Opinion ID: 409578
Heading Depth: 2
Heading Rank: 2

Heading: Provision for Total CDS Repayment

Text: 9 U.S.-flag tankers in the foreign market have not fared well despite Congress' program of construction and operating subsidies. In fact, a decline in Middle East oil production (originally precipitated by the Arab oil embargo), coupled with overbuilding, has led to a virtual collapse of the world tanker market. World-scale rates are well below the break-even costs of U.S. tankers, subsidized or not. 11 10 The domestic market, on the other hand, especially the West Coast/Panama Canal trade from Alaska, is flourishing. A shortage of very large crude carriers (VLCCs) has led to highly profitable rates. As a result, there has been persistent pressure from subsidized vessels for permission to enter the domestic market on a permanent basis in exchange for total repayment of any construction subsidies received. 11 MarAd was placed in an acute dilemma by such pressure. First, neither the Merchant Marine Act nor its legislative history offered any express indication that Congress intended to empower MarAd to approve full-repayment/permanent-release transactions. Second, even if MarAd is so empowered, freely granted releases might be contrary to the purposes of the Act since they would tend to undermine the domestic trade, making planning impossible and new construction unwise. The foreign trade would hang over the domestic trade like a sword of Damocles, ready to trim away any and all profit margin. 12 The first half of this dilemma, at least, was dissolved in 1980. MarAd had granted a series of requests for repayment during the '70s, culminating in the application of Polk Tanker Corp. for repayment of the CDS on the tanker Stuyvesant in 1977. 12 MarAd dealt with each application on an ad hoc basis, without hearings or notice to interested parties in the domestic trade. When MarAd granted the Stuyvesant application, three competitors in the Alaskan trade brought suit challenging its authority to do so. The district court upheld MarAd's general power to grant permanent release from domestic trading restrictions in exchange for full CDS repayment. 13 However, the court also held that releasing the Stuyvesant from such restrictions without analyzing the economic effect of that vessel's entry into the Alaskan trade was an abuse of discretion. The opinion deplored MarAd's ad hoc, unpublished determination and strongly urged MarAd to establish guidelines and procedures of general applicability to govern CDS repayment and permanent waivers of domestic trading restrictions so as to ensure equal treatment and a fair opportunity for comments to be heard. 13 Substantive guidelines and procedural requirements for applications should be established so that all members of the industry stand on equal footing before the Secretary, and these procedures should guarantee interested competitors and members of the public the opportunity to be heard. 14 14 The United States Court of Appeals reversed the district court on the first point, without reaching the second. 15 Citing the total absence of any authorization in either the Act itself or the legislative history, this court held that MarAd could not lift domestic trading restrictions for any period longer than the six months allowed for in the Act. The Supreme Court then reversed, citing MarAd's broad contracting powers and the absence of anything in the Act or the legislative history that forbade MarAd from permanently lifting the restrictions. 16 The Supreme Court specifically did not address the question, discussed only by the district court, of when or how MarAd might exercise this discretion in accordance with the purposes of the Act. 17