B-134493, DECEMBER 23, 1957, 37 COMP. GEN. 436

B-134493: Dec 23, 1957

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1957: REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 25. A LEGAL QUESTION HAS ARISEN CONCERNING THE TRADE- IN OF VESSELS LESS THAN 20 YEARS OLD THAT WERE BUILT WITH TITLE V SUBSIDY AID. IS TRADED IN UNDER SECTION 510 OF THE ACT. WHICH WAS INCORPORATED IN THE ORIGINAL MERCHANT MARINE ACT OF 1936. PERTAINING TO ANY VESSEL IN RESPECT TO WHICH A CONSTRUCTION- DIFFERENTIAL SUBSIDY IS TO BE ALLOWED UNDER TITLE V. WHICHEVER IS THE LONGER PERIOD. * * * APPROXIMATELY THREE YEARS LATER. SECTION 510 WAS ADDED TO THE ACT. THAT SECTION 503 DOES NOT HAVE THE EFFECT OF EXCLUDING FROM HIS CONSIDERATION THE WORLD MARKET VALUE IN THE CASE OF VESSELS CONSTRUCTED WITH THE ASSISTANCE OF TITLE V SUBSIDY. IT IS DETERMINED THAT THE "FAIR AND REASONABLE" VALUE OF THE OBSOLETE VESSEL IS EQUIVALENT TO THE HIGHEST OF THE THREE VALUATIONS TO BE CONSIDERED.

B-134493, DECEMBER 23, 1957, 37 COMP. GEN. 436

MARITIME MATTERS - VALUATION OF SUBSIDY COVERED VESSELS FOR TRADE-IN - WORLD MARKET VALUE IN THE ABSENCE OF ANY INDICATION THAT SECTION 510 (D) OF THE MERCHANT MARINE ACT, 1936, 46 U.S.C. 1160 (D), WHICH SPECIFIES THE CONSIDERATION OF THREE FACTORS: SCRAP, BOOK, AND DOMESTIC OR FOREIGN MARKET VALUE IN THE DETERMINATION OF VESSEL TRADE-IN CREDIT, REQUIRES VESSELS BUILT WITH CONSTRUCTION-DIFFERENTIAL SUBSIDY AID TO BE TREATED DIFFERENTLY FROM OTHER VESSELS, THE FOREIGN TRANSFER RESTRICTION IN SECTION 503 OF THE ACT, 46 U.S.C. 1153, DOES NOT PRECLUDE CONSIDERATION OF THE WORLD MARKET VALUE IN THE DETERMINATION OF THE FAIR AND REASONABLE TRADE-IN ALLOWANCE FOR CONSTRUCTION-DIFFERENTIAL VESSELS.

TO THE ADMINISTRATOR, MARITIME ADMINISTRATION, DECEMBER 23, 1957:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 25, 1957, ADVISING THAT IN CONNECTION WITH CERTAIN CONTRACTS FOR THE CONSTRUCTION OF NEW VESSLES WITH THE AID OF SUBSIDIES UNDER TITLE V OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, 46 U.S.C. 1151, A LEGAL QUESTION HAS ARISEN CONCERNING THE TRADE- IN OF VESSELS LESS THAN 20 YEARS OLD THAT WERE BUILT WITH TITLE V SUBSIDY AID. IN BRIEF, YOU REQUEST TO BE ADVISED WHETHER, IN THE LIGHT OF SECTION 503 OF THE ACT, 46 U.S.C. 1153, IT WOULD BE NECESSARY FOR US TO OBJECT TO AN ALLOWANCE OF CREDIT BASED ON THE WORLD MARKET VALUE OF A VESSEL, OR A SUM THAT WOULD EXCEED HER VALUE IN THE DOMESTIC MARKET, WHEN THE VESSEL, BUILT WITH TITLE V CONSTRUCTION SUBSIDY, IS TRADED IN UNDER SECTION 510 OF THE ACT, 46 U.S.C. 1160, IN CONNECTION WITH THE CONSTRUCTION OF A NEW VESSEL.

SECTION 503, WHICH WAS INCORPORATED IN THE ORIGINAL MERCHANT MARINE ACT OF 1936, PERTAINING TO ANY VESSEL IN RESPECT TO WHICH A CONSTRUCTION- DIFFERENTIAL SUBSIDY IS TO BE ALLOWED UNDER TITLE V, READS, IN PERTINENT PART, AS FOLLOWS:

* * * THE VESSEL SHALL REMAIN DOCUMENTED UNDER THE LAWS OF THE UNITED STATES FOR NOT LESS THAN TWENTY YEARS, OR SO LONG AS THERE REMAINS DUE THE UNITED STATES ANY PRINCIPAL OR INTEREST ON ACCOUNT OF THE PURCHASE PRICE, WHICHEVER IS THE LONGER PERIOD. * * *

APPROXIMATELY THREE YEARS LATER, SECTION 510 WAS ADDED TO THE ACT, PARAGRAPH (D), 46 U.S.C. 1160 (D), OF WHICH PROVIDES:

THE ALLOWANCE FOR AN OBSOLETE VESSEL SHALL BE THE FAIR AND REASONABLE VALUE OF SUCH VESSEL AS DETERMINED BY THE COMMISSION. IN MAKING SUCH DETERMINATION THE COMMISSION SHALL CONSIDER: (1) THE SCRAP VALUE OF THE OBSOLETE VESSEL BOTH IN AMERICAN AND IN FOREIGN MARKETS, (2) THE DEPRECIATED VALUE BASED ON A TWENTY-YEAR LIFE, AND, (3) THE MARKET VALUE THEREOF FOR OPERATION IN THE WORLD TRADE OR IN THE FOREIGN OR DOMESTIC TRADE OF THE UNITED STATES. * * * ( ITALICS SUPPLIED.)

YOU STATE THAT IN THE OPINION OF YOUR GENERAL COUNSEL SECTION 510 (D) LEAVES TO THE DISCRETION OF THE ADMINISTRATOR THE WEIGHT THAT SHOULD BE GIVEN TO EACH FACTOR--- SCRAP, BOOK, AND DOMESTIC OR FOREIGN MARKET VALUE; AND THAT SECTION 503 DOES NOT HAVE THE EFFECT OF EXCLUDING FROM HIS CONSIDERATION THE WORLD MARKET VALUE IN THE CASE OF VESSELS CONSTRUCTED WITH THE ASSISTANCE OF TITLE V SUBSIDY. THIS VIEW AS TO THE DISCRETION OF THE ADMINISTRATOR UNDER SECTION 510 (D) FINDS SUPPORT IN OUR DECISION OF AUGUST 11, 1953, B-115883, TO THE SECRETARY OF COMMERCE, WHEREIN WE STATED:

* * * IF, AFTER THOROUGH CONSIDERATION OF ALL THE FACTS CONCERNING A PARTICULAR TRANSACTION, IT IS DETERMINED THAT THE "FAIR AND REASONABLE" VALUE OF THE OBSOLETE VESSEL IS EQUIVALENT TO THE HIGHEST OF THE THREE VALUATIONS TO BE CONSIDERED, THERE IS NO LEGAL OBJECTION TO FIXING THE CREDIT ALLOWANCE IN THAT AMOUNT. THE LAW CLEARLY PERMITS THE VALUATION TO BE CONTROLLED BY ANY ONE OR BY ANY COMBINATION OF THE THREE FACTORS SPECIFIED; AT THE SAME TIME IT DOES REQUIRE, IN MAKING THE DETERMINATION, THAT CONSIDERATION BE GIVEN TO EACH OF THE THREE FACTORS.

AND WITH RESPECT TO THE WEIGHT THAT SHOULD BE GIVEN TO THE DOMESTIC OR FOREIGN MARKET VALUE, WE THEREIN HELD THAT IT SEEMED CLEAR FROM THE LANGUAGE OF THE THIRD FACTOR SPECIFIED IN SECTION 510 (D), THE SECRETARY MAY CONSIDER SALES OF SIMILAR TYPE VESSELS BETWEEN NON CITIZENS. WE THEN OBSERVED THAT SALES OF VESSELS BETWEEN CITIZENS OF THE UNITED STATES COULD ONLY BE FOR OPERATION IN THE FOREIGN OR DOMESTIC TRADE OF THE UNITED STATES, AND POINTED OUT THAT THE PRESENCE OF THE WORDS ,WORLD TRADE" MUST SIGNIFY AN INTENTION TO PERMIT "MARKET VALUE" TO BE INFLUENCED BY PRICES PAID IN TRANSACTIONS BETWEEN NON CITIZENS OF THE UNITED STATES. IN THAT DECISION WE CONCLUDED AS FOLLOWS:

THIS CONCLUSION FINDS SUPPORT IN THE LEGISLATIVE HISTORY OF PUBLIC LAW 259, APPROVED AUGUST 4, 1939, WHICH ADDED SECTION 510 TO THE MERCHANT MARINE ACT OF 1936. IN REQUESTING THE NEW LEGISLATION THE MARITIME COMMISSION POINTED OUT THAT UNDER SECTION 9 OF THE SHIPPING ACT OF 1916, AS AMENDED, THE COMMISSION COULD PREVENT THE SALE OR TRANSFER TO FOREIGN REGISTRY OF AMERICAN-FLAG VESSELS; THAT A SHIPOWNER WAS THUS DEPRIVED OF MORE LIBERAL PRICES IN FOREIGN MARKETS; AND THAT WHILE THE NEW PROPOSAL WOULD NOT MAKE THE AMERICAN SHIPOWNER COMPLETELY WHOLE FROM THE RESTRICTIONS OF SECTION 9 OF THE SHIPPING ACT, 1916, SINCE HE WOULD NOT BE PAID IN CASH FOR THE OBSOLETE VESSEL BUT WOULD ONLY RECEIVE A CREDIT TOWARD THE PURCHASE PRICE OF A NEW VESSEL, IT WOULD HELP THE SITUATION. SEE, ALSO, PAGES 6 AND 7 OF HOUSE REPORT NO. 824, 76TH CONGRESS, ST SESSION.

AT PAGE 6 OF THE REFERRED-TO HOUSE REPORT NO. 824, THE COMMITTEE, IN DISCUSSING THE MARITIME COMMISSION'S REFUSAL TO APPROVE THE TRANSFER OF CERTAIN VESSELS TO FOREIGN REGISTRY FOR REASONS OF PUBLIC POLICY, STATED:

SINCE PUBLIC PURPOSE MAKES INADVISABLE THE DISPOSAL OF OLD AMERICAN FLAG VESSELS IN WORLD MARKETS, THERE SHOULD BE NO COMPLAINT IF THE GOVERNMENT SUPPLIES AN OUTLET TO TAKE THE PLACE OF THAT CLOSED POLICY.

AND, AFTER DISCUSSING THE CRITERIA FOR ARRIVING AT A FAIR AND REASONABLE VALUE OF THE TRADED-IN VESSELS, THE COMMITTEE EXPLAINED:

CONSIDERABLE STUDY HAS BEEN GIVEN TO THE ADVISABILITY OF A PROVISO TO THE EFFECT THAT IN THE TURN-IN OF VESSELS PURCHASED FROM THE GOVERNMENT, THE CREDIT SHOULD BE DETERMINED BY A FORMULA SIMILAR TO THAT NOW INCORPORATED IN SECTION 507 OF THE MERCHANT MARINE ACT, 1936, OR BY LIMITING THE TURN- IN ALLOWANCE IN EACH CASE TO THE PRICE PAID THE GOVERNMENT. THE THEORY BEHIND SUCH PROVISOS WOULD BE THAT THE ALLOWANCE MIGHT IN SOME CASES BE DISPROPORTIONATE TO THE PRICE ORIGINALLY PAID THE GOVERNMENT, ESPECIALLY IF NO ATTEMPT BE MADE TO EVALUATE GUARANTEED OPERATION CLAUSES IN SOME OF THE ORIGINAL SALES CONTRACTS, OR OTHER CONSIDERATIONS WHICH ATTENDED THE SALES. BOTH THE COMMISSION AND YOUR COMMITTEE RECOMMEND THAT NO SUCH PROVISO BE INCORPORATED IN THE SECTION. UNDER SUCH A PROVISO, THE PRESENT VESSELS IN THAT CATEGORY MIGHT NOT BE REPLACED AT ALL, AND TO THAT EXTENT RETARD THE GOVERNMENT CONSTRUCTION PROGRAM. ( ITALICS SUPPLIED.)

WHILE THIS DISCUSSION PERTAINED ONLY TO TURNED-IN VESSELS FORMERLY PURCHASED FROM THE GOVERNMENT, THERE APPEARS NOTHING TO JUSTIFY THE VIEW THAT THE CONGRESS HAD AN INTENTION TO IMPOSE A DIFFERENT FORMULA FOR CONSTRUCTION-DIFFERENTIAL SUBSIDY VESSELS, PARTICULARLY IN VIEW OF THE FACT THAT AT THE TIME SECTION 510 WAS ADDED TO THE 1936 ACT, TWO SHIPS ON WHICH A CONSTRUCTION-DIFFERENTIAL SUBSIDY WAS PAID HAD BEEN DELIVERED TO THE OWNER, AND ABOUT NINETY VESSELS ON WHICH A CONSTRUCTION-DIFFERENT SUBSIDY WAS TO BE PAID WERE UNDER CONSTRUCTION OR CONTRACTED FOR--- A CIRCUMSTANCE OF WHICH THE CONGRESS PRESUMABLY WAS AWARE. IN THE LIGHT OF THIS BACKGROUND, THEREFORE, WE CONCUR IN YOUR VIEW THAT THE LEGISLATIVE ACTION IN ELIMINATING SECTION 9 RESTRICTIONS, 46 U.S.C. 808, IN ARRIVING AT THE AMOUNT OF TRADE-IN ALLOWANCE IS A SUBSTANTIAL INDICATION OF A CONGRESSIONAL INTENTION TO ALLOW "WORLD MARKET" VALUES TO BE CONSIDERED AS A FACTOR IN ARRIVING AT THE TRADE-IN CREDIT ON ALL VESSELS, INCLUDING CONSTRUCTION-DIFFERENTIAL VESSELS WHICH ARE SIMILARLY RESTRICTED AS TO FOREIGN TRANSFER.

ACCORDINGLY, WE MUST CONCLUDE THAT SINCE SECTION 510 (D) WAS ENACTED SUBSEQUENT TO SECTION 503, AND INASMUCH AS THERE IS NOTHING IN THE LANGUAGE OF THE FORMER SECTION OR OTHERWISE TO INDICATE A PURPOSE TO TREAT CONSTRUCTION-DIFFERENTIAL VESSELS IN A MANNER DIFFERENT FROM OTHER VESSELS, THERE WOULD BE NO LEGAL BASIS FOR OUR OBJECTING TO YOUR CONSIDERING WORLD MARKET VALUE IN DETERMINING THE FAIR AND REASONABLE TRADE-IN ALLOWANCE FOR CONSTRUCTION-DIFFERENTIAL VESSELS.