B-76394, MAY 16, 1963, 42 COMP. GEN. 635

B-76394: May 16, 1963

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THE PROPOSED TRADE-IN OF THREE SHIPS IN EXCHANGE FOR TWO IS PROPER AND SERVES THE PURPOSE OF THE ACT TO ASSIST UNSUBSIDIZED OPERATORS TO UPGRADE THEIR FLEETS. THE POSSIBLE LESSENING OF THE MONETARY RETURN TO THE GOVERNMENT IS A SECONDARY CONSIDERATION. 1963: REFERENCE IS MADE TO YOUR LETTER DATED APRIL 12. WHICH SECTION WAS ADDED BY THE ENACTMENT OF PUBLIC LAW 86-575 AND PROVIDES THAT. YOU ADVISE THAT THERE NOW IS PENDING BEFORE YOUR ADMINISTRATION A REQUEST FROM A SHIP OPERATOR TO TRADE IN THREE SHIPS AGAINST TWO PURSUANT TO THIS LEGISLATION. WE HAVE MADE A THOROUGH REVIEW OF THE LEGISLATIVE HISTORY OF PUBLIC LAW 86-575 AND. SUCH HISTORY DEMONSTRATES THAT THE PRIMARY OBJECTIVE OF THE MEASURE WAS TO ASSIST NON-SUBSIDIZED VESSEL OPERATORS TO IMPROVE THEIR SERVICE TO SHIPPERS AND THEIR COMPETITIVE POSITIONS BY IMPROVING THE TYPE AND SUITABILITY OF THEIR VESSELS AND BY REDUCING OPERATING COSTS AND EXPENSES OF OPERATING IN THE FOREIGN AND DOMESTIC COMMERCE OF THE UNITED STATES.

B-76394, MAY 16, 1963, 42 COMP. GEN. 635

MARITIME MATTERS - VESSELS - EXCHANGES - GOVERNMENT V. PRIVATE IN THE EXCHANGE OF PRIVATELY OWNED WAR-BUILT VESSELS FOR MORE MODERN OR EFFICIENT WAR-BUILT VESSELS OWNED BY THE UNITED STATES UNDER THE AUTHORITY OF SECTION 510 (I) OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1160 (I), THE PLURALIZING OF THE REFERENCE TO TRADE IN VESSELS BUT NOT TO THE TRADE-OUT VESSELS DOES NOT PRECLUDE MULTIPLE TRADE-OUT TRANSACTIONS, BUT INDICATES THAT AT LEAST ONE VESSEL MUST BE TRADED IN FOR ONE TRADED OUT, AND THE PROPOSED TRADE-IN OF THREE SHIPS IN EXCHANGE FOR TWO IS PROPER AND SERVES THE PURPOSE OF THE ACT TO ASSIST UNSUBSIDIZED OPERATORS TO UPGRADE THEIR FLEETS, AND THE POSSIBLE LESSENING OF THE MONETARY RETURN TO THE GOVERNMENT IS A SECONDARY CONSIDERATION.

TO THE ADMINISTRATOR, MARITIME ADMINISTRATION, MAY 16, 1963:

REFERENCE IS MADE TO YOUR LETTER DATED APRIL 12, 1963, REQUESTING OUR OPINION CONCERNING THE CONSTRUCTION OF SECTION 510 (I) OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1160 (I), WHICH SECTION WAS ADDED BY THE ENACTMENT OF PUBLIC LAW 86-575 AND PROVIDES THAT, SUBJECT TO CERTAIN STIPULATED CONDITIONS AND FOR A PERIOD OF 5 YEARS ENDING JULY 5, 1965, PRIVATELY OWNED WAR-BUILT VESSELS MAY BE EXCHANGED FOR MORE MODERN OR EFFICIENT WAR-BUILT VESSELS OWNED BY THE UNITED STATES. SPECIFICALLY, YOU ADVISE THAT THERE NOW IS PENDING BEFORE YOUR ADMINISTRATION A REQUEST FROM A SHIP OPERATOR TO TRADE IN THREE SHIPS AGAINST TWO PURSUANT TO THIS LEGISLATION, AND YOU REQUEST ADVICE AS TO WHETHER WE CONCUR IN YOUR CONSTRUCTION OF THE ACT THAT SUCH A TRADE WOULD BE PERMITTED THEREUNDER.

WE HAVE MADE A THOROUGH REVIEW OF THE LEGISLATIVE HISTORY OF PUBLIC LAW 86-575 AND, AS POINTED OUT IN YOUR SUBMISSION, SUCH HISTORY DEMONSTRATES THAT THE PRIMARY OBJECTIVE OF THE MEASURE WAS TO ASSIST NON-SUBSIDIZED VESSEL OPERATORS TO IMPROVE THEIR SERVICE TO SHIPPERS AND THEIR COMPETITIVE POSITIONS BY IMPROVING THE TYPE AND SUITABILITY OF THEIR VESSELS AND BY REDUCING OPERATING COSTS AND EXPENSES OF OPERATING IN THE FOREIGN AND DOMESTIC COMMERCE OF THE UNITED STATES. THIS WAS MADE ABUNDANTLY CLEAR BY H.REPT.NO. 1652, WHICH ACCOMPANIED S. 2618 AND WHICH STATES, IN PERTINENT PART, AS FOLLOWS:

ALL SEGMENTS OF THE COUNTRY'S SHIPPING INDUSTRY CURRENTLY ARE HAVING THEIR TROUBLES, BUT THE OWNERS MOST SEVERELY AFFECTED ARE THOSE OPERATING WITHOUT SUBSIDY--- THE COASTAL AND INTERCOASTAL LINES, AND THE BULK CARRIERS IN THE FOREIGN TRAMP TRADES. REPLACEMENT OF THE VESSELS ENGAGED IN THESE TRADES--- MOST OF THEM WAR BUILT--- IS ESSENTIAL IF THEY ARE TO CONTINUE TO BE TRULY COMPETITIVE IN THESE VITAL AREAS. CONSTRUCTION COSTS ARE HIGH, HOWEVER, AND SHIPPING PROFITS IN RECENT YEARS HAVE BARELY SUFFICED TO ASSURE CONTINUED OPERATION, MUCH LESS TO PERMIT PROVISION FOR BUILDING THE MORE MODERN VESSELS REQUIRED.

IT IS UNLIKELY THAT MANY NONSUBSIDIZED OPERATORS WILL FIND IT POSSIBLE TO ENGAGE IN NEW CONSTRUCTION FOR U.S.-FLAG OPERATION WITH THESE HEAVY OUTLAYS, IN VIEW OF PRESENT AND PROSPECTIVE MARKET CONDITIONS.

THIS BILL WOULD ASSIST THESE UNSUBSIDIZED OPERATORS TO UPGRADE THEIR FLEETS WITHOUT THE VAST OUTLAYS THAT NEW CONSTRUCTION WOULD ENTAIL. WOULD DO THIS BY PERMITTING THEM TO TRADE IN THEIR LESS EFFICIENT VESSELS AS PART PAYMENT FOR MORE DESIRABLE VESSELS FROM THE RESERVE FLEET, OR WHICH MAY BE TURNED IN TO THE RESERVE FLEET WITHIN THE 5 YEARS DURING WHICH THE ACT WOULD BE EFFECTIVE.

THE SAME EXPLANATION APPEARS IN S.REPT.NO. 1275. LIKEWISE, AS OBSERVED BY YOU, BOTH OF THE LEGISLATIVE COMMITTEE REPORTS FURTHER POINT OUT THAT THE BILL WOULD ADVANCE THE INTEREST OF THE GOVERNMENT IN SEVERAL WAYS. FIRST IT COULD BE EXPECTED TO BRING INTO THE TREASURY SOME SIZABLE CASH PAYMENTS MADE BY THE OPERATORS IN CONNECTION WITH THE EXCHANGES EFFECTED. SECONDLY, THERE WOULD BE CAPITAL GAINS TAX PAYMENTS TO THE GOVERNMENT, BASED ON THE DIFFERENCE BETWEEN THE DEPRECIATED BOOK VALUE FOR TAX PURPOSES OF THE VESSELS TRADED IN AND THE VALUE OF THE VESSELS IN THE WORLD MARKET, ETC., AS DETERMINED BY THE MARITIME ADMINISTRATION. THIRDLY, THE NATIONAL INTEREST WOULD BE SERVED BY TAKING THE MORE MODERN, MORE EFFICIENT VESSELS FROM INACTIVE STATUS IN THE RESERVE FLEET AND PLACING THEM IN ACTIVE OPERATION WHERE THEY WOULD BE IMMEDIATELY AVAILABLE IN EVENT OF EMERGENCY.

YOUR PRIMARY CONCERN APPEARS TO BE WITH RESPECT TO THAT PORTION OF THE ACT--- SPECIFICALLY, SECTION 510 (I) (4), 46 U.S.C. 1160 (I) (4), WHICH READS AS FOLLOWS:

THE VALUE OF THE TRADED-OUT VESSEL WHICH IS IN EXCESS OF THE VALUE OF THE TRADED-IN VESSEL OR VESSELS SHALL BE PAID IN CASH AT THE TIME OF THE EXCHANGE. * * *

YOU POINT OUT THAT WHILE CONGRESS PROVIDED FOR MULTIPLE TRADE-INS BY PLURALIZING REFERENCES THERETO, NO CHANGE WAS MADE TO PLURALIZE REFERENCES TO TRADE-OUT SHIPS. HOWEVER, WE CONCUR IN YOUR VIEW THAT NOTHING IN THE LEGISLATIVE HISTORY INDICATES THAT THIS WAS DONE DELIBERATELY TO PRECLUDE A MULTIPLE TRADE-OUT TRANSACTION; BUT, INSTEAD, IT WAS DONE TO INDICATE THAT AT LEAST ONE VESSEL MUST BE TRADED IN FOR ONE TRADED OUT. YOU FURTHER STATE THAT YOU ARE OF THE OPINION THAT THE ACT DOES NOT PERMIT THE TRADE-OUT OF A NUMBER OF SHIPS WHICH IS IN EXCESS OF THE NUMBER OF SHIPS TRADED IN UNDER A GIVEN TRANSACTION SINCE THERE APPEARS LITTLE DOUBT THAT THE PRIMARY OBJECTIVE OF THE LEGISLATION WAS TO UPGRADE THE QUALITY AND NOT THE QUANTITY OF THE EXISTING U.S. FLAG FLEET.

WE OBSERVE YOUR COMMENTS WITH RESPECT TO THE POSSIBILITY OF SO CALLED "FLEET" EXCHANGES RESULTING IN LESS CASH RETURN TO THE GOVERNMENT THAN WOULD RESULT FROM PRECLUDING THE CREDIT FOR TRADED-IN SHIPS BEING APPLIED TO OTHER THAN A SINGLE TRADED-OUT VESSEL. WE RECOGNIZE THIS POSSIBILITY, OF COURSE, BUT AT THE SAME TIME, WHEN REVIEWING THE OVERALL PURPOSE AND INTENT OF THE ACT--- TO ENABLE AN UNSUBSIDIZED OPERATOR TO UPGRADE HIS FLEET AND ALSO TO MAKE AVAILABLE SHIPS OF HIGHER DEFENSE POTENTIAL IN ACTIVE OPERATION IN THE EVENT OF A NATIONAL EMERGENCY--- WE BELIEVE THE MONETARY RETURN TO THE GOVERNMENT RESULTING FROM SUCH TRANSACTIONS WAS CONSIDERED TO BE SECONDARY SO LONG AS NO PAYMENTS WERE TO BE MADE BY THE UNITED STATES TO THE OWNER IN CONNECTION WITH SUCH EXCHANGES.

AS STATED ABOVE, WE HAVE MADE A THOROUGH REVIEW OF THE LEGISLATIVE HISTORY AS CITED IN YOUR SUBMISSION--- WITH PARTICULAR REFERENCE TO THE COLLOQUY AT THE HEARINGS BETWEEN A MEMBER OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES AND COUNSEL FOR THE ALCOA STEAMSHIP COMPANY CONCERNING THE PROBABILITY OF TRADING IN THREE C-1'S AGAINST TWO C-2-S -- AND, AS RESULT THEREOF, WE PERCEIVE NO OBJECTION TO THE INTERPRETATION PLACED UPON THE ACT BY YOUR ADMINISTRATION.