cluding any agreement authorizing preferential treatment at terminals, 
preferential terminal leases, space chartering, or pooling of cargo or 
revenue with other ocean common carriers; and 
‘‘(4) a fee not to exceed $1,000,000 per voyage. 
‘‘(b) CONSULTATION.—The Commission may consult with, seek the co-
operation of, or make recommendations to other appropriate agencies of the 
United States Government prior to taking any action under subsection (a). 
‘‘§ 42305. Refusal of clearance and entry 
‘‘Subject to section 42306 of this title, whenever the Federal Maritime 
Commission determines that the conditions specified in section 42302(a) of 
this title exist, then at the request of the Commission—
‘‘(1) the Secretary of Homeland Security shall refuse the clearance 
required by section 60105 of this title to a vessel of a foreign carrier 
that is identified by the Commission under section 42304 of this title; 
and 
‘‘(2) the Secretary of the department in which the Coast Guard is 
operating shall—
‘‘(A) deny entry, for purposes of oceanborne trade, of a vessel 
of a foreign carrier that is identified by the Commission under sec-
tion 42304 of this title, to a port or place in the United States 
or the navigable waters of the United States; or 
‘‘(B) detain the vessel at the port or place in the United States 
from which it is about to depart for another port or place in the 
United States. 
‘‘§ 42306. Submission of determinations to President 
‘‘Before a determination under section 42304 of this title becomes effec-
tive or a request is made under section 42305 of this title, the determina-
tion shall be submitted immediately to the President. The President, within 
10 days after receiving it, may disapprove it in writing, setting forth the
reasons for the disapproval, if the President finds that disapproval is re-
quired for reasons of national defense or foreign policy. 
‘‘§ 42307. Review of regulations and orders 
‘‘A regulation or final order of the Federal Maritime Commission under 
this chapter is reviewable exclusively in the same forum and in the same 
manner as provided in section 2342(3)(B) of title 28. 
‘‘PART C—MISCELLANEOUS 
‘‘CHAPTER 441—EVIDENCE OF FINANCIAL 
RESPONSIBILITY FOR PASSENGER TRANSPORTATION
‘‘Sec. 
‘‘44101.
Application. 
‘‘44102.
Financial responsibility to indemnify passengers for nonperformance of transpor-
tation. 
‘‘44103.
Financial responsibility to pay liability for death or injury.
‘‘44104.
Civil penalty. 
‘‘44105.
Refusal of clearance. 
‘‘44106.
Conduct of proceedings.
‘‘§ 44101. Application 
‘‘This chapter applies to a vessel that—
‘‘(1) has berth or stateroom accommodations for at least 50 pas-
sengers; and 
‘‘(2) boards passengers at a port in the United States. 
‘‘§ 44102. Financial responsibility to indemnify passengers 
for nonperformance of transportation 
‘‘(a) FILING REQUIREMENT.—A person in the United States may not ar-
range, offer, advertise, or provide transportation on a vessel to which this 
chapter applies unless the person has filed with the Federal Maritime Com-
mission evidence of financial responsibility to indemnify passengers for non-
performance of the transportation. 
‘‘(b) SATISFACTORY EVIDENCE.—To satisfy subsection (a), a person must 
file—
‘‘(1) information the Commission considers necessary; or 
‘‘(2) a copy of a bond or other security, in such form as the Commis-
sion by regulation may require. 
‘‘(c) AUTHORIZED ISSUER OF BOND.—If a bond is filed, it must be 
issued by a bonding company authorized to do business in the United 
States. 
‘‘§ 44103. Financial responsibility to pay liability for death 
or injury 
‘‘(a) GENERAL REQUIREMENT.—The owner or charterer of a vessel to 
which this chapter applies shall establish, under regulations prescribed by 
the Federal Maritime Commission, financial responsibility to meet liability 
for death or injury to passengers or other individuals on a voyage to or from 
a port in the United States. 
‘‘(b) AMOUNTS.—
‘‘(1) IN GENERAL.—The amount of financial responsibility required 
under subsection (a) shall be based on the number of passenger accom-
modations as follows: 
‘‘(A) $20,000 for each of the first 500 passenger accommoda-
tions. 
‘‘(B) $15,000 for each additional passenger accommodation be-
tween 501 and 1,000. 
‘‘(C) $10,000 for each additional passenger accommodation be-
tween 1,001 and 1,500. 
‘‘(D) $5,000 for each additional passenger accommodation over 
1,500.
‘‘(2) MULTIPLE VESSELS.—If the owner or charterer is operating 
more than one vessel subject to this chapter, the amount of financial 
responsibility shall be based on the number of passenger accommoda-
tions on the vessel with the largest number of passenger accommoda-
tions. 
‘‘(c) AVAILABILITY TO PAY JUDGMENT.—The amount determined under 
subsection (b) shall be available to pay a judgment for damages (whether 
less than or more than $20,000) for death or injury to a passenger or other 
individual on a voyage to or from a port in the United States. 
‘‘(d) MEANS OF ESTABLISHING.—Financial responsibility under this sec-
tion may be established by one or more of the following if acceptable to the 
Commission: 
‘‘(1) Insurance. 
‘‘(2) Surety bond issued by a bonding company authorized to do 
business in the United States. 
‘‘(3) Qualification as a self-insurer. 
‘‘(4) Other evidence of financial responsibility. 
‘‘§ 44104. Civil penalty 
‘‘A person that violates section 44102 or 44103 of this title is liable to 
the United States Government for a civil penalty of not more than $5,000, 
plus $200 for each passage sold, to be assessed by the Federal Maritime 
Commission. The Commission may remit or mitigate the penalty on terms 
the Commission considers proper. 
‘‘§ 44105. Refusal of clearance 
‘‘The Secretary of Homeland Security shall refuse the clearance required 
by section 60105 of this title, at the port or place of departure from the 
United States, of a vessel that is subject to this chapter and does not have 
evidence issued by the Federal Maritime Commission of compliance with 
sections 44102 and 44103 of this title. 
‘‘§ 44106. Conduct of proceedings 
‘‘Part A of this subtitle applies to proceedings conducted by the Federal 
Maritime Commission under this chapter.’’.
SEC. 7. SUBTITLE V OF TITLE 46. 
(a) COORDINATION WITH MARITIME SECURITY ACT OF 2003.—
(1) IF THIS ACT EFFECTIVE FIRST.—If this Act is enacted before the 
amendment made by section 3531(a) of the Maritime Security Act of 
2003 (Public Law 108–136, 117 Stat. 1803) becomes effective, such 
section 3531(a) is amended by striking ‘‘inserting before subtitle VI the 
following new subtitle:’’ and all that follows through the subtitle anal-
ysis which is directed to be inserted by such section, and by sub-
stituting ‘‘inserting before chapter 533 the following new chapter:’’.
(2) IF THIS ACT EFFECTIVE SECOND.—If this Act is enacted after 
the amendment made by section 3531(a) of the Maritime Security Act 
of 2003 (Public Law 108–136, 117 Stat. 1803) becomes effective, title 
46, United States Code, is amended by striking the heading and anal-
ysis of subtitle V. 
(b) HEADING AND SUBTITLE ANALYSIS.—Title 46, United States Code, 
is amended by inserting after subtitle IV the following: 
‘‘Subtitle V—Merchant Marine 
‘‘PART A—GENERAL
‘‘Chapter 
Sec. 
‘‘501. Policy, Studies, and Reports .................................................................
50101
‘‘503. Administrative ...........................................................................................
50301
‘‘505. Other General Provisions ......................................................................
50501
‘‘PART B—MERCHANT MARINE SERVICE
‘‘511. General ..........................................................................................................
51101
‘‘513. United States Merchant Marine Academy ......................................
51301
‘‘515. State Maritime Academy Support Program ...................................
51501
‘‘517. Other Support for Merchant Marine Training ..............................
51701
‘‘519. Merchant Marine Awards ......................................................................
51901
‘‘521. Miscellaneous .............................................................................................
52101
‘‘PART C—FINANCIAL ASSISTANCE PROGRAMS
‘‘531. Maritime Security Fleet .........................................................................
53101
‘‘533. Construction Reserve Funds ................................................................
53301
‘‘535. Capital Construction Funds .................................................................
53501
‘‘537. Loans and Guarantees ............................................................................
53701
‘‘539. War Risk Insurance ..................................................................................
53901
‘‘PART D—PROMOTIONAL PROGRAMS
‘‘551. Coastwise Trade ........................................................................................
55101
‘‘553. Passenger and Cargo Preferences ......................................................
55301
‘‘555. Miscellaneous .............................................................................................
55501
‘‘PART E—CONTROL OF MERCHANT MARINE CAPABILITIES
‘‘561. Restrictions on Transfers ......................................................................
56101
‘‘563. Emergency Acquisition of Vessels ......................................................
56301
‘‘565. Essential Vessels Affected by Neutrality Act .................................
56501
‘‘PART F—GOVERNMENT-OWNED MERCHANT VESSELS
‘‘571. General Authority .....................................................................................
57101
‘‘573. Vessel Trade-In Program .......................................................................
57301
‘‘575. Construction, Charter, and Sale of Vessels ....................................
57501
‘‘PART G—RESTRICTIONS AND PENALTIES
‘‘581. Restrictions and Penalties ....................................................................
58101’’.
(c) CHAPTERS PRECEDING CHAPTER 531.—Subtitle V of title 46, United 
States Code, is amended by inserting after the subtitle analysis the fol-
lowing:
‘‘PART A—GENERAL 
‘‘CHAPTER 501—POLICY, STUDIES, AND REPORTS
‘‘Sec. 
‘‘50101.
Objectives and policy. 
‘‘50102.
Survey of merchant marine. 
‘‘50103.
Determinations of essential services. 
‘‘50104.
Studies of general maritime problems.
‘‘50105.
Studies and cooperation relating to the construction of vessels. 
‘‘50106.
Studies on the operation of vessels. 
‘‘50107.
Studies on marine insurance. 
‘‘50108.
Studies on cargo carriage and cargo containers. 
‘‘50109.
Miscellaneous studies. 
‘‘50110.
Securing preference to vessels of the United States. 
‘‘50111.
Reports to Congress. 
‘‘50112.
National Maritime Enhancement Institutes. 
‘‘50113.
Use and performance reports by operators of vessels.
‘‘§ 50101. Objectives and policy 
‘‘(a) OBJECTIVES.—It is necessary for the national defense and the devel-
opment of the domestic and foreign commerce of the United States that the 
United States have a merchant marine—
‘‘(1) sufficient to carry the waterborne domestic commerce and a 
substantial part of the waterborne export and import foreign commerce 
of the United States and to provide shipping service essential for main-
taining the flow of the waterborne domestic and foreign commerce at 
all times; 
‘‘(2) capable of serving as a naval and military auxiliary in time of 
war or national emergency; 
‘‘(3) owned and operated under United States flag by citizens of the 
United States insofar as practicable; 
‘‘(4) composed of the best-equipped, safest, and most suitable types 
of vessels, built in the United States and manned with a trained and 
efficient citizen personnel; and 
‘‘(5) supplemented by efficient facilities for building and repairing 
vessels. 
‘‘(b) POLICY.—It is the policy of the United States Government to en-
courage and aid the development and maintenance of a merchant marine 
satisfying the objectives described in subsection (a).
‘‘§ 50102. Survey of merchant marine 
‘‘(a) IN GENERAL.—The Secretary of Transportation shall survey the 
merchant marine of the United States to determine whether replacements 
and additions are required to carry out the objectives and policy of section 
50101 of this title. The Secretary shall study, perfect, and adopt a long-
range program for replacements and additions that will result, as soon as 
practicable, in—
‘‘(1) an adequate and well-balanced merchant fleet, including vessels 
of all types, that will provide shipping service essential for maintaining 
the flow of foreign commerce by vessels designed to be readily and 
quickly convertible into transport and supply vessels in a time of na-
tional emergency; 
‘‘(2) ownership and operation of the fleet by citizens of the United 
States insofar as practicable;
‘‘(3) vessels designed to afford the best and most complete protection 
for passengers and crew against fire and all marine perils; and 
‘‘(4) an efficient capacity for building and repairing vessels in the 
United States with an adequate number of skilled personnel to provide 
an adequate mobilization base. 
‘‘(b) COOPERATION WITH SECRETARY OF NAVY.—In carrying out sub-
section (a)(1), the Secretary of Transportation shall cooperate closely with 
the Secretary of the Navy as to national defense requirements. 
‘‘§ 50103. Determinations of essential services 
‘‘(a) ESSENTIAL SERVICES, ROUTES, AND LINES.—
‘‘(1) IN GENERAL.—The Secretary of Transportation shall inves-
tigate, determine, and keep current records of the ocean services, 
routes, and lines from ports in the United States, or in the territories 
and possessions of the United States, to foreign markets, which the 
Secretary determines to be essential for the promotion, development, 
expansion, and maintenance of the foreign commerce of the United 
States. In making such a determination, the Secretary shall consider 
and give due weight to—
‘‘(A) the cost of maintaining each line; 
‘‘(B) the probability that a line cannot be maintained except at 
a heavy loss disproportionate to the benefit to foreign trade; 
‘‘(C) the number of voyages and types of vessels that should be 
employed in a line; 
‘‘(D) the intangible benefit of maintaining a line to the foreign 
commerce of the United States, the national defense, and other 
national requirements; and 
‘‘(E) any other facts and conditions a prudent business person 
would consider when dealing with the person’s own business. 
‘‘(2) SAINT LAWRENCE SEAWAY.—For purposes of paragraph (1), 
the Secretary shall establish services, routes, and lines that reflect the 
seasonal closing of the Saint Lawrence Seaway and provide for alter-
nate routing of vessels through a different range of ports during that 
closing to maintain continuity of service on a year-round basis. 
‘‘(b) BULK CARGO CARRYING SERVICES.—The Secretary shall inves-
tigate, determine, and keep current records of the bulk cargo carrying serv-
ices that should be provided by United States-flag vessels (whether or not 
operating on particular services, routes, or lines) for the promotion, develop-
ment, expansion, and maintenance of the foreign commerce of the United 
States and the national defense or other national requirements. 
‘‘(c) TYPES OF VESSELS.—The Secretary shall investigate, determine, 
and keep current records of the type, size, speed, method of propulsion, and
other requirements of the vessels, including express-liner or super-liner ves-
sels, that should be employed in—
‘‘(1) the services, routes, or lines described in subsection (a), and the 
frequency and regularity of the voyages of the vessels, with a view to 
furnishing adequate, regular, certain, and permanent service; and 
‘‘(2) the bulk cargo carrying services described in subsection (b). 
‘‘§ 50104. Studies of general maritime problems 
‘‘The Secretary of Transportation shall study all maritime problems aris-
ing in carrying out the policy in section 50101 of this title. 
‘‘§ 50105. Studies and cooperation relating to the construc-
tion of vessels 
‘‘(a) RELATIVE COSTS AND NEW DESIGNS.—The Secretary of Transpor-
tation shall investigate, determine, and keep current records of—
‘‘(1) the relative cost of construction of comparable vessels in the 
United States and in foreign countries; and 
‘‘(2) new designs, new methods of construction, and new types of 
equipment for vessels. 
‘‘(b) RULES, CLASSIFICATIONS, AND RATINGS.—The Secretary shall ex-
amine the rules under which vessels are constructed abroad and in the 
United States and the methods of classifying and rating the vessels. 
‘‘(c) COLLABORATION WITH OWNERS AND BUILDERS.—The Secretary 
shall collaborate with vessel owners and shipbuilders in developing plans for 
the economical construction of vessels and their propelling machinery, of 
most modern economical types, giving thorough consideration to all well-rec-
ognized means of propulsion and taking into account the benefits from 
standardized production where practicable and desirable. 
‘‘(d) EXPRESS-LINER AND SUPER-LINER VESSELS.—The Secretary shall 
study and cooperate with vessel owners in devising means by which there 
may be constructed, by or with the aid of the United States Government, 
express-liner or super-liner vessels comparable to those of other nations, es-
pecially with a view to their use in a national emergency, and the use of 
transoceanic aircraft service in connection with or in lieu of those vessels. 
‘‘§ 50106. Studies on the operation of vessels 
‘‘(a) RELATIVE COSTS.—The Secretary of Transportation shall inves-
tigate, determine, and keep current records of the relative cost of marine 
insurance, maintenance, repairs, wages and subsistence of officers and 
crews, and all other items of expense, in the operation of comparable vessels 
under the laws and regulations of the United States and those of the foreign 
countries whose vessels are substantial competitors of American vessels.
‘‘(b) SHIPYARDS.—The Secretary shall investigate, determine, and keep 
current records of the number, location, and efficiency of shipyards in the 
United States. 
‘‘(c) NAVIGATION LAWS.—The Secretary shall examine the navigation 
laws and regulations of the United States and make such recommendations 
to Congress as the Secretary considers proper for the amendment, improve-
ment, and revision of those laws and for the development of the merchant 
marine of the United States. 
‘‘§ 50107. Studies on marine insurance 
‘‘The Secretary of Transportation shall—
‘‘(1) examine into the subject of marine insurance, the number of 
companies in the United States, domestic and foreign, engaging in ma-
rine insurance, the extent of the insurance on hulls and cargoes placed 
or written in the United States, and the extent of reinsurance of Amer-
ican maritime risks in foreign companies; and 
‘‘(2) ascertain what steps may be necessary to develop an ample ma-
rine insurance system as an aid in the development of the merchant 
marine of the United States. 
‘‘§ 50108. Studies on cargo carriage and cargo containers 
‘‘(a) STUDIES.—The Secretary of Transportation shall study—
‘‘(1) the methods of encouraging the development and implementa-
tion of new concepts for the carriage of cargo in the domestic and for-
eign commerce of the United States; and 
‘‘(2) the economic and technological aspects of the use of cargo con-
tainers as a method of carrying out the policy in section 50101 of this 
title. 
‘‘(b) RESTRICTION.—In carrying out subsection (a) and the policy in sec-
tion 50101 of this title, the United States Government may not give pref-
erence as between carriers based on the length, height, or width of cargo 
containers or the length, height, or width of cargo container cells. This re-
striction applies to all existing container vessels and any container vessel to 
be constructed or rebuilt. 
‘‘§ 50109. Miscellaneous studies 
‘‘(a) FOREIGN SUBSIDIES.—The Secretary of Transportation shall inves-
tigate, determine, and keep current records of the extent and character of 
the governmental aid and subsidies granted by foreign governments to their 
merchant marine. 
‘‘(b) LAWS APPLICABLE TO AIRCRAFT.—The Secretary shall investigate, 
determine, and keep current records of the provisions of law relating to 
shipping that should be made applicable to aircraft engaged in foreign com-
merce to further the policy in section 50101 of this title, and any appro-
priate legislation in this regard. 
‘‘(c) AID FOR COTTON, COAL, LUMBER, AND CEMENT.—The Secretary 
shall investigate, determine, and keep current records of the advisability of 
enactment of suitable legislation authorizing the Secretary, in an economic 
or commercial emergency, to aid farmers and producers of cotton, coal, lum-
ber, and cement in any section of the United States in the transportation 
and landing of their products in any foreign port, which products can be 
carried in dry-cargo vessels by reducing rates, by supplying additional ton-
nage to any American operator, or by operation of vessels directly by the 
Secretary, until the Secretary considers the special rate reduction and oper-
ation unnecessary for the benefit of those farmers and producers. 
‘‘(d) INTERCOASTAL AND INLAND WATER TRANSPORTATION.—The Sec-
retary shall investigate, determine, and keep current records of intercoastal 
and inland water transportation, including their relation to transportation 
by land and air. 
‘‘(e) OBSOLETE TONNAGE AND TRAMP SERVICE.—The Secretary shall 
make studies and reports to Congress on—
‘‘(1) the scrapping or removal from service of old or obsolete mer-
chant tonnage owned by the United States Government or in use in 
the merchant marine; and 
‘‘(2) tramp shipping service and the advisability of citizens of the 
United States participating in that service with vessels under United 
States registry. 
‘‘(f) MORTGAGE LOANS.—The Secretary shall investigate the legal status 
of mortgage loans on vessel property, with a view to the means of improving 
the security of those loans and of encouraging investment in American ship-
ping. 
‘‘§ 50110. Securing preference to vessels of the United States 
‘‘(a) POSSIBILITIES OF PROMOTING CARRIAGE.—The Secretary of Trans-
portation shall investigate, determine, and keep current records of the possi-
bilities of promoting the carriage of United States foreign trade in vessels 
of the United States. 
‘‘(b) INDUCEMENTS TO IMPORTERS AND EXPORTERS.—The Secretary 
shall study and cooperate with vessel owners in devising means by which 
the importers and exporters of the United States can be induced to give 
preference to vessels of the United States. 
‘‘(c) LIAISON WITH AGENCIES
AND ORGANIZATIONS.—The Secretary 
shall establish and maintain liaison with such other agencies of the United 
States Government, and with such representative trade organizations 
throughout the United States, as may be concerned, directly or indirectly,
with any movement of commodities in the waterborne export and import for-
eign commerce of the United States, for the purpose of securing preference 
to vessels of the United States in the shipment of those commodities. 
‘‘§ 50111. Reports to Congress 
‘‘(a) IN GENERAL.—Not later than April 1 of each year, the Secretary 
of Transportation shall submit a report to Congress. The report shall in-
clude, with respect to activities of the Secretary under this subtitle, the re-
sults of investigations, a summary of transactions, a statement of all ex-
penditures and receipts, the purposes for which all expenditures were made, 
and any recommendations for legislation. 
‘‘(b) ADMINISTERED AND OVERSIGHT FUNDS.—The Secretary, in the re-
port under subsection (a) and in the annual budget estimate for the Mari-
time Administration submitted to Congress, shall state separately the 
amount, source, intended use, and nature of any funds (other than funds 
appropriated to the Administration or to the Secretary of Transportation 
for use by the Administration) administered, or subject to oversight, by the 
Administration. 
‘‘(c) ADDITIONAL RECOMMENDATIONS
FOR LEGISLATION.—The Sec-
retary, from time to time, shall make recommendations to Congress for leg-
islation the Secretary considers necessary to better achieve the objectives 
and policy of section 50101 of this title. 
‘‘§ 50112. National Maritime Enhancement Institutes 
‘‘(a) DESIGNATION.—The Secretary of Transportation may designate Na-
tional Maritime Enhancement Institutes. 
‘‘(b) ACTIVITIES.—Activities undertaken by an institute may include—
‘‘(1) conducting research about methods to improve the performance 
of maritime industries; 
‘‘(2) enhancing the competitiveness of domestic maritime industries 
in international trade; 
‘‘(3) forecasting trends in maritime trade; 
‘‘(4) assessing technological advancements; 
‘‘(5) developing management initiatives and training; 
‘‘(6) analyzing economic and operational impacts of regulatory poli-
cies and international negotiations or agreements pending before inter-
national bodies; 
‘‘(7) assessing the compatibility of domestic maritime infrastructure 
systems with overseas transport systems; 
‘‘(8) fostering innovations in maritime transportation pricing; and 
‘‘(9) improving maritime economics and finance.
‘‘(c) APPLICATION FOR DESIGNATION.—An institution seeking designa-
tion as a National Maritime Enhancement Institute shall submit an applica-
tion under regulations prescribed by the Secretary. 
‘‘(d) CRITERIA FOR DESIGNATION.—The Secretary shall designate an in-
stitute under this section on the basis of the following criteria: 
‘‘(1) The demonstrated research and extension resources available to 
the applicant for carrying out the activities specified in subsection (b). 
‘‘(2) The ability of the applicant to provide leadership in making na-
tional and regional contributions to the solution of both long-range and 
immediate problems of the domestic maritime industry. 
‘‘(3) The existence of an established program of the applicant encom-
passing research and training directed to enhancing maritime indus-
tries. 
‘‘(4) The demonstrated ability of the applicant to assemble and 
evaluate pertinent information from national and international sources 
and to disseminate results of maritime industry research and edu-
cational programs through a continuing education program. 
‘‘(5) The qualification of the applicant as a nonprofit institution of 
higher learning. 
‘‘(e) FINANCIAL AWARDS.—The Secretary may make awards on an equal 
matching basis to an institute designated under subsection (a) from 
amounts appropriated. The aggregate annual amount of the Federal share 
of the awards by the Secretary may not exceed $500,000. 
‘‘(f) UNIVERSITY TRANSPORTATION RESEARCH FUNDS.—The Secretary 
may make a grant under section 5505 of title 49 to an institute designated 
under subsection (a) for maritime and maritime intermodal research under 
that section as if the institute were a university transportation center. In 
making a grant, the Secretary, through the Research and Special Programs 
Administration, shall advise the Maritime Administration on the availability
of funds for the grants and consult with the Administration on making the 
grants. 
‘‘§ 50113. Use and performance reports by operators of ves-
sels 
‘‘(a) FILING REQUIREMENT.—The Secretary of Transportation by regula-
tion may require the operator of a vessel in the waterborne foreign com-
merce of the United States to file such report, account, record, or memo-
randum on the use and performance of the vessel as the Secretary considers 
desirable to assist in carrying out this subtitle. The report, account, record, 
or memorandum shall be signed and verified, and be filed at the times and 
in the manner, as provided by regulation.
‘‘(b) CIVIL PENALTY.—An operator not filing a report, account, record, 
or memorandum required by the Secretary under this section is liable to the 
United States Government for a civil penalty of $50 for each day of the 
violation. A penalty imposed under this section on the operator of a vessel 
constitutes a lien on the vessel involved in the violation, and the vessel may 
be libeled therefore in the district court of the United States for the district 
in which it may be found. The Secretary may remit or mitigate any penalty 
imposed under this section.
‘‘CHAPTER 503—ADMINISTRATIVE
‘‘Sec. 
‘‘50301.
Vessel Operations Revolving Fund. 
‘‘50302.
Port development. 
‘‘50303.
Operating property and extending term of notes. 
‘‘50304.
Sale and transfer of property. 
‘‘50305.
Appointment of trustee or receiver and operation of vessels. 
‘‘50306.
Requiring testimony and records in investigations.
‘‘§ 50301. Vessel Operations Revolving Fund 
‘‘(a) IN GENERAL.—There is a ‘Vessel Operations Revolving Fund’ for 
use by the Secretary of Transportation in carrying out duties and powers 
related to vessel operations, including charter, operation, maintenance, re-
pair, reconditioning, and improvement of merchant vessels under the juris-
diction of the Secretary. The Fund has a working capital of $20,000,000, 
to remain available until expended. 
‘‘(b) RELATIONSHIP TO OTHER LAWS.—Notwithstanding any other law, 
rates for shipping services provided under the Fund shall be prescribed by 
the Secretary and the Fund shall be credited with receipts from vessel oper-
ations conducted under the Fund. Sections 1(a) and (c), 3(c), and 4 of the 
Act of March 24, 1943 (50 App. U.S.C. 1291(a), (c), 1293(c), 1294), apply 
to those operations and to seamen employed through general agents as em-
ployees of the United States Government. Notwithstanding any other law 
on the employment of persons by the Government, the seamen may be em-
ployed in accordance with customary commercial practices in the maritime 
industry. 
‘‘(c) ADVANCEMENTS.—With the approval of the Director of the Office 
of Management and Budget, the Secretary may advance amounts the Sec-
retary considers necessary, but not more than 2 percent of vessel operating 
expenses, from the Fund to the appropriation ‘Salaries and Expenses’ in 
carrying out duties and powers related to vessel operations, without regard 
to the limitations on amounts stated in that appropriation. 
‘‘(d) TRANSFERS.—The unexpended balances of working funds or of allo-
cation accounts established after January 1, 1951, for the activities pro-
vided for in subsection (a), and receipts received from those activities, may 
be transferred to the Fund, which shall be available for the purposes of 
those working funds or allocation accounts.
‘‘(e) LIMITATION.—
‘‘(1) IN GENERAL.—Amounts made available to the Secretary for 
maritime activities by this section or any other law may not be used 
to pay for a vessel described in paragraph (2) unless the compensation 
to be paid is computed under section 56303 of this title as that section 
is interpreted by the Comptroller General. 
‘‘(2) APPLICABLE VESSELS.—Paragraph (1) applies to a vessel—
‘‘(A) the title to which is acquired by the Government by req-
uisition or purchase; 
‘‘(B) the use of which is taken by requisition or agreement; or 
‘‘(C) lost while insured by the Government. 
‘‘(3) NONAPPLICABLE VESSELS.—Paragraph (1) does not apply to a 
vessel under a construction-differential subsidy contract. 
‘‘(f) AVAILABILITY FOR ADDITIONAL PURPOSES.—The Fund is available 
for—
‘‘(1) necessary expenses incurred in the protection, preservation, 
maintenance, acquisition, or use of vessels involved in mortgage fore-
closure or forfeiture proceedings instituted by the Government, includ-
ing payment of prior claims and liens, expenses of sale, or other related 
charges; 
‘‘(2) necessary expenses incident to the redelivery and lay-up, in the 
United States, of vessels chartered as of June 20, 1956, under agree-
ments not calling for their return to the Government; 
‘‘(3) the activation, repair, and deactivation of merchant vessels 
chartered for limited emergency purposes during fiscal year 1957 under 
the jurisdiction of the Secretary; and 
‘‘(4) payment of expenses of custody and maintenance of Govern-
ment-owned vessels not in the National Defense Reserve Fleet. 
‘‘(g) EXPENSES AND RECEIPTS RELATED TO CHARTER OPERATIONS.—
The Fund is available for expenses incurred in activating, repairing, and de-
activating merchant vessels chartered under the jurisdiction of the Sec-
retary. Receipts from charter operations of Government-owned vessels under 
the jurisdiction of the Secretary shall be credited to the Fund. 
‘‘§ 50302. Port development 
‘‘(a) GENERAL REQUIREMENTS.—With the objective of promoting, en-
couraging, and developing ports and transportation facilities in connection 
with water commerce over which the Secretary of Transportation has juris-
diction, the Secretary, in cooperation with the Secretary of the Army, 
shall—
‘‘(1) investigate territorial regions and zones tributary to ports, tak-
ing into consideration the economies of transportation by rail, water, 
and highway and the natural direction of the flow of commerce; 
‘‘(2) investigate the causes of congestion of commerce at ports and 
applicable remedies; 
‘‘(3) investigate the subject of water terminals, including the nec-
essary docks, warehouses, and equipment, to devise and suggest the 
types most appropriate for different locations and for the most expedi-
tious and economical transfer or interchange of passengers or property 
between water carriers and rail carriers; 
‘‘(4) consult with communities on the appropriate location and plan 
of construction of wharves, piers, and water terminals; 
‘‘(5) investigate the practicability and advantages of harbor, river, 
and port improvements in connection with foreign and coastwise trade; 
and 
‘‘(6) investigate any other matter that may tend to promote and en-
courage the use by vessels of ports adequate to care for the freight that 
naturally would pass through those ports. 
‘‘(b) 
SUBMISSION
OF
FINDINGS
TO
SURFACE
TRANSPORTATION 
BOARD.—After an investigation under subsection (a), if the Secretary of 
Transportation believes that the rates or practices of a rail carrier subject 
to the jurisdiction of the Surface Transportation Board are detrimental to 
the objective specified in subsection (a), or that new rates or practices, new 
or additional port terminal facilities, or affirmative action by a rail carrier 
is necessary to promote that objective, the Secretary may submit findings 
to the Board for action the Board considers appropriate under existing law. 
‘‘§ 50303. Operating property and extending term of notes 
‘‘(a) GENERAL AUTHORITY.—The Secretary of Transportation may—
‘‘(1) operate or lease docks, wharves, piers, or real property under 
the Secretary’s control; and
‘‘(2) make extensions and accept renewals of—
‘‘(A) promissory notes and other evidences of indebtedness on 
property; and 
‘‘(B) mortgages and other contracts securing the property. 
‘‘(b) TERMS
OF TRANSACTIONS.—A transaction under subsection (a) 
shall be on terms the Secretary considers necessary to carry out the pur-
poses of this subtitle, but consistent with sound business practice. 
‘‘(c) AVAILABILITY OF AMOUNTS.—Amounts received by the Secretary 
from a transaction under this section are available for expenditure by the 
Secretary as provided in this subtitle.
‘‘§ 50304. Sale and transfer of property 
‘‘(a) AUTHORITY TO SELL.—The Secretary of Transportation may sell 
property (other than vessels transferred under section 4 of the Merchant 
Marine Act, 1920 (ch. 250, 41 Stat. 990)) on terms the Secretary considers 
appropriate. 
‘‘(b) TRANSFERS FROM MILITARY TO CIVILIAN CONTROL.—When the 
President considers it in the interest of the United States, the President 
may transfer to the Secretary of Transportation possession and control of 
property described in the second paragraph of section 17 of the Merchant 
Marine Act, 1920 (ch. 250, 41 Stat. 994), as originally enacted, that is pos-
sessed and controlled by the Secretary of a military department. 
‘‘(c) TRANSFERS FROM CIVILIAN TO MILITARY CONTROL.—When the 
President considers it necessary, the President by executive order may 
transfer to the Secretary of a military department possession and control 
of property described in section 17 of the Merchant Marine Act, 1920 (ch. 
250, 41 Stat. 994), as originally enacted, that is possessed and controlled 
by the Secretary of Transportation. The President’s order shall state the 
need for the transfer and the period of the need. When the President de-
cides that the need has ended, the possession and control shall revert to the 
Secretary of Transportation. The property may not be sold except as pro-
vided by law. 
‘‘§ 50305. Appointment of trustee or receiver and operation 
of vessels 
‘‘(a) APPOINTMENT OF TRUSTEES AND RECEIVERS.—
‘‘(1) APPOINTMENT OF SECRETARY.—In a proceeding in a court of 
the United States in which a trustee or receiver may be appointed for 
a corporation operating a vessel of United States registry between the 
United States and a foreign country, on which the United States Gov-
ernment holds a mortgage, the court may appoint the Secretary of 
Transportation as the sole trustee or receiver (subject to the direction 
of the court) if—
‘‘(A) the court finds that the appointment will—
‘‘(i) inure to the advantage of the estate and the parties 
in interest; and 
‘‘(ii) tend to carry out the purposes of this subtitle; and 
‘‘(B) the Secretary expressly consents to the appointment. 
‘‘(2) APPOINTMENT OF OTHER PERSON.—The appointment of an-
other person as trustee or receiver without a hearing becomes effective 
when ratified by the Secretary, but the Secretary may demand a hear-
ing. 
‘‘(b) OPERATION OF VESSELS.—
100
‘‘(1) IN GENERAL.—If the court is unwilling to allow the trustee or 
receiver to operate the vessel in foreign commerce without financial aid 
from the Government pending termination of the proceeding, and the 
Secretary certifies to the court that the continued operation of the ves-
sel is essential to the foreign commerce of the United States and is rea-
sonably calculated to carry out the purposes of this subtitle, the court 
may allow the Secretary to operate the vessel, either directly or through 
a managing agent or operator employed by the Secretary. The Sec-
retary must agree to comply with terms imposed by the court sufficient 
to protect the parties in interest. The Secretary also must agree to pay 
all operating losses resulting from the operation. The operation shall 
be for the account of the trustee or receiver. 
‘‘(2) PAYMENT OF OPERATING LOSSES AND OTHER AMOUNTS.—The 
Secretary has no claim against the corporation, its estate, or its assets 
for operating losses paid by the Secretary, but the Secretary may pay 
amounts for depreciation the Secretary considers reasonable and other 
amounts the court considers just. The payment of operating losses and 
the other amounts and compliance with terms imposed by the court 
shall be in satisfaction of any claim against the Secretary resulting 
from the operation of the vessel. 
‘‘(3) DEEMED OPERATION BY GOVERNMENT.—A vessel operated by 
the Secretary under this subsection is deemed to be a vessel operated 
by the Government under chapter 309 of this title. 
‘‘§ 50306. Requiring testimony and records in investigations 
‘‘(a) IN GENERAL.—In conducting an investigation that the Secretary of 
Transportation considers necessary and proper to carry out this subtitle, the 
Secretary may administer oaths, take evidence, and subpoena persons to 
testify and produce documents relevant to the matter under investigation. 
Persons may be required to attend or produce documents from any place 
in the United States at any designated place of hearing. 
‘‘(b) FEES AND MILEAGE.—Persons subpoenaed by the Secretary under 
subsection (a) shall be paid the same fees and mileage paid to witnesses in 
the courts of the United States. 
‘‘(c) ENFORCEMENT OF SUBPOENAS.—If a person disobeys a subpoena 
issued under subsection (a), the Secretary may seek an order enforcing the 
subpoena from the district court of the United States for the district in 
which the person resides or does business. Process may be served in the ju-
dicial district in which the person resides or is found. The court may issue 
an order to obey the subpoena and punish a refusal to obey as a contempt 
of court.
101
‘‘CHAPTER 505—OTHER GENERAL PROVISIONS
‘‘Sec. 
‘‘50501.
Entities deemed citizens of the United States. 
‘‘50502.
Applicability to receivers, trustees, successors, and assigns. 
‘‘50503.
Oceanographic research vessels. 
‘‘50504.
Sailing school vessels.
‘‘§ 50501. Entities deemed citizens of the United States 
‘‘(a) IN GENERAL.—In this subtitle, a corporation, partnership, or asso-
ciation is deemed to be a citizen of the United States only if the controlling 
interest is owned by citizens of the United States. However, if the corpora-
tion, partnership, or association is operating a vessel in the coastwise trade, 
at least 75 percent of the interest must be owned by citizens of the United 
States. 
‘‘(b) ADDITIONAL REQUIREMENTS FOR CORPORATIONS.—In this subtitle, 
a corporation is deemed to be a citizen of the United States only if, in addi-
tion to satisfying the requirements in subsection (a)—
‘‘(1) it is incorporated under the laws of the United States or a 
State; 
‘‘(2) its chief executive officer, by whatever title, and the chairman 
of its board of directors are citizens of the United States; and 
‘‘(3) no more of its directors are noncitizens than a minority of the 
number necessary to constitute a quorum. 
‘‘(c) DETERMINATION OF CONTROLLING CORPORATE INTEREST.—The 
controlling interest in a corporation is owned by citizens of the United 
States under subsection (a) only if—
‘‘(1) title to the majority of the stock in the corporation is vested 
in citizens of the United States free from any trust or fiduciary obliga-
tion in favor of a person not a citizen of the United States; 
‘‘(2) the majority of the voting power in the corporation is vested 
in citizens of the United States;
‘‘(3) there is no contract or understanding by which the majority of 
the voting power in the corporation may be exercised, directly or indi-
rectly, in behalf of a person not a citizen of the United States; and 
‘‘(4) there is no other means by which control of the corporation is 
given to or permitted to be exercised by a person not a citizen of the 
United States. 
‘‘(d) DETERMINATION OF 75 PERCENT CORPORATE INTEREST.—At least 
75 percent of the interest in a corporation is owned by citizens of the 
United States under subsection (a) only if—
‘‘(1) title to at least 75 percent of the stock in the corporation is 
vested in citizens of the United States free from any trust or fiduciary 
obligation in favor of a person not a citizen of the United States;
102
‘‘(2) at least 75 percent of the voting power in the corporation is 
vested in citizens of the United States; 
‘‘(3) there is no contract or understanding by which more than 25 
percent of the voting power in the corporation may be exercised, di-
rectly or indirectly, in behalf of a person not a citizen of the United 
States; and 
‘‘(4) there is no other means by which control of more than 25 per-
cent of an interest in the corporation is given to or permitted to be 
exercised by a person not a citizen of the United States. 
‘‘§ 50502. Applicability to receivers, trustees, successors, and 
assigns 
‘‘This subtitle applies to receivers, trustees, successors, and assigns of any 
person to whom this subtitle applies. 
‘‘§ 50503. Oceanographic research vessels 
‘‘An oceanographic research vessel (as defined in section 2101 of this 
title) is deemed not to be engaged in trade or commerce. 
‘‘§ 50504. Sailing school vessels 
‘‘(a) DEFINITIONS.—In this section, the terms ‘sailing school instructor’, 
‘sailing school student’, and ‘sailing school vessel’ have the meaning given 
those terms in section 2101 of this title. 
‘‘(b) NOT SEAMEN.—A sailing school student or sailing school instructor 
is deemed not to be a seaman under—
‘‘(1) parts B, F, and G of subtitle II of this title; or 
‘‘(2) the maritime law doctrines of maintenance and cure or war-
ranty of seaworthiness. 
‘‘(c) NOT MERCHANT VESSEL OR ENGAGED IN TRADE OR COMMERCE.—
A sailing school vessel is deemed not to be—
‘‘(1) a merchant vessel under section 11101(a)–(c) of this title; or 
‘‘(2) a vessel engaged in trade or commerce. 
‘‘(d) EVIDENCE
OF
FINANCIAL
RESPONSIBILITY.—The owner or 
charterer of a sailing school vessel shall maintain evidence of financial re-
sponsibility to meet liability for death or injury to sailing school students 
and sailing school instructors on a voyage on the vessel. The amount of fi-
nancial responsibility shall be at least $50,000 for each student and instruc-
tor. Financial responsibility under this subsection may be evidenced by in-
surance or other adequate financial resources.
‘‘PART B—MERCHANT MARINE SERVICE 
‘‘CHAPTER 511—GENERAL
‘‘Sec. 
‘‘51101.
Policy. 
‘‘51102.
Definitions. 
‘‘51103.
General authority of Secretary of Transportation. 
‘‘51104.
General authority of Secretary of the Navy.
103
‘‘§ 51101. Policy 
‘‘It is the policy of the United States Government that merchant marine 
vessels of the United States should be operated by highly trained and effi-
cient citizens of the United States and that the United States Navy and 
the merchant marine of the United States should work closely together to 
promote the maximum integration of the total seapower forces of the United 
States. 
‘‘§ 51102. Definitions 
‘‘In this part: 
‘‘(1) ACADEMY.—The term ‘Academy’ means the United States Mer-
chant Marine Academy located at Kings Point, New York, and main-
tained under chapter 513 of this title. 
‘‘(2) COST OF EDUCATION PROVIDED.—The term ‘cost of education 
provided’ means the financial costs incurred by the United States Gov-
ernment for providing training or financial assistance to students at 
the Academy and the State maritime academies, including direct finan-
cial assistance, room, board, classroom academics, and other training 
activities. 
‘‘(3) MERCHANT MARINE OFFICER.—The term ‘merchant marine of-
ficer’ means an individual issued a license by the Coast Guard author-
izing service as—
‘‘(A) a master, mate, or pilot on a documented vessel that—
‘‘(i) is of at least 1,000 gross tons as measured under sec-
tion 14502 of this title or an alternate tonnage measured 
under section 14302 of this title as prescribed by the Sec-
retary under section 14104 of this title; and 
‘‘(ii) operates on the oceans or the Great Lakes; or 
‘‘(B) an engineer officer on a documented vessel propelled by 
machinery of at least 4,000 horsepower. 
‘‘(4) STATE MARITIME ACADEMY.—The term ‘State maritime acad-
emy’ means—
‘‘(A) a State maritime academy or college sponsored by a State 
and assisted under chapter 515 of this title; and 
‘‘(B) a regional maritime academy or college sponsored by a 
group of States and assisted under chapter 515 of this title. 
‘‘§ 51103. General authority of Secretary of Transportation 
‘‘(a) EDUCATION AND TRAINING.—The Secretary of Transportation may 
provide for the education and training of citizens of the United States for 
the safe and efficient operation of the merchant marine of the United States 
at all times, including operation as a naval and military auxiliary in time 
of war or national emergency.
104
‘‘(b) SURPLUS PROPERTY FOR INSTRUCTIONAL PURPOSES.—
‘‘(1) IN GENERAL.—The Secretary may cooperate with and assist the 
institutions named in paragraph (2) by making vessels, shipboard 
equipment, and other marine equipment, owned by the United States 
Government and determined to be excess or surplus, available to those 
institutions for instructional purposes, by gift, loan, sale, lease, or char-
ter on terms the Secretary considers appropriate. 
‘‘(2) INSTITUTIONS.—The institutions referred to in paragraph (1) 
are—
‘‘(A) the United States Merchant Marine Academy; 
‘‘(B) a State maritime academy; and 
‘‘(C) a nonprofit training institution jointly approved by the 
Secretary of Transportation and the Secretary of the department 
in which the Coast Guard is operating as offering training courses 
that meet Federal regulations for maritime training. 
‘‘(c) ASSISTANCE FROM OTHER AGENCIES.—
‘‘(1) IN GENERAL.—The Secretary of Transportation may secure di-
rectly from an agency, on a reimbursable basis, information, facilities, 
and equipment necessary to carry out this part. 
‘‘(2) DETAILING PERSONNEL.—At the request of the Secretary, the 
head of an agency (including a military department) may detail, on a 
reimbursable basis, personnel from the agency to the Secretary to as-
sist in carrying out this part. 
‘‘(d) ACADEMY PERSONNEL.—To carry out this part, the Secretary 
may—
‘‘(1) employ an individual as a professor, lecturer, or instructor at 
the Academy, without regard to the provisions of title 5 governing ap-
pointments in the competitive service; and 
‘‘(2) pay the individual without regard to chapter 51 and subchapter 
III of chapter 53 of title 5. 
‘‘§ 51104. General authority of Secretary of the Navy 
‘‘The Secretary of the Navy, in cooperation with the Maritime Adminis-
trator and the head of each State maritime academy, shall ensure that—
‘‘(1) the training of future merchant marine officers at the United 
States Merchant Marine Academy and at State maritime academies in-
cludes programs for naval science training in the operation of merchant 
vessels as a naval and military auxiliary; and 
‘‘(2) naval officer training programs for future officers, insofar as 
possible, are maintained at designated maritime academies consistent 
with Navy standards and needs.
105
‘‘CHAPTER 513—UNITED STATES MERCHANT MARINE 
ACADEMY
‘‘Sec. 
‘‘51301.
Maintenance of the Academy. 
‘‘51302.
Nomination and competitive appointment of cadets. 
‘‘51303.
Non-competitive appointments. 
‘‘51304.
Additional appointments from particular areas. 
‘‘51305.
Prohibited basis for appointment. 
‘‘51306.
Cadet commitment agreements. 
‘‘51307.
Places of training. 
‘‘51308.
Uniforms, textbooks, and transportation allowances. 
‘‘51309.
Academic degree. 
‘‘51310.
Deferment of service obligation under cadet commitment agreements. 
‘‘51311.
Midshipman status in the Naval Reserve. 
‘‘51312.
Board of Visitors. 
‘‘51313.
Advisory Board.
‘‘§ 51301. Maintenance of the Academy 
‘‘The Secretary of Transportation shall maintain the United States Mer-
chant Marine Academy to provide instruction to individuals to prepare them 
for service in the merchant marine of the United States. 
‘‘§ 51302. Nomination and competitive appointment of ca-
dets 
‘‘(a) REQUIREMENTS.—An individual may be nominated for a competitive 
appointment as a cadet at the United States Merchant Marine Academy 
only if the individual—
‘‘(1) is a citizen or national of the United States; and 
‘‘(2) meets the minimum requirements that the Secretary of Trans-
portation shall establish. 
‘‘(b) NOMINATORS.—Nominations for competitive appointments for the 
positions allocated under subsection (c) may be made as follows: 
‘‘(1) A Senator may nominate residents of the State represented by 
that Senator. 
‘‘(2) A Member of the House of Representatives may nominate resi-
dents of the State in which the congressional district represented by 
that Member is located. 
‘‘(3) A Delegate to the House of Representatives from the District 
of Columbia, the Virgin Islands, Guam, or American Samoa may nomi-
nate residents of the jurisdiction represented by that Delegate. 
‘‘(4) The Resident Commissioner to the United States from Puerto 
Rico may nominate residents of Puerto Rico. 
‘‘(5) The Governor of the Northern Mariana Islands may nominate 
residents of the Northern Mariana Islands. 
‘‘(6) The Panama Canal Commission may nominate—
‘‘(A) residents, or sons or daughters of residents, of an area or 
installation in Panama and made available to the United States 
under the Panama Canal Treaty of 1977, the agreements relating
106
to and implementing that Treaty, signed September 7, 1977, and 
the Agreement Between the United States of America and the Re-
public of Panama Concerning Air Traffic Control and Related 
Services, concluded January 8, 1979; and 
‘‘(B) sons or daughters of personnel of the United States Gov-
ernment and the Panama Canal Commission residing in Panama. 
‘‘(c) ALLOCATION OF POSITIONS.—Positions for competitive appointments 
shall be allocated each year as follows: 
‘‘(1) Positions shall be allocated for residents of each State nomi-
nated by the Members of Congress from that State in proportion to 
the representation in Congress from that State. 
‘‘(2) Four positions shall be allocated for residents of the District 
of Columbia nominated by the Delegate to the House of Representa-
tives from the District of Columbia. 
‘‘(3) One position each shall be allocated for residents of the Virgin 
Islands, Guam, and American Samoa nominated by the Delegates to 
the House of Representatives from the Virgin Islands, Guam, and 
American Samoa, respectively. 
‘‘(4) One position shall be allocated for a resident of Puerto Rico 
nominated by the Resident Commissioner to the United States from 
Puerto Rico. 
‘‘(5) One position shall be allocated for a resident of the Northern 
Mariana Islands nominated by the Governor of the Northern Mariana 
Islands. 
‘‘(6) Two positions shall be allocated for individuals nominated by 
the Panama Canal Commission. 
‘‘(d) COMPETITIVE SYSTEM FOR APPOINTMENT.—
‘‘(1) ESTABLISHMENT OF SYSTEM.—The Secretary shall establish a 
competitive system for selecting individuals nominated under subsection 
(b) to fill the positions allocated under subsection (c). The system must 
determine the relative merit of each individual based on competitive ex-
aminations, an assessment of the individual’s academic background, 
and other effective indicators of motivation and probability of success-
ful completion of training at the Academy. 
‘‘(2) APPOINTMENTS
BY
JURISDICTION.—The Secretary shall ap-
point individuals to fill the positions allocated under subsection (c) for 
each jurisdiction in the order of merit of the individuals nominated 
from that jurisdiction. 
‘‘(3) REMAINING UNFILLED POSITIONS.—If positions remain unfilled 
after the appointments are made under paragraph (2), the Secretary
107
shall appoint individuals to fill the positions in the order of merit of 
the remaining individuals nominated from all jurisdictions. 
‘‘§ 51303. Non-competitive appointments 
‘‘The Secretary of Transportation may appoint each year without com-
petition as cadets at the United States Merchant Marine Academy not more 
than 40 qualified individuals with qualities the Secretary considers to be of 
special value to the Academy. In making these appointments, the Secretary 
shall try to achieve a national demographic balance at the Academy. 
‘‘§ 51304. Additional appointments from particular areas 
‘‘(a) OTHER COUNTRIES
IN WESTERN HEMISPHERE.—The President 
may appoint individuals from countries in the Western Hemisphere other 
than the United States to receive instruction at the United States Merchant 
Marine Academy. Not more than 12 individuals may receive instruction 
under this subsection at the same time, and not more than 2 individuals 
from the same country may receive instruction under this subsection at the 
same time. 
‘‘(b) OTHER COUNTRIES GENERALLY.—
‘‘(1) APPOINTMENT.—The Secretary of Transportation, with the ap-
proval of the Secretary of State, may appoint individuals from coun-
tries other than the United States to receive instruction at the Acad-
emy. Not more than 30 individuals may receive instruction under this 
subsection at the same time. 
‘‘(2) REIMBURSEMENT.—The Secretary of Transportation shall en-
sure that the country from which an individual comes under this sub-
section will reimburse the Secretary for the cost (as determined by the 
Secretary) of the instruction and allowances received by the individual. 
‘‘(c) PANAMA.—
‘‘(1) APPOINTMENT.—The Secretary of Transportation, with the ap-
proval of the Secretary of State, may appoint individuals from Panama 
to receive instruction at the Academy. Individuals appointed under this 
subsection are in addition to those appointed under any other provision 
of this chapter. 
‘‘(2) REIMBURSEMENT.—The Secretary of Transportation shall be 
reimbursed for the cost (as determined by the Secretary) of the instruc-
tion and allowances received by an individual appointed under this sub-
section. 
‘‘(d) ALLOWANCES AND REGULATIONS.—Individuals receiving instruction 
under this section are entitled to the same allowances and are subject to 
the same regulations on admission, attendance, discipline, resignation, dis-
charge, dismissal, and graduation, as cadets at the Academy appointed from 
the United States.
108
‘‘§ 51305. Prohibited basis for appointment 
‘‘Preference may not be given to an individual for appointment as a cadet 
at the United States Merchant Marine Academy because one or more mem-
bers of the individual’s immediate family are alumni of the Academy. 
‘‘§ 51306. Cadet commitment agreements 
‘‘(a) AGREEMENT REQUIREMENTS.—A citizen of the United States ap-
pointed as a cadet at the United States Merchant Marine Academy must 
sign, as a condition of the appointment, an agreement to—
‘‘(1) complete the course of instruction at the Academy; 
‘‘(2) fulfill the requirements for a license as an officer in the mer-
chant marine of the United States before graduation from the Acad-
emy; 
‘‘(3) maintain a valid license as an officer in the merchant marine 
of the United States for at least 6 years after graduation from the 
Academy, accompanied by the appropriate national and international 
endorsements and certification required by the Coast Guard for service 
aboard vessels on domestic and international voyages; 
‘‘(4) apply for, and accept if tendered, an appointment as a commis-
sioned officer in the Naval Reserve (including the Merchant Marine Re-
serve, Naval Reserve), the Coast Guard Reserve, or any other reserve 
unit of an armed force of the United States, and, if tendered the ap-
pointment, to serve for at least 6 years after graduation from the Acad-
emy; 
‘‘(5) serve the foreign and domestic commerce and the national de-
fense of the United States for at least 5 years after graduation from 
the Academy—
‘‘(A) as a merchant marine officer on a documented vessel or 
a vessel owned and operated by the United States Government or 
by a State; 
‘‘(B) as an employee in a United States maritime-related indus-
try, profession, or marine science (as determined by the Secretary 
of Transportation), if the Secretary determines that service under 
subclause (A) is not available to the individual; 
‘‘(C) as a commissioned officer on active duty in an armed force 
of the United States, as a commissioned officer in the National 
Oceanic and Atmospheric Administration, or in other maritime-re-
lated Federal employment which serves the national security inter-
ests of the United States, as determined by the Secretary; or 
‘‘(D) by a combination of the service alternatives referred to in 
subclauses (A)–(C); and 
‘‘(6) report to the Secretary on compliance with clauses (1)–(5).
109
‘‘(b) FAILURE TO COMPLETE COURSE OF INSTRUCTION.—
‘‘(1) ACTIVE DUTY.—If the Secretary of Transportation determines 
that an individual who has attended the Academy for at least 2 years 
has failed to fulfill the part of the agreement described in subsection 
(a)(1), the individual may be ordered by the Secretary of Defense to 
serve on active duty in one of the armed forces of the United States 
for a period of not more than 2 years. In cases of hardship as deter-
mined by the Secretary of Transportation, the Secretary of Transpor-
tation may waive this paragraph in whole or in part. 
‘‘(2) RECOVERY OF COST.—If the Secretary of Defense is unable or 
unwilling to order an individual to serve on active duty under para-
graph (1), or if the Secretary of Transportation determines that reim-
bursement of the cost of education provided would better serve the in-
terests of the United States, the Secretary of Transportation may re-
cover from the individual the cost of education provided by the Govern-
ment. 
‘‘(c) FAILURE TO CARRY OUT OTHER REQUIREMENTS.—
‘‘(1) ACTIVE DUTY.—If the Secretary of Transportation determines 
that an individual has failed to fulfill any part of the agreement de-
scribed in subsection (a)(2)–(6), the individual may be ordered to serve 
on active duty for a period of at least 3 years but not more than the 
unexpired period (as determined by the Secretary) of the service re-
quired by subsection (a)(5). The Secretary of Transportation, in con-
sultation with the Secretary of Defense, shall determine in which serv-
ice the individual shall serve. In cases of hardship as determined by 
the Secretary of Transportation, the Secretary of Transportation may 
waive this paragraph in whole or in part. 
‘‘(2) RECOVERY OF COST.—If the Secretary of Defense is unable or 
unwilling to order an individual to serve on active duty under para-
graph (1), or if the Secretary of Transportation determines that reim-
bursement of the cost of education provided would better serve the in-
terests of the United States, the Secretary of Transportation may re-
cover from the individual the cost of education provided. The Secretary 
may reduce the amount to be recovered to reflect partial performance 
of service obligations and other factors the Secretary determines merit 
a reduction. 
‘‘(d) ACTIONS TO RECOVER COST.—To aid in the recovery of the cost 
of education provided by the Government under a commitment agreement 
under this section, the Secretary of Transportation may—
‘‘(1) request the Attorney General to bring a civil action against the 
individual; and
110
‘‘(2) make use of the Federal debt collection procedures in chapter 
176 of title 28 or other applicable administrative remedies. 
‘‘§ 51307. Places of training 
‘‘The Secretary of Transportation may provide for the training of cadets 
at the United States Merchant Marine Academy—
‘‘(1) on vessels owned or subsidized by the United States Govern-
ment; 
‘‘(2) on other documented vessels, with the permission of the owner; 
and 
‘‘(3) in shipyards or plants and with industrial or educational organi-
zations. 
‘‘§ 51308. Uniforms, textbooks, and transportation allow-
ances 
‘‘The Secretary of Transportation shall provide cadets at the United 
States Merchant Marine Academy—
‘‘(1) all required uniforms and textbooks; and 
‘‘(2) allowances for transportation (including reimbursement of trav-
eling expenses) when traveling under orders as a cadet. 
‘‘§ 51309. Academic degree 
‘‘(a) BACHELOR’S DEGREE.—
‘‘(1) IN GENERAL.—The Superintendent of the United States Mer-
chant Marine Academy may confer the degree of bachelor of science 
on an individual who—
‘‘(A) has met the conditions prescribed by the Secretary of 
Transportation; and 
‘‘(B) if a citizen of the United States, has passed the examina-
tion for a merchant marine officer’s license. 
‘‘(2) EFFECT OF PHYSICAL DISQUALIFICATION.—An individual not 
allowed to take the examination for a merchant marine officer’s license 
only because of physical disqualification may not be denied a degree for 
not taking the examination. 
‘‘(b) MASTER’S DEGREE.—The Superintendent of the Academy may con-
fer a master’s degree on an individual who has met the conditions pre-
scribed by the Secretary. A master’s degree program may be funded 
through non-appropriated funds. To maintain the appropriate academic 
standards, the program shall be accredited by the appropriate accreditation 
body. The Secretary may prescribe regulations necessary to administer such 
a program. 
‘‘(c) GRADUATION NOT ENTITLEMENT TO HOLD LICENSE.—Graduation 
from the Academy does not entitle an individual to hold a license author-
izing service on a merchant vessel.
111
‘‘§ 51310. Deferment of service obligation under cadet com-
mitment agreements 
‘‘The Secretary of Transportation may defer the service commitment of 
an individual under section 51306(a)(5) of this title (as specified in the 
cadet commitment agreement) for not more than 2 years if the individual 
is engaged in a graduate course of study approved by the Secretary. How-
ever, deferment of service as a commissioned officer on active duty must be 
approved by the Secretary of the affected military department (or the Sec-
retary of Commerce, for service with the National Oceanic and Atmospheric 
Administration). 
‘‘§ 51311. Midshipman status in the Naval Reserve 
‘‘(a) APPLICATION REQUIREMENT.—Before being appointed as a cadet at 
the United States Merchant Marine Academy, a citizen of the United States 
must agree to apply for midshipman status in the Naval Reserve (including 
the Merchant Marine Reserve, Naval Reserve). 
‘‘(b) APPOINTMENT.—
‘‘(1) IN GENERAL.—A citizen of the United States appointed as a 
cadet at the Academy shall be appointed by the Secretary of the Navy 
as a midshipman in the Naval Reserve (including the Merchant Marine 
Reserve, Naval Reserve). 
‘‘(2) RIGHTS AND PRIVILEGES.—The Secretary of the Navy shall 
provide for cadets of the Academy who are midshipmen in the United 
States Naval Reserve to be—
‘‘(A) issued an identification card (referred to as a ‘military ID 
card’); and 
‘‘(B) entitled to all rights and privileges in accordance with the 
same eligibility criteria as apply to other members of the Ready 
Reserve of the reserve components of the armed forces. 
‘‘(3) COORDINATION.—The Secretary of the Navy shall carry out 
paragraphs (1) and (2) in coordination with the Secretary of Transpor-
tation. 
‘‘§ 51312. Board of Visitors 
‘‘(a) IN GENERAL.—The United States Merchant Marine Academy has 
a Board of Visitors that shall visit the Academy annually on a date named 
by the Secretary of Transportation and make recommendations to the Sec-
retary on the operation of the Academy. The Board has a term of 2 years 
commencing at the beginning of each Congress. 
‘‘(b) APPOINTMENT.—
‘‘(1) IN GENERAL.—The Board is composed of—
‘‘(A) 2 Senators appointed by the chairman of the Committee 
on Commerce, Science, and Transportation of the Senate;
112
‘‘(B) 3 Members of the House of Representatives appointed by 
the chairman of the Committee on Transportation and Infrastruc-
ture of the House of Representatives; 
‘‘(C) 1 Senator appointed by the Vice President; 
‘‘(D) 2 Members of the House of Representatives appointed by 
the Speaker of the House of Representatives; and 
‘‘(E) the chairmen of the Committee on Commerce, Science, and 
Transportation of the Senate and the Committee on Transpor-
tation and Infrastructure of the House of Representatives, as ex 
officio members. 
‘‘(2) SUBSTITUTE APPOINTMENT.—If an appointed member of the 
Board is unable to visit the Academy as provided in subsection (a), an-
other individual may be appointed as a substitute in the manner pro-
vided in paragraph (1). 
‘‘(c) STAFF.—The chairmen of the Committee on Commerce, Science, and 
Transportation of the Senate and the Committee on Transportation and In-
frastructure of the House of Representatives may designate staff members 
of their committees to serve without reimbursement as staff for the Board. 
‘‘(d) TRAVEL EXPENSES.—When serving away from home or regular 
place of business, a member of the Board or a staff member designated 
under subsection (c) shall be allowed travel expenses, including per diem in 
lieu of subsistence, as authorized by section 5703 of title 5. 
‘‘§ 51313. Advisory Board 
‘‘(a) IN GENERAL.—The United States Merchant Marine Academy has 
an Advisory Board that shall visit the Academy at least once during each 
academic year to examine the course of instruction and management of the 
Academy and to advise the Maritime Administrator and the Superintendent 
of the Academy. 
‘‘(b) APPOINTMENT AND TERMS.—The Board is composed of not more 
than 7 individuals appointed by the Secretary of Transportation. The indi-
viduals must be distinguished in education and other fields related to the 
Academy. Members of the Board are appointed for terms of not more than 
3 years and may be reappointed. The Secretary shall designate one of the 
members as chairman. 
‘‘(c) TRAVEL EXPENSES.—When serving away from home or regular 
place of business, a member of the Board shall be allowed travel expenses, 
including per diem in lieu of subsistence, as authorized by section 5703 of 
title 5. 
‘‘(d) RELATIONSHIP TO OTHER LAW.—The Federal Advisory Committee 
Act (5 App. U.S.C.) does not apply to the Board.
113
‘‘CHAPTER 515—STATE MARITIME ACADEMY SUPPORT 
PROGRAM
‘‘Sec. 
‘‘51501.
General support program. 
‘‘51502.
Detailing of personnel. 
‘‘51503.
Regional maritime academies. 
‘‘51504.
Use of training vessels. 
‘‘51505.
Annual payments for maintenance and support. 
‘‘51506.
Conditions to receiving payments and use of vessels. 
‘‘51507.
Places of training. 
‘‘51508.
Allowances for students. 
‘‘51509.
Student incentive payment agreements. 
‘‘51510.
Deferment of service obligation under student incentive payment agreements. 
‘‘51511.
Midshipman status in the Naval Reserve.
‘‘§ 51501. General support program 
‘‘(a) ASSISTANCE TO STATE MARITIME ACADEMIES.—The Secretary of 
Transportation shall cooperate with and assist State maritime academies in 
providing instruction to individuals to prepare them for service in the mer-
chant marine of the United States. 
‘‘(b) COURSE DEVELOPMENT.—The Secretary shall provide to each State 
maritime academy guidance and assistance in developing courses on the op-
eration and maintenance of new vessels, on equipment, and on innovations 
being introduced to the merchant marine of the United States. 
‘‘§ 51502. Detailing of personnel 
‘‘At the request of the Governor of a State, the President may detail, 
without reimbursement, personnel of the Navy, the Coast Guard, and the
Maritime Service to a State maritime academy to serve as a superintendent, 
professor, lecturer, or instructor at the academy. 
‘‘§ 51503. Regional maritime academies 
‘‘The Governors of the States cooperating to sponsor a regional maritime 
academy shall designate in writing one of those States to conduct the affairs 
of that academy. A regional maritime academy is eligible for assistance from 
the United States Government on the same basis as a State maritime acad-
emy sponsored by a single State. 
‘‘§ 51504. Use of training vessels 
‘‘(a) APPLICATIONS TO USE VESSELS.—The Governor of a State spon-
soring a State maritime academy (or the Governor of the State designated 
to conduct the affairs of a regional maritime academy) may apply in writing 
to the Secretary of Transportation to obtain the use of a training vessel for 
the academy. A vessel provided under this section remains the property of 
the United States Government. 
‘‘(b) GENERAL AUTHORITY.—Subject to subsection (c), the Secretary 
may provide to a State maritime academy, for use as a training vessel, a 
suitable vessel under the control of the Secretary or made available to the
114
Secretary under subsection (e). If a suitable vessel is not available, the Sec-
retary may build and provide a suitable vessel. 
‘‘(c) APPROVAL REQUIREMENTS.—The Secretary may provide a vessel 
under this section only if—
‘‘(1) an application has been made under subsection (a); 
‘‘(2) the State maritime academy satisfies section 51506(a) of this 
title; and 
‘‘(3) a suitable port will be available for the safe mooring of the ves-
sel while the academy is using the vessel. 
‘‘(d) PREPARATION AND MAINTENANCE.—A vessel provided under this 
section shall be—
‘‘(1) repaired, reconditioned, and equipped (with all apparel, charts, 
books, and instruments of navigation) as necessary for use as a train-
ing vessel; and 
‘‘(2) maintained in good repair by the Secretary. 
‘‘(e) AGENCY VESSELS.—An agency may provide to the Secretary, for use 
by a State maritime academy, a vessel (including equipment) that—
‘‘(1) is suitable for training purposes; and 
‘‘(2) can be provided without detriment to the service to which the 
vessel is assigned. 
‘‘(f) FUEL COSTS.—The Secretary may pay to a State maritime academy 
the costs of fuel used by a vessel provided under this section while used for 
training. 
‘‘(g) REMOVING VESSELS FROM SERVICE AND VESSEL SHARING.—The 
Secretary may not—
‘‘(1) take a vessel, currently in use as a training vessel under this 
section, out of service to implement an alternative program (including 
vessel sharing) unless the vessel is incapable of being maintained in 
good repair as required by subsection (d); or 
‘‘(2) implement a program requiring a State maritime academy to 
share its training vessel with another State maritime academy, except 
with the express consent of Congress. 
‘‘§ 51505. Annual payments for maintenance and support 
‘‘(a) PAYMENT AGREEMENTS.—The Secretary of Transportation may 
make an agreement (effective for not more than 4 years) with the following 
academies to provide annual payments to those academies for their mainte-
nance and support: 
‘‘(1) One State maritime academy in each State that satisfies section 
51506(a) of this title. 
‘‘(2) Each regional maritime academy that satisfies section 51506(a) 
of this title.
115
‘‘(b) PAYMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), an annual payment to 
an academy under subsection (a) shall be at least equal to the amount 
given to the academy for its maintenance and support by the State in 
which it is located, or, for a regional maritime academy, by all States 
cooperating to sponsor the academy. 
‘‘(2) MAXIMUM.—The amount under paragraph (1) may not be more 
than $25,000. However, if the academy satisfies section 51506(b) of 
this title, the amount shall be—
‘‘(A) $100,000 for a State maritime academy; and 
‘‘(B) $200,000 for a regional maritime academy. 
‘‘§ 51506. Conditions to receiving payments and use of ves-
sels 
‘‘(a) GENERAL CONDITIONS.—As conditions of receiving an annual pay-
ment or the use of a vessel under this chapter, a State maritime academy 
must—
‘‘(1) provide courses of instruction on navigation, marine engineering 
(including steam and diesel propulsion), the operation and maintenance 
of new vessels and equipment, and innovations being introduced to the 
merchant marine of the United States; 
‘‘(2) agree in writing to conform to the standards for courses, train-
ing facilities, admissions, and instruction that the Secretary of Trans-
portation may establish after consultation with the superintendents of 
State maritime academies; and 
‘‘(3) agree in writing to require, as a condition for graduation, that 
each individual who is a citizen of the United States and who is attend-
ing the academy in a merchant marine officer preparation program 
pass the examination required for the issuance of a license under sec-
tion 7101 of this title. 
‘‘(b) ADDITIONAL CONDITION TO PAYMENTS OF MORE THAN $25,000.—
As a condition of receiving an annual payment of more than $25,000 under 
section 51505 of this title, a State maritime academy also must agree to 
admit each year a number of citizens of the United States who meet its ad-
mission requirements and reside in a State not supporting that academy. 
The Secretary shall determine the number of individuals to be admitted by 
each academy under this subsection. The number may not be more than 
one-third of the total number of individuals attending the academy at any 
time. 
‘‘§ 51507. Places of training 
‘‘The Secretary of Transportation may provide for the training of stu-
dents attending a State maritime academy—
116
‘‘(1) on vessels owned or subsidized by the United States Govern-
ment; 
‘‘(2) on other documented vessels, with the permission of the owner; 
and 
‘‘(3) in shipyards or plants and with industrial or educational organi-
zations. 
‘‘§ 51508. Allowances for students 
‘‘Under regulations prescribed by the Secretary of Transportation, a stu-
dent at a State maritime academy shall receive from the Secretary allow-
ances for transportation (including reimbursement of traveling expenses) 
when traveling under orders to receive training under section 51507 of this 
title. 
‘‘§ 51509. Student incentive payment agreements 
‘‘(a) GENERAL AUTHORITY.—If a State maritime academy has an agree-
ment with the Secretary of Transportation under section 51505 of this title, 
the Secretary may make an agreement with a student at the academy who 
is a citizen of the United States to make student incentive payments to the 
individual. An agreement with a student may not be effective for more than 
4 academic years. The Secretary shall allocate payments under this section 
among the various State maritime academies in an equitable manner. 
‘‘(b) PAYMENTS.—Payments under an agreement under this section shall 
be equal to $4,000 each academic year and be paid, as prescribed by the
Secretary, while the individual is attending the academy. The payments 
shall be used for uniforms, books, and subsistence. 
‘‘(c) MIDSHIPMAN
AND ENLISTED RESERVE STATUS.—An agreement 
under this section shall require the student to accept midshipman and en-
listed reserve status in the Naval Reserve (including the Merchant Marine 
Reserve, Naval Reserve) before receiving any payments under the agree-
ment. 
‘‘(d) AGREEMENT REQUIREMENTS.—An agreement under this section 
shall require the student to—
‘‘(1) complete the course of instruction at the academy the individual 
is attending; 
‘‘(2) take the examination for a license as an officer in the merchant 
marine of the United States before graduation from the academy and 
fulfill the requirements for such a license within 3 months after grad-
uation from the academy; 
‘‘(3) maintain a valid license as an officer in the merchant marine 
of the United States for at least 6 years after graduation from the 
academy, accompanied by the appropriate national and international
117
endorsements and certification required by the Coast Guard for service 
aboard vessels on domestic and international voyages; 
‘‘(4) accept, if tendered, an appointment as a commissioned officer 
in the Naval Reserve (including the Merchant Marine Reserve, Naval 
Reserve), the Coast Guard Reserve, or any other reserve unit of an 
armed force of the United States, and, if tendered the appointment, to 
serve for at least 6 years after graduation from the academy; 
‘‘(5) serve the foreign and domestic commerce and the national de-
fense of the United States for at least 3 years after graduation from 
the academy—
‘‘(A) as a merchant marine officer on a documented vessel or 
a vessel owned and operated by the United States Government or 
by a State; 
‘‘(B) as an employee in a United States maritime-related indus-
try, profession, or marine science (as determined by the Sec-
retary), if the Secretary determines that service under subclause 
(A) is not available to the individual; 
‘‘(C) as a commissioned officer on active duty in an armed force 
of the United States, as a commissioned officer in the National 
Oceanic and Atmospheric Administration, or in other maritime-re-
lated Federal employment which serves the national security inter-
ests of the United States, as determined by the Secretary; or 
‘‘(D) by a combination of the service alternatives referred to in 
subclauses (A)–(C); and 
‘‘(6) report to the Secretary on compliance with clauses (1)–(5). 
‘‘(e) FAILURE TO COMPLETE COURSE OF INSTRUCTION.—
‘‘(1) ACTIVE DUTY.—If the Secretary of Transportation determines 
that an individual who has accepted the payments described in sub-
section (b) for a minimum of 2 academic years has failed to fulfill the 
part of the agreement described in subsection (d)(1), the individual 
may be ordered by the Secretary of Defense to serve on active duty 
in the armed forces of the United States for a period of not more than 
2 years. In cases of hardship as determined by the Secretary of Trans-
portation, the Secretary of Transportation may waive this paragraph 
in whole or in part. 
‘‘(2) RECOVERY OF COST.—If the Secretary of Defense is unable or 
unwilling to order an individual to serve on active duty under para-
graph (1), or if the Secretary of Transportation determines that reim-
bursement of the cost of education provided would better serve the in-
terests of the United States, the Secretary of Transportation may re-
cover from the individual the amount of student incentive payments,
118
plus interest and attorney fees. The Secretary may reduce the amount 
to be recovered to reflect partial performance of service obligations and 
other factors the Secretary determines merit a reduction. 
‘‘(f) FAILURE TO CARRY OUT OTHER REQUIREMENTS.—
‘‘(1) ACTIVE DUTY.—If the Secretary of Transportation determines 
that an individual has failed to fulfill any part of the agreement de-
scribed in subsection (d)(2)–(6), the individual may be ordered to serve 
on active duty for a period of at least 2 years but not more than the 
unexpired period (as determined by the Secretary) of the service re-
quired by subsection (d)(5). The Secretary of Transportation, in con-
sultation with the Secretary of Defense, shall determine in which serv-
ice the individual shall serve. In cases of hardship as determined by 
the Secretary of Transportation, the Secretary of Transportation may 
waive this paragraph in whole or in part. 
‘‘(2) RECOVERY OF COST.—If the Secretary of Defense is unable or 
unwilling to order an individual to serve on active duty under para-
graph (1), or if the Secretary of Transportation determines that reim-
bursement of the cost of education provided would better serve the in-
terests of the United States, the Secretary of Transportation may re-
cover from the individual the amount of student incentive payments, 
plus interest and attorney fees. The Secretary may reduce the amount 
to be recovered to reflect partial performance of service obligations and 
other factors the Secretary determines merit a reduction. 
‘‘(g) ACTIONS TO RECOVER COST.—To aid in the recovery of the cost 
of education provided by the Government under a commitment agreement 
under this section, the Secretary of Transportation may—
‘‘(1) request the Attorney General to bring a civil action against the 
individual; and 
‘‘(2) make use of the Federal debt collection procedures in chapter 
176 of title 28 or other applicable administrative remedies. 
‘‘§ 51510. Deferment of service obligation under student in-
centive payment agreements 
‘‘The Secretary of Transportation may defer the service commitment of 
an individual under section 51509(d)(5) of this title (as specified in the 
agreement under section 51509) for not more than 2 years if the individual 
is engaged in a graduate course of study approved by the Secretary. How-
ever, deferment of service as a commissioned officer on active duty must be 
approved by the Secretary of the affected military department (or the Sec-
retary of Commerce, for service with the National Oceanic and Atmospheric 
Administration).
119
‘‘§ 51511. Midshipman status in the Naval Reserve 
‘‘A citizen of the United States attending a State maritime academy may 
be appointed by the Secretary of the Navy as a midshipman in the Naval 
Reserve (including the Merchant Marine Reserve, Naval Reserve). 
‘‘CHAPTER 517—OTHER SUPPORT FOR MERCHANT 
MARINE TRAINING
‘‘Sec. 
‘‘51701.
United States Maritime Service. 
‘‘51702.
Civilian nautical schools. 
‘‘51703.
Additional training. 
‘‘51704.
Training for maritime oil pollution prevention, response, and clean-up.
‘‘§ 51701. United States Maritime Service 
‘‘(a) GENERAL AUTHORITY.—The Secretary of Transportation may es-
tablish and maintain a voluntary organization, to be known as the United 
States Maritime Service, for the training of citizens of the United States 
to serve on merchant vessels of the United States. 
‘‘(b) SPECIFIC AUTHORITY.—The Secretary may—
‘‘(1) determine the number of individuals to be enrolled for training 
and reserve purposes in the Service; 
‘‘(2) fix the rates of pay and allowances of the individuals without 
regard to chapter 51 or subchapter III of chapter 53 of title 5; 
‘‘(3) prescribe the course of study and the periods of training for the 
Service; and
‘‘(4) prescribe the uniform of the Service and the rules on providing 
and wearing the uniform. 
‘‘(c) RANKS, GRADES, AND RATINGS.—The ranks, grades, and ratings for 
personnel of the Service shall be the same as those prescribed for personnel 
of the Coast Guard. 
‘‘(d) MEDALS AND AWARDS.—The Secretary may establish and maintain 
a medals and awards program to recognize distinguished service, superior 
achievement, professional performance, and other commendable achievement 
by personnel of the Service. 
‘‘§ 51702. Civilian nautical schools 
‘‘(a) DEFINITION.—In this section, the term ‘civilian nautical school’ 
means a school operated in the United States (except the United States 
Merchant Marine Academy, a State maritime academy, or another school 
operated by the United States Government) that offers instruction to indi-
viduals quartered on a vessel primarily to train them for service in the mer-
chant marine. 
‘‘(b) INSPECTION.—Each civilian nautical school is subject to inspection 
by the Secretary of Transportation. 
‘‘(c) RATING AND CERTIFICATION.—The Secretary may, under regula-
tions the Secretary may prescribe, provide for the rating and certification
120
of civilian nautical schools as to the adequacy of their course of instruction, 
the competence of their instructors, and the suitability of the equipment 
used in their course of instruction. 
‘‘§ 51703. Additional training 
‘‘(a) GENERAL AUTHORITY.—The Secretary of Transportation may pro-
vide additional training on maritime subjects to supplement other training 
opportunities and make the training available to the personnel of the mer-
chant marine of the United States and individuals preparing for a career 
in the merchant marine of the United States. 
‘‘(b) EQUIPMENT, SUPPLIES, AND CONTRACTS.—The Secretary may—
‘‘(1) prepare or buy equipment or supplies required for the additional 
training; and 
‘‘(2) without regard to section 3709 of the Revised Statutes (41 
U.S.C. 5), make contracts for services the Secretary considers nec-
essary to prepare the equipment and supplies and to supervise and ad-
minister the additional training. 
‘‘§ 51704. Training for maritime oil pollution prevention, re-
sponse, and clean-up 
‘‘(a) ASSISTANCE IN ESTABLISHING PROGRAM.—The Secretary of Trans-
portation shall assist maritime training institutions approved by the Sec-
retary in establishing a training program for maritime oil pollution preven-
tion, response, and clean-up. 
‘‘(b) PROVIDING TRAINING VESSELS.—Subject to subsection (c), the Sec-
retary may provide, with title free of all liens, to maritime training institu-
tions that have a program established under subsection (a), offshore supply 
vessels and tug/supply vessels that were built in the United States and are 
in the possession of the Maritime Administration because of a default on 
a loan guaranteed under chapter 537 of this title. 
‘‘(c) REQUIREMENTS.—In addition to any other requirements the Sec-
retary considers appropriate, the following requirements apply to vessels 
provided under this section: 
‘‘(1) The vessel shall be offered to the institution at a location se-
lected by the Secretary. 
‘‘(2) The institution shall use the vessel to train students and appro-
priate maritime industry personnel in oil spill prevention, response, 
clean-up, and related skills. 
‘‘(3) The institution shall make the vessel and qualified students 
available to appropriate Federal, State, and local oil spill response au-
thorities when there is a maritime oil spill.
121
‘‘(4) The institution may not sell, trade, charter, donate, scrap, or 
in any way alter or dispose of the vessel without prior approval of the 
Secretary. 
‘‘(5) The institution may not use the vessel in competition with a 
privately-owned vessel documented under chapter 121 of this title or 
titled under the law of a State, unless necessary to carry out this sec-
tion. 
‘‘(6) When the institution can no longer use the vessel for its train-
ing program, the institution shall return the vessel to the Secretary. 
The Secretary shall take possession at the institution and thereafter 
may provide the vessel to another institution under this section or dis-
pose 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, rib-
bon bars, emblems, rosettes, miniature facsimiles, plaques, citations, or 
other suitable devices or insignia) for individual acts or service in the mer-
chant 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 service. 
‘‘(b) SPECIFIC AUTHORITY.—The Secretary may award—
‘‘(1) a Merchant Marine Distinguished Service Medal to an indi-
vidual 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 Mer-
chant 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
122
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 per-
manent historical record. 
‘‘(b) AWARDS TO CREWS.—The Secretary of Transportation may award 
an appropriate citation ribbon bar to the master and each individual serv-
ing, 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 
vessel 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 justi-
fying 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 Transpor-
tation 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).
123
‘‘(b) RELATIONSHIP TO OTHER LAWS.—Issuance of a certificate under 
subsection (a) does not entitle an individual to any rights, privileges, or ben-
efits 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 med-
als authorized under this chapter or a prior law; and 
‘‘(2) provide at cost, or authorize private persons to sell at reason-
able prices, replacements for those decorations and medals. 
‘‘§ 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 pro-
vided 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 pro-
vided 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 certifi-
cation 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 sec-
tion; 
‘‘(ii) requisitioned or purchased under chapter 563 of this 
title; or
124
‘‘(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 
license, 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 para-
graph (1)(A) and (B), certify that individual under this subsection. 
‘‘(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 
equivalent 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’’. 
(d) 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’ 
includes, 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 Sec-
retary 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 con-
structed with financing or a financing guarantee under chap-
ter 537 or 575 of this title;
125
‘‘(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 
‘‘(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, re-
construction, reconditioning, or acquisition of a new vessel or for other pur-
poses 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 Transpor-
tation 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 requi-
sitioned by the United States Government; 
‘‘(4) owned, in whole or in part, a vessel being operated in the for-
eign or domestic commerce of the United States or in the fisheries 
when it was bought or requisitioned by the Government; or
126
‘‘(5) had acquired or was having constructed a vessel to operate in 
the foreign or domestic commerce of the United States or in the fish-
eries 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 
taxpayer 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; 
‘‘(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 recog-
nize 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 tax-
payer must make the election referred to in subsection (b) in the tax-
payer’s income tax return for the taxable year in which the gain was 
realized. 
‘‘(2) RECEIPT AFTER TAXABLE YEAR.—If the vessel is bought or 
requisitioned by the United States Government, or is lost, and the tax-
payer receives payment for the vessel or indemnity for the loss from 
the Government after the end of the taxable year in which it was 
bought, requisitioned, or lost, the taxpayer must make the election re-
ferred to in subsection (b) within 60 days after receiving the payment 
or indemnity, on a form prescribed by the Secretary of the Treasury.
127
‘‘(d) EFFECT OF STATUTE OF LIMITATION.—If the taxpayer makes an 
election 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 com-
putation 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 
constructed, reconstructed, reconditioned, or acquired by the taxpayer, or 
for 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 con-
struction, reconstruction, reconditioning, acquisition, or liquidation of pur-
chase-money indebtedness of the new vessel that represents a gain not rec-
ognized for tax purposes under section 53306 of this title. 
‘‘§ 53308. Order and proportions of deposits and with-
drawals 
‘‘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 
applied against the amounts deposited in the fund in the order of de-
posit; 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 propor-
tion 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 reason-
able needs of the business within the meaning of section 537(a) of the Inter-
nal Revenue Code of 1986 (26 U.S.C. 537(a)).
128
‘‘§ 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 
subsection (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 recondi-
tioning 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 
‘‘(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 construction-differential subsidy contract or not bought from the Sec-
retary 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 con-
struction contract (or within the period of an extension under sub-
section (c)), as estimated by the Secretary and certified by the Sec-
retary to the Secretary 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 exten-
sions of the period within which the deposits must be expended or obligated 
or within which the construction must have progressed to the extent of 5 
percent completion 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
129
income for that taxable year, except for purposes of the declared value ex-
cess profits tax and the capital stock tax, if—
‘‘(1) the deposited gain is not expended or obligated within the ap-
propriate 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 pro-
gressed 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 tax-
payer, the entire construction related to that deposited gain is not com-
pleted with reasonable dispatch. 
‘‘§ 53312. Assessment and collection of deficiency tax 
‘‘A deficiency in tax for a taxable year resulting from the inclusion of an 
amount in gross income as provided by section 53311 of this title, and the 
amount to be treated as a deficiency 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 deposited 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 subclause (A) if provided for in the agreement.
130
‘‘(2) ELIGIBLE VESSEL.—The term ‘eligible vessel’ means—
‘‘(A) a vessel—
‘‘(i) constructed in the United States (and, if recon-
structed, 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 
‘‘(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 reg-
ulations prescribed jointly by the Secretary and the Secretary of the 
Treasury 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 recon-
structed, 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;
131
‘‘(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 sec-
tion 53503 of this title, to be operated in the United States 
foreign, Great Lakes, or noncontiguous domestic trade or in 
the fisheries 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; 
‘‘(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 ves-
sel 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 ves-
sels. 
‘‘(7) UNITED STATES FOREIGN TRADE.—The term ‘United States 
foreign 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 chap-
ter to establish a capital construction fund for the vessel.
132
‘‘(b) ALLOWABLE PURPOSE.—The purpose of the agreement shall be to 
provide 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 non-
contiguous domestic trade or in the fisheries of the United States. 
‘‘§ 53504. Deposits and withdrawals 
‘‘(a) REQUIRED DEPOSITS.—An agreement to establish a capital con-
struction 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 pre-
scribed by the Secretary by regulation. However, the Secretary may not re-
quire a person to deposit in the fund for a taxable year more than 50 per-
cent of that portion of the person’s taxable income for that year (as deter-
mined under section 53505(a)(1) of this title) that is attributable to the op-
eration of an agreement 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 operating loss or net capital loss or this chapter) that is attrib-
utable 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 
clause (1), the net proceeds (as defined in joint regulations) from the 
disposition of an agreement vessel or from insurance or indemnity at-
tributable 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 period shall be reduced by any amount the owner is required or per-
mitted, under the capital construction fund agreement, to deposit for that 
period for the vessel under subsection (a)(2).
133
‘‘§ 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 
provided in subsection (b), amounts in the fund may be invested only in in-
terest-bearing securities approved by the Secretary. 
‘‘(b) STOCK INVESTMENTS.—
‘‘(1) IN GENERAL.—With the approval of the Secretary, an agreed 
percentage (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 secu-
rities exchange; and 
‘‘(B) would be acquired by a prudent investor seeking a reason-
able income and the preservation of capital. 
‘‘(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 mar-
ket 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 percentage. 
‘‘§ 53507. Nontaxation of deposits 
‘‘(a) TAX TREATMENT.—Subject to subsection (b), under the Internal 
Revenue 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;
134
‘‘(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 with-
out 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 ac-
counts: 
‘‘(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;
‘‘(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 Inter-
nal Revenue Code of 1986 (26 U.S.C. 243(a)(1)) of any dividend re-
ceived 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 section 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
135
‘‘(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 
clause (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 off-
set 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 cap-
ital 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 
vessel or a barge or container that is part of the complement of a quali-
fied vessel; or 
‘‘(2) the payment of the principal on indebtedness incurred in the 
acquisition, 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 
qualified withdrawal for a vessel, barge, or container is made from the ordi-
136
nary 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 
withdrawal to pay the principal on indebtedness is made from the ordinary 
income account or the capital gain account, an amount equal to the total 
reduction that would be required by subsections (b) and (c) if the with-
drawal were a qualified withdrawal for a purpose described in those sub-
sections shall be applied, in the order provided in joint regulations, to re-
duce the basis of vessels, barges, and containers owned by the person main-
taining the fund. The remaining amount of the withdrawal shall be treated 
as a nonqualified withdrawal. 
‘‘(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 with-
drawn on the date of disposition of the property. Subject to conditions pre-
scribed in joint regulations, 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 
treated 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
137
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 ordi-
nary income account or the capital gain account shall be paid at 
the rate determined under subsection (d) from the last date pre-
scribed 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 comparable, as determined by the Secretaries under joint regulations, to 
the relationship between—
‘‘(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 sub-
section 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 construc-
tion fund at the close of a taxable year to the extent there is a binding
138
contract 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 bal-
ance in a capital construction fund exceeds the amount appropriate to 
meet the vessel construction program objectives of the person that es-
tablished the fund, the amount of the excess shall be treated as a non-
qualified 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 sub-
section, 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). 
‘‘(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)) 
applies, the tax rate used under subparagraph (A)(ii) may not exceed 
15 percent (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 
occurs—
‘‘(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 
taxable year in which the withdrawal occurs. 
‘‘(4) COORDINATION
WITH
DEDUCTION
FOR
NET
OPERATING 
LOSSES.—A nonqualified withdrawal excluded from gross income under
139
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.)). 
‘‘§ 53514. Relationship of old fund to new fund 
‘‘(a) DEFINITION.—In this section, the term ‘old fund’ means a capital 
construction 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 pro-
vided in the agreement under which the old fund is maintained (deter-
mined without regard to an extension or renewal made after April 14, 
1970); or 
‘‘(2) maintain simultaneously the old fund and a new fund estab-
lished 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 transferred in a nontaxable transaction to the appropriate account 
in the new fund. For purposes of section 53511(c)(3) of this title, the date
140
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 
Secretary under this chapter that could have a substantial effect on the 
rights or duties of a person maintaining a fund under this chapter, that per-
son 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
construction funds under the particular Secretary’s jurisdiction for the cal-
endar year. 
‘‘(b) CONTENTS.—The report shall state the name and taxpayer identi-
fication 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; 
‘‘(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.
141
‘‘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 
obligor will become obligated to pay from time to time thereafter, 
for the construction, reconstruction, or reconditioning of the ves-
sel, including guarantee fees that will become payable under sec-
tion 53714 of this title in connection with all obligations issued 
for construction, reconstruction, or reconditioning of the vessel or 
equipment to be delivered, and all obligations issued for the deliv-
ered vessel or equipment. 
‘‘(2) CONSTRUCTION, RECONSTRUCTION, AND
RECONDITIONING.—
The terms ‘construction’, ‘reconstruction’, and ‘reconditioning’ include 
designing, 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 
actual 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
142
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 Sec-
retary. 
‘‘(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 paragraph (B), the term ‘fishery 
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 
‘‘(III) equipment that is for use with the structure or 
appurtenance and that is necessary for performing a 
function referred to in clause (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 
function referred to in clause (I); and
143
‘‘(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 paragraph (A), the struc-
ture, 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 Con-
servation 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 
indebtedness 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 
‘‘(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 obliga-
tion. 
‘‘(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 
differences in ocean water to produce electricity or another form of en-
ergy capable of being used directly to perform work, and includes—
144
‘‘(A) equipment installed on the facility or vessel to use the elec-
tricity or other form of energy to produce, process, refine, or man-
ufacture a product; 
‘‘(B) a cable or pipeline used to deliver the electricity, fresh-
water, or product to shore; and 
‘‘(C) other associated equipment and appurtenances of the facil-
ity 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 ves-
sels 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 lift-
ing 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; 
‘‘(L) a fishing vessel whose ownership meets the citizenship re-
quirements under section 50501 of this title for documenting ves-
sels 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 pre-
scribe, may guarantee or make a commitment to guarantee the payment of 
the principal of and interest on an obligation eligible to be guaranteed under 
this chapter. A guarantee or commitment to guarantee shall cover 100 per-
cent of the principal and interest. 
‘‘(b) DIRECT LOANS FOR FISHERIES.—
145
‘‘(1) IN
GENERAL.—Notwithstanding any other provision of this 
chapter, any obligation involving a fishing vessel, fishery facility, aqua-
culture 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, rath-
er than an obligation issued to an obligee other than the Secretary and 
guaranteed by the Secretary. A direct loan obligation under this sub-
section 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 guaranteed 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 Treas-
ury 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 
extend 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 
requirements, including economic soundness and financial requirements ap-
plicable to the obligor and related parties, and a thorough assessment of the 
technical, 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 
vessels and fishery facilities; and 
‘‘(2) $3,000,000,000 shall be limited to obligations related to eligible 
export vessels.
146
‘‘(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 
eligible for a guarantee under this chapter may not be denied eligibility be-
cause of its type. 
‘‘(c) LIMITS BASED ON RISK FACTORS.—
‘‘(1) DEFINITION.—In this subsection, the term ‘cost’ has the mean-
ing 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 cat-
egory; and 
‘‘(C) ensure that each risk category is comprised of loans that 
are relatively homogeneous in cost and share characteristics pre-
dictive of defaults and other costs, given the facts known at the 
time of obligation or commitment, using a risk category system 
that is based on historical analysis of program data and statistical 
evidence concerning 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). 
‘‘(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 obli-
gation; by 
‘‘(ii) the subsidy rate for the category in which the obliga-
tion is placed under subparagraph (A). 
‘‘(C) ESTIMATED
COST.—The estimated cost to the United 
States Government of a guarantee under this chapter for an obli-
147
gation is deemed to be the amount determined under subpara-
graph (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 subparagraph (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 guaran-
teed 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 ef-
fect during the construction period of the project; and 
‘‘(K) the concentration risk presented by an unduly large per-
centage of loans outstanding by any one borrower or group of af-
filiated borrowers. 
‘‘§ 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 
provided for in the guarantee) accruing between the date of default under 
a guaranteed 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 obli-
gation for the guarantee. The validity of a guarantee or commitment to 
guarantee made under this chapter is incontestable.
148
‘‘§ 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 ex-
penditures previously made for) the construction, reconstruction, or re-
conditioning of a vessel (including an eligible export vessel) designed 
principally 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, 
reconditioning, 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—
‘‘(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 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 guar-
anteed under this chapter) issued for a purpose described in clauses
149
(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 obli-
gor for expenditures previously made for) the construction, reconstruc-
tion, reconditioning, or purchase of a fishery facility. 
‘‘(7) Financing or refinancing (including reimbursement of an obli-
gor for expenditures previously made for) the purchase of an individual 
fishing 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 
applied 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 clause (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, 
financial resources, and other qualifications necessary for the adequate oper-
ation and maintenance of each vessel that will serve as security for the 
guarantee. 
‘‘(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 chap-
ter unless the Chairman of the Federal Maritime Commission certifies that 
the operator of the vessel has not been found by the Commission to have 
committed, within the previous 5 years—
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‘‘(1) a violation of part A of subtitle IV of this title that involves 
unjust or unfair discriminatory treatment or undue or unreasonable 
prejudice 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 con-
struction, reconstruction, or reconditioning of a fishing vessel under this 
chapter if the operator of the vessel has been—
‘‘(1) held liable or liable in rem for a civil penalty under section 1858 
of title 16 and not paid the penalty; 
‘‘(2) found guilty of an offense under section 1859 of title 16 and 
not paid the assessed fine or served the assessed sentence;
‘‘(3) held liable for a civil or criminal penalty under section 1375 of 
title 16 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 exceptions to, otherwise applicable regulatory requirements concerning fi-
nancial 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 require-
ment; 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. 
‘‘§ 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 mak-
ing 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;
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‘‘(3) projected revenues and expenses associated with employment of 
the vessel; 
‘‘(4) any charter, contract of affreightment, transportation agree-
ment, 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 
chapter 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 develop-
ment, advancement, management, conservation, and protection of 
the fisheries 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 
contribute to the development of the United States fishing industry; or 
‘‘(2) used—
‘‘(A) in the harvesting of fish from an underused fishery; or 
‘‘(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 determina-
tion that aspects of an application under this chapter require independent 
analysis to be conducted by third party experts due to risk factors associ-
ated 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 de-
termination that an application under this title requires additional equity
152 
because of increased risk factors associated with markets, technology, finan-
cial 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 
security 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 
repaid; 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. 
‘‘(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 
actual cost. 
‘‘(4) FISHING VESSELS AND FISHERY FACILITIES.—For a fishing 
vessel or fishery facility, the principal amount may not exceed 80 per-
cent 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
153 
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 ves-
sels. 
‘‘(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 guar-
antee 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 recon-
struction or reconditioning of a fishing vessel or fishery facility. For pur-
poses of this chapter, the reconstruction or reconditioning of a fishing vessel 
or fishery facility 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 Sec-
retary; 
‘‘(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 inter-
est 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 
vessel used as security for the guarantee; or 
‘‘(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 de-
termined 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—
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‘‘(A) in class A–1, American Bureau of Shipping, or meet other 
standards acceptable to the Secretary, with all required certifi-
cates, including marine inspection certificates of the Coast Guard 
or, in the case of an eligible export vessel, of the appropriate na-
tional flag authorities under a treaty, convention, or other inter-
national agreement to which the United States Government is a 
party, and with all outstanding requirements and recommenda-
tions necessary for class retention accomplished, unless the Sec-
retary permits a deferment of repairs necessary to meet these re-
quirements; 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 guar-
anteed under this chapter or a related agreement may provide that—
‘‘(A) the only recourse by the Government against the obligor 
for payments under the guarantee will be repossession of the ves-
sel 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 de-
scribed 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 
covered by insurance, a deficiency related to a requirement in sub-
paragraph (A) may be satisfied by assignment of the obligor’s in-
surance claims to the Government. 
‘‘(c) OTHER PROVISIONS TO PROTECT SECURITY INTERESTS.—An obli-
gation guaranteed under this chapter and any related agreement must con-
tain other provisions for the protection of the security interests of the Gov-
ernment (including acceleration, assumption, and subrogation provisions and
155
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 security interest the Secretary considers necessary to protect the interest 
of the United States Government. 
‘‘(b) MULTIPLE VESSELS AND TYPES OF SECURITY.—The security inter-
est 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 
obligation 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 guar-
antee. However, the Secretary may require such payments of principal prior 
to maturity, with respect to all related obligations, as the Secretary con-
siders necessary to maintain 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 
guarantee. The Secretary shall document the results of the monitoring on 
an annual or quarterly basis depending on the condition of the obligor. If 
the Secretary determines that the financial condition of the obligor warrants 
additional 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 re-
sponsibilities in connection with the guarantee of an obligation by the Sec-
retary, the Secretary shall make an immediate determination whether de-
fault should take place and whether further measures described in sub-
section (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-
quirements for additional collateral or greater equity contributions that are 
effective upon the occurrence of verifiable conditions relating to the obligor’s 
financial condition or the status of the vessel or shipyard project. 
‘‘§ 53713. Administrative fees 
‘‘(a) IN GENERAL.—The Secretary shall charge and collect from the obli-
gor fees the Secretary considers reasonable for—
156
‘‘(1) investigating an application for a guarantee; 
‘‘(2) appraising property offered as security for a guarantee; 
‘‘(3) issuing a commitment; 
‘‘(4) providing services related to an escrow fund under section 
53715 of this title; and 
‘‘(5) inspecting property during construction, reconstruction, or re-
conditioning. 
‘‘(b) TOTAL FEE LIMITATION.—The total fees under subsection (a) may 
not exceed 0.5 percent of the original principal amount of the obligations 
to be guaranteed. 
‘‘(c) FEES FOR INDEPENDENT ANALYSIS.—The Secretary may charge 
and collect fees to cover the costs of independent analysis under section 
53708(d) of this title. Notwithstanding section 3302 of title 31, any fee col-
lected under this subsection shall—
‘‘(1) be credited as an offsetting collection to the account that fi-
nances the administration of the loan guarantee program; 
‘‘(2) be available for expenditure only to pay the costs of activities 
and services for which the fee is imposed; and 
‘‘(3) remain available until expended. 
‘‘§ 53714. Guarantee fees 
‘‘(a) REGULATIONS.—Subject to this section, the Secretary shall prescribe 
regulations to assess a fee for guaranteeing an obligation under this chap-
ter. 
‘‘(b) COMPUTATION OF FEE.—
‘‘(1) IN GENERAL.—The amount of the fee for a guarantee under 
this chapter shall be equal to the sum of the amounts determined under 
paragraph (2) for the years in which the guarantee is in effect. 
‘‘(2) PRESENT VALUE FOR EACH YEAR.—The amount referred to in 
paragraph (1) for a year in which the guarantee is in effect is the 
present value of the amount calculated under paragraph (3). To deter-
mine the present value, the Secretary shall apply a discount rate deter-
mined by the Secretary of the Treasury, considering current market 
yields on outstanding obligations of the United States Government hav-
ing periods to maturity comparable to the period to maturity for the 
guaranteed obligation. 
‘‘(3) CALCULATION OF AMOUNT.—The amount referred to in para-
graph (2) shall be calculated by multiplying—
‘‘(A) the estimated average unpaid principal amount of the obli-
gation that will be outstanding during the year (excluding the av-
erage amount, other than interest, on deposit during the year in 
an escrow fund under section 53715 of this title); by
157
‘‘(B) the fee rate set under paragraph (4). 
‘‘(4) SETTING FEE RATES.—To set the fee rate referred to in para-
graph (3)(B), the Secretary shall establish a formula that—
‘‘(A) takes into account the security provided for the guaranteed 
obligation; and 
‘‘(B) is a sliding scale based on the creditworthiness of the obli-
gor, using—
‘‘(i) the lowest allowable rate under paragraph (5) for the 
most creditworthy obligors; and 
‘‘(ii) the highest allowable rate under paragraph (5) for the 
least creditworthy obligors. 
‘‘(5) PERMISSIBLE RANGE OF RATES.—The fee rate set under para-
graph (4) shall be—
‘‘(A) for a delivered vessel or equipment, at least 0.5 percent 
and not more than 1 percent; and 
‘‘(B) for a vessel to be constructed, reconstructed, or recondi-
tioned or equipment to be delivered, at least 0.25 percent and not 
more than 0.5 percent. 
‘‘(c) WHEN FEE COLLECTED.—A fee for the guarantee of an obligation 
under this chapter shall be collected not later than the date on which an 
amount is first paid on the obligation. 
‘‘(d) FINANCING THE FEE.—A fee paid under this section is eligible to 
be financed under this chapter and shall be included in the actual cost of 
the obligation guaranteed. 
‘‘(e) NOT REFUNDABLE.—A fee paid under this section is not refundable. 
However, an obligor shall receive credit for the amount paid for the remain-
ing term of the obligation if the obligation is refinanced and guaranteed 
under this chapter after the refinancing. 
‘‘§ 53715. Escrow fund 
‘‘(a) IN GENERAL.—If the proceeds of an obligation guaranteed under 
this chapter are to be used to finance the construction, reconstruction, or 
reconditioning of a vessel that will serve as security for a guarantee under 
this chapter, the Secretary may accept and hold in escrow, under an escrow 
agreement with the obligor, a portion of the proceeds of all obligations guar-
anteed under this chapter whose proceeds are to be so used which is equal 
to the sum of—
‘‘(1)(A) the principal amount of all obligations whose proceeds are 
to be so used; less 
‘‘(B) the amount determined by multiplying the percentage applica-
ble under section 53709(b) of this title by the amount paid by or for
158
the account of the obligor for the construction, reconstruction, or re-
conditioning of the vessel; plus 
‘‘(2) any interest the Secretary may require on the amount described 
in clause (1). 
‘‘(b) SECURITY INVOLVING BOTH UNCOMPLETED AND DELIVERED VES-
SELS.—If the security for the guarantee of an obligation relates both to a 
vessel to be constructed, reconstructed, or reconditioned and to a delivered 
vessel, the principal amount of the obligation shall be prorated for purposes 
of subsection (a) under regulations prescribed by the Secretary. 
‘‘(c) DISBURSEMENT BEFORE TERMINATION OF AGREEMENT.—
‘‘(1) PURPOSES.—The Secretary shall disburse amounts in the es-
crow fund, as specified in the escrow agreement, to—
‘‘(A) pay amounts the obligor is obligated to pay for—
‘‘(i) the construction, reconstruction, or reconditioning of a 
vessel used as security for the guarantee; and 
‘‘(ii) interest on the obligations; 
‘‘(B) redeem the obligations under a refinancing guaranteed 
under this chapter; and 
‘‘(C) pay any excess interest deposits to the obligor at times 
provided for in the escrow agreement. 
‘‘(2) MANNER OF PAYMENT.—If a payment becomes due under the 
guarantee before the termination of the escrow agreement, the amount 
in the escrow fund at the time the payment becomes due, including re-
alized income not yet paid to the obligor, shall be paid into the appro-
priate account under section 53717 of this title. The amount shall be 
credited against amounts due or to become due from the obligor to the 
Secretary on the guaranteed obligations or, to the extent not so re-
quired, be paid to the obligor. 
‘‘(d) PAYMENTS REQUIRED BEFORE DISBURSEMENT.—
‘‘(1) IN GENERAL.—No disbursement shall be made under subsection 
(c) to any person until the total amount paid by or for the account 
of the obligor from sources other than the proceeds of the obligation 
equals at least 25 percent or 12.5 percent, whichever is applicable 
under section 53709(b) of this title, of the aggregate actual cost of the 
vessel, as previously approved by the Secretary. If the aggregate actual 
cost of the vessel has increased since the Secretary’s initial approval 
or if it increases after the first disbursement is permitted under this 
subsection, then no further disbursements shall be made under sub-
section (c) until the total amount paid by or for the account of the obli-
gor from sources other than the proceeds of the obligation equals at 
least 25 percent or 12.5 percent, as applicable, of the increase, as de-
159
termined by the Secretary, in the aggregate actual cost of the vessel. 
This paragraph does not require the Secretary to consent to finance 
any increase in actual cost unless the Secretary determines that such 
an increase in the obligation meets all the terms and conditions of this 
chapter or other applicable law. 
‘‘(2) DOCUMENTED PROOF OF PROGRESS REQUIREMENT.—The Sec-
retary shall, by regulation, establish a transparent, independent, and 
risk-based process for verifying and documenting the progress of 
projects under construction before disbursing guaranteed loan funds. 
At a minimum, the process shall require documented proof of progress 
in connection with the construction, reconstruction, or reconditioning of 
a vessel or vessels before disbursements are made from the escrow 
fund. The Secretary may require that the obligor provide a certificate
from an independent party certifying that the requisite progress in con-
struction, reconstruction, or reconditioning has taken place. 
‘‘(e) DISBURSEMENT ON TERMINATION OF AGREEMENT.—
‘‘(1) IN GENERAL.—If a payment has not become due under the 
guarantee before the termination of the escrow agreement, the balance 
of the escrow fund at the time of termination shall be disbursed to—
‘‘(A) prepay—
‘‘(i) the principal amount of all obligations whose proceeds 
are to be used to finance the construction, reconstruction, or 
reconditioning of the vessel used or to be used as security for 
the guarantee; less 
‘‘(ii) the amount determined by multiplying the percentage 
applicable under section 53709(b) of this title by the actual 
cost of the vessel to the extent paid; and 
‘‘(B) pay interest on that prepaid amount of principal. 
‘‘(2) REMAINING BALANCE.—Any remaining balance of the escrow 
fund shall be paid to the obligor. 
‘‘(f) INVESTMENT.—The Secretary may invest and reinvest any part of 
an escrow fund in obligations of the United States Government with matu-
rities such that the escrow fund will be available as required for purposes 
of the escrow agreement. Investment income shall be paid to the obligor 
when received. 
‘‘(g) TERMS TO PROTECT GOVERNMENT.—The escrow agreement shall 
contain other terms the Secretary considers necessary to protect fully the 
interests of the Government. 
‘‘§ 53716. Deposit fund 
‘‘(a) IN GENERAL.—There is a deposit fund in the Treasury for purposes 
of this section. The Secretary, in accordance with an agreement under sub-
160
section (b), may deposit into and hold in the fund cash belonging to an obli-
gor to serve as collateral for a guarantee made under this chapter with re-
spect to the obligor. 
‘‘(b) AGREEMENT.—The Secretary and an obligor shall make a reserve 
fund or other collateral account agreement to govern the deposit, with-
drawal, retention, use, and reinvestment of cash of the obligor held in the 
fund. The agreement shall contain—
‘‘(1) terms and conditions required by this section; 
‘‘(2) terms that grant to the United States Government a security 
interest in all amounts deposited into the fund; and 
‘‘(3) any additional terms considered by the Secretary to be nec-
essary to protect fully the interests of the Government. 
‘‘(c) INVESTMENT.—The Secretary may invest and reinvest any part of 
the amounts in the fund in obligations of the Government with maturities 
such that amounts in the fund will be available as required for purposes 
of the agreement under subsection (b). Cash balances in the fund in excess 
of current requirements shall be maintained in a form of uninvested funds, 
and the Secretary of the Treasury shall pay interest on these funds. 
‘‘(d) WITHDRAWALS.—
‘‘(1) IN GENERAL.—Cash deposited into the fund may not be with-
drawn without the consent of the Secretary. 
‘‘(2) USE OF INCOME.—Subject to paragraph (3), the Secretary may 
pay any income earned on cash of an obligor deposited into the fund 
in accordance with the agreement with the obligor under subsection (b). 
‘‘(3) RETENTION AGAINST DEFAULT.—The Secretary may retain and 
offset any or all of the cash of an obligor in the fund, and any income 
realized thereon, as part of the Secretary’s recovery against the obligor 
in case of a default by the obligor on an obligation. 
‘‘§ 53717. Management of funds in the Treasury 
‘‘(a) LOAN GUARANTEES BY SECRETARY OF TRANSPORTATION.—
‘‘(1) WHEN NOT SUBJECT TO ACT.—The Secretary of Transpor-
tation shall account for payments and disbursements involving obliga-
tions guaranteed under this chapter and not subject to the Federal 
Credit Reform Act of 1990 (2 U.S.C. 661 et seq.) in an account in 
the Treasury entitled the Federal Ship Financing Fund Liquidating 
Account. 
‘‘(2) WHEN SUBJECT TO ACT.—The Secretary of Transportation 
shall account for payments and disbursements involving obligations 
guaranteed under this chapter and subject to such Act in a separate 
account in the Treasury entitled the Federal Ship Financing Guaran-
teed Loan Financing Account.
161
‘‘(b) LOAN GUARANTEES BY SECRETARY OF COMMERCE.—
‘‘(1) WHEN NOT SUBJECT TO ACT.—The Secretary of Commerce 
shall account for payments and disbursements involving obligations 
guaranteed under this chapter and not subject to such Act in a sepa-
rate account in the Treasury established for this purpose. 
‘‘(2) WHEN SUBJECT TO ACT.—The Secretary of Commerce shall ac-
count for payments and disbursements involving obligations guaranteed 
under this chapter and subject to such Act in a separate account in 
the Treasury of the United States established for this purpose. 
‘‘(c) DIRECT LOANS BY SECRETARY OF COMMERCE.—The Secretary of 
Commerce shall account for payments and disbursements involving direct 
loans made under this chapter in a separate account in the Treasury estab-
lished for this purpose. 
‘‘§ 53718. Annual report to Congress 
‘‘The Secretary of Transportation shall report to Congress annually on 
the loan guarantee program under this chapter. Each report shall include—
‘‘(1) the size, in dollars, of the portfolio of loans guaranteed; 
‘‘(2) the size, in dollars, of projects in the portfolio facing financial 
difficulties; 
‘‘(3) the number and type of projects covered; 
‘‘(4) a profile of pending loan applications; 
‘‘(5) the amount of appropriations available for new guarantees; 
‘‘(6) a profile of each project approved since the last report; and 
‘‘(7) a profile of any defaults since the last report. 
‘‘SUBCHAPTER II—DEFAULT PROVISIONS 
‘‘§ 53721. Rights of obligee 
‘‘(a) DEMANDS BY OBLIGEES.—Except as provided in subsection (c), if 
an obligor has continued in default for 30 days in the payment of principal 
or interest on an obligation guaranteed under this chapter, the obligee may 
demand that the Secretary pay the unpaid principal amount of the obliga-
tion and the unpaid interest on the obligation to the date of payment. The 
demand must be made within the earlier of—
‘‘(1) a period that may be specified in the guarantee or a related 
agreement; or 
‘‘(2) 90 days from the date of the default. 
‘‘(b) PAYMENTS BY SECRETARY.—
‘‘(1) IN GENERAL.—If a demand is made under subsection (a), the 
Secretary shall pay to the obligee the unpaid principal amount of the 
obligation and the unpaid interest on the obligation to the date of pay-
ment. Payment shall be made within the earlier of—
162
‘‘(A) a period that may be specified in the guarantee or a re-
lated agreement; or 
‘‘(B) 30 days from the date of the demand. 
‘‘(2) IF NO EXISTING DEFAULT.—The Secretary is not required to 
make payment under this subsection if, within the appropriate period 
under paragraph (1), the Secretary finds that the obligor was not in 
default or that the default was remedied before the demand. 
‘‘(c) ASSUMPTION OF RIGHTS AND OBLIGATIONS BEFORE DEMAND.—An 
obligee may not demand payment under this section if the Secretary, before 
the demand and on terms that may be provided in the obligation or a re-
lated agreement, has assumed the obligor’s rights and duties under the obli-
gation and any related agreement and made any payment in default. How-
ever, the guarantee of the obligation remains in effect after the Secretary’s 
assumption. 
‘‘§ 53722. Actions by Secretary 
‘‘(a) GENERAL AUTHORITY.—On default under an obligation or related 
agreement between the Secretary and the obligor, the Secretary, on terms 
that may be provided in the obligation or agreement, may—
‘‘(1) assume the obligor’s rights and duties under the obligation or 
agreement, make any payment in default, and notify the obligee of the 
default and the Secretary’s assumption; or 
‘‘(2) notify the obligee of the default. 
‘‘(b) DEMANDS BY OBLIGEES.—
‘‘(1) DEMAND.—If the Secretary proceeds under subsection (a)(2), 
the obligee may demand that the Secretary pay the unpaid principal 
amount of the obligation and the unpaid interest on the obligation. The 
demand must be made within the earlier of—
‘‘(A) a period that may be specified in the guarantee or a re-
lated agreement; or 
‘‘(B) 60 days from the date of the Secretary’s notice. 
‘‘(2) PAYMENT.—If a demand is made under paragraph (1), the Sec-
retary shall pay to the obligee the unpaid principal amount of the obli-
gation and the unpaid interest on the obligation to the date of pay-
ment. Payment shall be made within the earlier of—
‘‘(A) a period that may be specified in the guarantee or a re-
lated agreement; or 
‘‘(B) 30 days from the date of the demand. 
‘‘(c) CONTINUED EFFECT OF GUARANTEE.—A guarantee of an obligation 
remains in effect after an assumption of the obligation by the Secretary. 
‘‘(d) ADDITIONAL RESPONSES.—If there is a default on an obligation, the 
Secretary shall conduct operations under this chapter in a manner that—
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‘‘(1) maximizes the net present value return from the sale or disposi-
tion of assets associated with the obligation, including prompt referral 
to the Attorney General for collection as appropriate; 
‘‘(2) minimizes the amount of any loss realized in the resolution of 
the guarantee; 
‘‘(3) ensures adequate competition and fair and consistent treatment 
of offerors; and 
‘‘(4) requires appraisal of assets by an independent appraiser. 
‘‘§ 53723. Payments by Secretary and issuance of obligations 
‘‘(a) CASH PAYMENT.—Amounts required to be paid by the Secretary 
under section 53721 or 53722 of this title shall be paid in cash. 
‘‘(b) ISSUANCE OF OBLIGATIONS.—If amounts in the appropriate account 
under section 53717 of this title are not sufficient to make a payment re-
quired under section 53721 or 53722 of this title, the Secretary may issue 
obligations to the Secretary of the Treasury. The Secretary, with the ap-
proval of the Secretary of the Treasury, shall prescribe the form, denomina-
tion, maturity, and other terms (except the interest rate) of the obligations. 
The Secretary of the Treasury shall set the interest rate for the obligations, 
considering the current average market yield on outstanding marketable ob-
ligations of the United States Government of comparable maturities during 
the month before the obligations are issued. 
‘‘(c) PURCHASE OF OBLIGATIONS.—The Secretary of the Treasury shall 
purchase the obligations issued under this section. To purchase the obliga-
tions, the Secretary of the Treasury may use as a public debt transaction 
the proceeds from the sale of securities issued under chapter 31 of title 31. 
The purposes for which securities may be issued under that chapter are ex-
tended to include the purchase of obligations under this subsection. The 
Secretary of the Treasury may sell obligations purchased under this section. 
A redemption, purchase, or sale of the obligations by the Secretary of the 
Treasury is a public debt transaction of the Government. 
‘‘(d) DEPOSITS
AND
REDEMPTIONS.—The Secretary shall deposit 
amounts borrowed under this section in the appropriate account under sec-
tion 53717 of this title and make redemptions of the obligations from that 
account. 
‘‘§ 53724. Rights to secured property 
‘‘(a) ACQUISITION OF SECURITY RIGHTS.—When the Secretary makes a 
payment on, or assumes, an obligation under section 53721 or 53722 of this 
title, the Secretary acquires the rights under the security agreement with 
the obligor in the security held by the Secretary to guarantee the obligation. 
‘‘(b) USE AND DISPOSITION OF SECURED PROPERTY.—Notwithstanding 
any other law on the acquisition, handling, or disposal of property by the
164
United States Government, the Secretary may complete, reconstruct, recon-
dition, renovate, repair, maintain, operate, charter, or sell any property ac-
quired under a security agreement with an obligor, or may place a vessel 
so acquired in the National Defense Reserve Fleet. The terms of a sale 
under this subsection shall be as approved by the Secretary. 
‘‘§ 53725. Actions against obligor 
‘‘(a) IN GENERAL.—For a default under a guaranteed obligation or re-
lated agreement, the Secretary may take any action against the obligor or 
another liable party that the Secretary considers necessary to protect the 
interests of the United States Government. A civil action may be brought 
in the name of the Government or the obligee. The obligee shall make avail-
able to the Government all records and evidence necessary to prosecute the 
action. 
‘‘(b) TITLE, POSSESSION, AND PURCHASE.—
‘‘(1) IN GENERAL.—The Secretary may—
‘‘(A) accept a conveyance of title to and possession of property 
from the obligor or another party liable to the Secretary; and 
‘‘(B) purchase the property for an amount not greater than the 
unpaid principal amount of the obligation and interest thereon. 
‘‘(2) PAYMENT OF EXCESS.—If, through the sale of property, the 
Secretary receives an amount of cash greater than the unpaid principal 
amount of the obligation, the unpaid interest on the obligation, and the 
expenses of collecting those amounts, the Secretary shall pay the excess 
to the obligor. 
‘‘SUBCHAPTER III—PARTICULAR PROJECTS 
‘‘§ 53731. Commercial demonstration ocean thermal energy 
conversion facilities and plantships 
‘‘(a) IN GENERAL.—Under subchapter I of this chapter, the Secretary 
may guarantee or make a commitment to guarantee the payment of the 
principal of and interest on an obligation that aids in financing (including 
reimbursement of an obligor for expenditures previously made for) the con-
struction, reconstruction, or reconditioning of a commercial demonstration 
ocean thermal energy conversion facility or plantship. This section may be 
used to guarantee obligations for a total of not more than 5 separate facili-
ties and plantships or a demonstrated 400 megawatt capacity, whichever 
comes first. 
‘‘(b) APPLICABILITY OF OTHER PROVISIONS.—Except as otherwise pro-
vided in this section, a guarantee or commitment to guarantee under this 
section is subject to all the provisions applicable to a guarantee or commit-
ment to guarantee under subchapter I of this chapter.
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‘‘(c) ECONOMIC SOUNDNESS.—The required determination of economic 
soundness under section 53708 of this title applies to a guarantee or com-
mitment to guarantee for that portion of a facility or plantship not to be 
supported with appropriated Federal funds. 
‘‘(d) REASONABLENESS OF RISK.—A guarantee or commitment to guar-
antee may not be made under this section unless the Secretary of Energy, 
in consultation with the Secretary, certifies to the Secretary that, for the 
facility or plantship for which the guarantee or commitment to guarantee 
is sought, there is sufficient guarantee of performance and payment to lower 
the risk to the United States Government to a reasonable level. In deciding 
whether to issue such a certification, the Secretary of Energy shall con-
sider—
‘‘(1) the successful demonstration of the technology to be used in the 
facility at a scale sufficient to establish the likelihood of technical and 
economic viability in the proposed market; and 
‘‘(2) the need of the United States to develop new and renewable 
sources of energy and the benefits to be realized from the construction 
and successful operation of the facility or plantship. 
‘‘(e) AMOUNT OF OBLIGATION.—The total principal amount of an obliga-
tion guaranteed under this section may not exceed 87.5 percent of—
‘‘(1) the actual cost or depreciated actual cost of the facility or 
plantship; or 
‘‘(2) if the facility or plantship is supported with appropriated Fed-
eral funds, the total principal amount of that portion of the actual cost 
or depreciated actual cost for which the obligor is obligated to secure 
financing under the agreement between the obligor and the Department 
of Energy or other Federal agency. 
‘‘(f) OTEC DEMONSTRATION FUND.—
‘‘(1) IN GENERAL.—There is a special subaccount, known as the 
OTEC Demonstration Fund, in the account established under section 
53717(a)(1) of this title. 
‘‘(2) USE AND OPERATION.—The OTEC Demonstration Fund shall 
be used for obligation guarantees authorized under this section that do 
not qualify under subchapter I of this chapter. Except as otherwise 
provided in this section, the OTEC Demonstration Fund shall be oper-
ated in the same manner as the parent account. However—
‘‘(A) amounts received by the Secretary under subchapter I of 
this chapter related to guarantees or commitments to guarantee 
made under this section shall be deposited only in the OTEC 
Demonstration Fund; and
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‘‘(B) when obligations issued by the Secretary under section 
53723 of this title related to the OTEC Demonstration Fund are 
outstanding, any amount received by the Secretary under sub-
chapter I of this chapter related to ocean thermal energy conver-
sion facilities or plantships shall be deposited in the OTEC Dem-
onstration Fund. 
‘‘(3) TRANSFERS.—Assets in the OTEC Demonstration Fund may 
be transferred to the parent account when and to the extent the bal-
ance in the OTEC Demonstration Fund exceeds the total guarantees 
or commitments to guarantee made under this section then out-
standing, plus obligations issued by the Secretary under section 53723 
of this title related to the OTEC Demonstration Fund. 
‘‘(4) LIABILITY.—The parent account is not liable for a guarantee 
or commitment to guarantee made under this section. 
‘‘(5) MAXIMUM UNPAID PRINCIPAL AMOUNT.—The total unpaid prin-
cipal amount of the obligations guaranteed with the backing of the 
OTEC Demonstration Fund and outstanding at any one time may not 
exceed $1,650,000,000. 
‘‘(g) ISSUANCE AND PAYMENT OF OBLIGATIONS.—Section 53723 of this 
title applies to the OTEC Demonstration Fund. However, obligations issued 
by the Secretary under that section related to the OTEC Demonstration 
Fund shall be payable only from proceeds realized by the OTEC Dem-
onstration Fund. 
‘‘(h) TAXATION
OF INTEREST.—Interest on an obligation guaranteed 
under this section shall be included in gross income under chapter 1 of the 
Internal Revenue Code of 1986 (26 U.S.C. ch. 1). 
‘‘§ 53732. Eligible export vessels 
‘‘(a) APPLICABLE TERMS.—The Secretary may guarantee an obligation 
for an eligible export vessel in accordance with—
‘‘(1) the terms applicable under this chapter for vessels documented 
under the laws of the United States; or 
‘‘(2) other terms the Secretary determines are more favorable than 
those terms and compatible with export credit terms offered by foreign 
governments for the sale of vessels built in foreign shipyards. 
‘‘(b) INTERAGENCY COUNCIL.—
‘‘(1) ESTABLISHMENT.—There is an interagency council to carry out 
this section. 
‘‘(2) COMPOSITION.—The council is composed of the following indi-
viduals or their designees: 
‘‘(A) The Secretary of Transportation, who is the chairman of 
the council.
167
‘‘(B) The Secretary of the Treasury. 
‘‘(C) The Secretary of State. 
‘‘(D) The Assistant to the President for Economic Policy. 
‘‘(E) The United States Trade Representative. 
‘‘(F) The President and Chairman of the Export-Import Bank 
of the United States. 
‘‘(3) FUNCTIONS.—The council shall—
‘‘(A) obtain information on shipbuilding loan guarantees, direct 
and indirect subsidies, and other favorable treatment of shipyards 
provided by foreign governments to shipyards in competition with 
United States shipyards; 
‘‘(B) consult regularly with United States shipbuilders to obtain 
the essential information about international shipbuilding competi-
tion on which to set terms for loan guarantees under subsection 
(a)(2); and 
‘‘(C) provide guidance to the Secretary in establishing terms for 
loan guarantees under subsection (a)(2). 
‘‘(4) ANNUAL REPORT.—Not later than January 31 of each year, the 
Secretary shall submit to Congress a report on activities of the Sec-
retary under this section during the preceding year. The report shall 
include—
‘‘(A) documentation of sources of information about assistance 
by governments of other countries to shipyards in those countries; 
and 
‘‘(B) a summary of recommendations made to the Secretary 
during the preceding year about applications submitted to the Sec-
retary during that year for loan guarantees to construct eligible 
export vessels. 
‘‘(c) REQUIRED FINDINGS.—
‘‘(1) BENEFIT TO SHIPBUILDING INDUSTRY.—The Secretary may 
not guarantee or make a commitment to guarantee an obligation for 
an eligible export vessel unless the Secretary finds that the construc-
tion, reconstruction, or reconditioning of the vessel will aid in the tran-
sition of United States shipyards to commercial activities or will pre-
serve shipbuilding assets that would be essential in time of war or na-
tional emergency. 
‘‘(2) PRIORITY OF DOCUMENTED VESSELS.—The Secretary may not 
make a commitment to guarantee an obligation for an eligible export 
vessel unless the Secretary determines that making the commitment 
will not result in denial of an economically sound application for a com-
mitment to guarantee an obligation for a vessel documented under the