIFORM PERCENTAGE LIMITATIONS.—The Sec-
retary may not establish a percentage under any provision of subsection (b) 
that is to be applied uniformly to all guarantees or commitments to guarantee 
made under that provision. 
‘‘(e) PROHIBITION ON MINIMUM PRINCIPAL AMOUNT.—The Secretary may 
not establish, as a condition of eligibility for a guarantee under this chapter, 
a minimum principal amount for an obligation covering the reconstruction 
or reconditioning of a fishing vessel or fishery facility. For purposes of this 
chapter, the reconstruction or reconditioning of a fishing vessel or fishery fa-
cility does not include the routine minor repair or maintenance of the vessel 
or facility. 
‘‘§ 53710. Contents of obligations 
‘‘(a) IN GENERAL.—An obligation guaranteed under this chapter must— 
‘‘(1) provide for payments by the obligor satisfactory to the Secretary; 
‘‘(2) provide for interest (exclusive of guarantee fees and other fees) at 
a rate not more than the annual rate on the unpaid principal that the 
Secretary determines is reasonable, considering the range of interest rates 
prevailing in the private market for similar loans and the risks assumed 
by the Secretary; 
‘‘(3) have a maturity date satisfactory to the Secretary, but— 
‘‘(A) not more than 25 years after the date of delivery of the ves-
sel used as security for the guarantee; or
148 
‘‘(B) if the vessel has been reconstructed or reconditioned, not 
more than the later of— 
‘‘(i) 25 years after the date of delivery of the vessel; or 
‘‘(ii) the remaining years of useful life of the vessel as deter-
mined by the Secretary; and 
‘‘(4) provide, or a related agreement must provide, that if the vessel 
used as security for the guarantee is a delivered vessel, the vessel shall 
be— 
‘‘(A) in class A–1, American Bureau of Shipping, or meet other 
standards acceptable to the Secretary, with all required certificates, 
including marine inspection certificates of the Coast Guard or, in 
the case of an eligible export vessel, of the appropriate foreign au-
thorities under a treaty, convention, or other international agree-
ment to which the United States is a party, and with all out-
standing requirements and recommendations necessary for class re-
tention accomplished, unless the Secretary permits a deferment of 
repairs necessary to meet these requirements; and 
‘‘(B) well equipped, in good repair, and in every respect sea-
worthy and fit for service. 
‘‘(b) PROVISIONS FOR CERTAIN PASSENGER VESSELS.— 
‘‘(1) IN GENERAL.—With the Secretary’s approval, if the vessel used 
as security for the guarantee is a passenger vessel having the tonnage, 
speed, passenger accommodations, and other characteristics described in 
section 503 of the Merchant Marine Act, 1936, an obligation guaranteed 
under this chapter or a related agreement may provide that— 
‘‘(A) the only recourse by the United States Government against 
the obligor for payments under the guarantee will be repossession 
of the vessel and assignment of insurance claims; and 
‘‘(B) the obligor’s liability for payments under the guarantee will 
be satisfied and discharged by the surrender of the vessel and all 
interest in the vessel to the Government in the condition described 
in paragraph (2). 
‘‘(2) SURRENDER OF VESSEL.— 
‘‘(A) IN GENERAL.—On surrender, the vessel must be— 
‘‘(i) free and clear of all liens and encumbrances except the 
security interest conveyed to the Secretary under this chapter; 
‘‘(ii) in class; and 
‘‘(iii) in as good order and condition (ordinary wear and 
tear excepted) as when acquired by the obligor. 
‘‘(B) COVERING DEFICIENCIES BY INSURANCE.—To the extent cov-
ered by insurance, a deficiency related to a requirement in subpara-
149 
graph (A) may be satisfied by assignment of the obligor’s insurance 
claims to the Government. 
‘‘(c) OTHER PROVISIONS TO PROTECT SECURITY INTERESTS.—An obliga-
tion guaranteed under this chapter and any related agreement must contain 
other provisions for the protection of the security interests of the Government 
(including acceleration, assumption, and subrogation provisions and the 
issuance of notes by the obligor to the Secretary), liens and releases of liens, 
payment of taxes, and other matters that the Secretary may prescribe. 
‘‘§ 53711. Security interest 
‘‘(a) IN GENERAL.—The Secretary may guarantee an obligation under this 
chapter only if the obligor conveys or agrees to convey to the Secretary a secu-
rity interest the Secretary considers necessary to protect the interest of the 
United States Government. 
‘‘(b) MULTIPLE VESSELS AND TYPES OF SECURITY.—The security interest 
may relate to more than one vessel and may consist of more than one type 
of security. If the security interest relates to more than one vessel, the obliga-
tion may have the latest maturity date allowable under section 53710(a)(3) 
of this title for any of the vessels used as security for the guarantee. However, 
the Secretary may require such payments of principal prior to maturity, with 
respect to all related obligations, as the Secretary considers necessary to main-
tain adequate security for the guarantee. 
‘‘§ 53712. Monitoring financial condition and operations of 
obligor 
‘‘(a) IN GENERAL.—The Secretary shall monitor the financial condition 
and operations of the obligor on a regular basis during the term of the guar-
antee. The Secretary shall document the results of the monitoring on an an-
nual or quarterly basis depending on the condition of the obligor. If the Sec-
retary determines that the financial condition of the obligor warrants addi-
tional protections to the Secretary, the Secretary shall take appropriate action 
under subsection (b). If the Secretary determines that the financial condition 
of the obligor jeopardizes its continued ability to perform its responsibilities 
in connection with the guarantee of an obligation by the Secretary, the Sec-
retary shall make an immediate determination whether default should take 
place and whether further measures described in subsection (b) should be 
taken to protect the interests of the Secretary while ensuring that program 
objectives are met. 
‘‘(b) CONTRACT PROVISIONS TO PROTECT SECRETARY.—The Secretary 
shall include provisions in a loan agreement with an obligor that provides 
additional authority to the Secretary to take action to limit potential losses 
in connection with a defaulted loan or a loan that is in jeopardy due to the 
deteriorating financial condition of the obligor. These provisions include re-