B-165421, DECEMBER 23, 1968, 48 COMP. GEN. 429

B-165421, DECEMBER 23, 1968, 48 COMP. GEN. 429

TRANSPORTATION - VESSELS - AMERICAN - CARGO PREFERENCE - ROUTING TO USE FOREIGN VESSELS OPERATING FROM GREAT LAKES PORTS TO TRANSPORT MILITARY TROOP SUPPORT CARGO OVERSEAS FOR THOSE SHIPMENTS THAT ARE MORE COSTLY TO ROUTE THROUGH TIDEWATER PORTS UTILIZING UNITED STATES FLAG SHIPPING WOULD VIOLATE THE 1904 CARGO PREFERENCE ACT, WHICH ENACTED TO PROTECT AMERICAN SHIPPING FROM FOREIGN COMPETITION DOES NOT PERMIT THE USE OF COST, OR TIME AND DISTANCE CONSIDERATIONS TO AVOID THE USE OF UNITED STATES VESSELS, EXCEPT WHERE THE FREIGHT CHARGED IS EXCESSIVE OR OTHERWISE UNREASONABLE. HOWEVER, THE USE OF GREAT LAKES PORTS IS NOT PROHIBITED WHEN AMERICAN VESSELS ARE AVAILABLE AT COSTS THAT ARE COMPETITIVE WITH TIDEWATER PORT SHIPMENTS, OR IF THE USE OF MILITARY SEA TRANSPORTATION SERVICE VESSELS IS MORE ADVANTAGEOUS FROM A COST STANDPOINT.

TO THE SECRETARY OF DEFENSE, DECEMBER 23, 1968:

THE MEMORANDUM OF LAW REFERS TO AN OPINION OF OCTOBER 3, 1907, BY THE ATTORNEY GENERAL, 26 OP. ATTY. GEN. 415, WHICH EXPRESSES THE VIEW THAT WHERE AMERICAN SHIPPING IS NOT AVAILABLE THE USE OF A FOREIGN FLAG VESSEL DOES NOT VIOLATE THE PROVISIONS OF THE CARGO PREFERENCE ACT RELATING TO CARRIAGE OF MILITARY SUPPLIES BY SEA, AS ENACTED APRIL 28, 1904, 33 STAT. 518. THE ATTORNEY GENERAL RECOGNIZED THE FACT THAT THE ACT DID NOT EXPRESSLY PROVIDE FOR SUCH USE IN SUCH A CONTINGENCY BUT HE CONCLUDED THAT THE LAW MUST BE GIVEN A REASONABLE CONSTRUCTION AND THAT A REASONABLE CONSTRUCTION OF THE ACT WOULD PERMIT SUCH USE.

ALSO MENTIONED IN THE MEMORANDUM OF LAW IS A DECISION OF APRIL 16, 1912 (18 COMP. DEC. 796), BY THE COMPTROLLER OF THE TREASURY. IT WAS THERE HELD THAT WHERE NO VESSEL OF THE UNITED STATES COULD BE PROCURED TO FURNISH TRANSPORTATION FOR SUPPLIES FROM NEW YORK, NEW YORK, TO THE U.S.S. SCORPION AT TRIESTE, AUSTRIA, THE EMPLOYMENT OF A FOREIGN FLAG VESSEL DID NOT VIOLATE THE 1904 ACT. IN TWO OTHER DECISIONS, 19 COMP. DEC. 537 (1913) AND 22 COMP. DEC. 307 (1916), THE COMPTROLLER OF THE TREASURY REFUSED TO ALLOW THE USE OF PUBLIC FUNDS FOR THE OCEAN TRANSPORTATION OF MILITARY SUPPLIES IN FOREIGN VESSELS, ALTHOUGH AMERICAN VESSELS WOULD NOT HAVE BEEN AVAILABLE FOR ABOUT A MONTH. REFERENCE ALSO IS MADE IN THE MEMORANDUM TO DECISIONS BY THE COMPTROLLER GENERAL, 31 COMP. GEN. 351, 36 COMP. GEN. 53 AND 36 COMP. GEN. 207, WHICH CONSIDERED THE PROVISIONS OF SECTION 901 OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. 1241 (A).

IT IS POINTED OUT THAT THE GENERAL PRACTICE OF THE MILITARY TRAFFIC MANAGEMENT AND TERMINAL SERVICE (MTMTS) IS TO ROUTE MOST OF THE CARGO ORIGINATING IN THE GREAT LAKES AREA THROUGH TIDEWATER PORTS, PRIMARILY THOSE ON THE EAST COAST. IT IS SAID THAT FREQUENTLY SUPPLIES MANUFACTURED IN TOLEDO, MILWAUKEE OR DETROIT, EACH OF WHICH HAS SUITABLE GREAT LAKES PORT FACILITIES, ARE ROUTED TO OTHER PORTS SUCH AS PHILADELPHIA AND BALTIMORE FOR OCEAN SHIPMENT.

THIS CURRENT PRACTICE, WHICH REQUIRES CONSIDERABLE OVERLAND TRANSPORTATION IN ORDER TO OBTAIN TRANSSHIPMENT TO AMERICAN FLAG CARRIERS, OFTEN RESULTS IN VERY HIGH OVER ALL COSTS TO THE GOVERNMENT. THE POINT IS MADE THAT THE 1904 ACT SPECIFICALLY COVERS THE SITUATION WHERE THE COST DIFFERENTIAL BETWEEN AMERICAN AND FOREIGN FLAG VESSEL USE BECOMES EXCESSIVE. AN EXCEPTION TO THE GENERAL REQUIREMENT FOR USE OF AMERICAN FLAG VESSELS IS MADE WHERE THE PRESIDENT FINDS THAT RATES CHARGED BY AMERICAN VESSLES ARE EXCESSIVE OR OTHERWISE UNREASONABLE. THE BELIEF IS EXPRESSED THAT TO THE EXTENT COSTS REPRESENT THE PRICE FOR SEEKING OUT DESIRED SHIPPING AT PARTICULAR PORTS, SUCH COSTS ARE FOR CONSIDERATION IN DETERMINING WHETHER AMERICAN FLAG VESSELS ARE AVAILABLE. THE POLICY OF SEEKING OUT AMERICAN FLAG VESSELS IS SAID TO HAVE THE EFFECT OF GIVING AMERICAN CARRIERS PORT SELECTION PREROGATIVES FOR DEFENSE CARGO.

THE CARGO PREFERENCE ACT RELATING TO THE TRANSPORTATION OF MILITARY SUPPLIES BY SEA, AS ENACTED APRIL 28, 1904, 33 STAT. 518, READS:

AN ACT TO REQUIRE THE EMPLOYMENT OF VESSELS OF THE UNITED STATES FOR PUBLIC PURPOSES.

BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, THAT VESSELS OF THE UNITED STATES, OR BELONGING TO THE UNITED STATES, AND NO OTHERS, SHALL BE EMPLOYED IN THE TRANSPORTATION BY SEA OF COAL, PROVISIONS, FODDER, OR SUPPLIES OF ANY DESCRIPTION, PURCHASED PURSUANT TO LAW, FOR THE USE OF THE ARMY OR NAVY UNLESS THE PRESIDENT SHALL FIND THAT THE RATES OF FREIGHT CHARGES BY SAID VESSELS ARE EXCESSIVE AND UNREASONABLE, IN WHICH CASE CONTRACTS SHALL BE MADE UNDER THE LAW AS IT NOW EXISTS: PROVIDED, THAT NO GREATER CHARGES BE MADE BY SUCH VESSELS FOR TRANSPORTATION OF ARTICLES FOR THE USE OF SAID ARMY AND NAVY THAN ARE MADE BY SUCH VESSELS FOR TRANSPORTATION OF LIKE GOODS FOR PRIVATE PARTIES OR COMPANIES.

BY ACT OF AUGUST 10, 1956, 70A STAT. 146, THE LAW WAS CODIFIED AS SECTION 2631 OF TITLE 10, U.S.C. TO READ:

SUPPLIES: PREFERENCE TO UNITED STATES VESSELS

ONLY VESSELS OF THE UNITED STATES OR BELONGING TO THE UNITED STATES MAY BE USED IN THE TRANSPORTATION BY SEA OF SUPPLIES BOUGHT FOR THE ARMY, NAVY, AIR FORCE, OR MARINE CORPS. HOWEVER, IF THE PRESIDENT FINDS THAT THE FREIGHT CHARGED BY THOSE VESSELS IS EXCESSIVE OR OTHERWISE UNREASONABLE, CONTRACTS FOR TRANSPORTATION MAY BE MADE AS OTHERWISE PROVIDED BY LAW. CHARGES MADE FOR THE TRANSPORTATION OF THOSE SUPPLIES BY THOSE VESSELS MAY NOT BE HIGHER THAN THE CHARGES MADE FOR TRANSPORTING LIKE GOODS FOR PRIVATE PERSONS.

SECTION 901 OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. 1241 (A), REQUIRES THAT OFFICERS OR EMPLOYEES OF THE UNITED STATES TRAVELING ON OFFICIAL BUSINESS OVERSEAS MUST TRAVEL ON UNITED STATES VESSELS. THE COMPTROLLER GENERAL DECISIONS MENTIONED IN THE MEMORANDUM OF LAW, 31 COMP. GEN. 351, 36 COMP. GEN. 53 AND 36 COMP. GEN. 207, DEAL WITH SITUATIONS WHERE A TRAVELER MUST WAIT AN INORDINATE TIME TO OBTAIN AN AMERICAN SAILING (THE TIME FACTOR) OR MUST TRAVEL CONSIDERABLE DISTANCE OVERLAND AT EXCESSIVE COST IN ORDER TO USE AN AMERICAN VESSEL (THE DISTANCE AND COST FACTORS). THAT PROVISION OF LAW STATES THAT AN OFFICER OR EMPLOYEE OF THE UNITED STATES SHALL TRAVEL AND TRANSPORT HIS PERSONAL EFFECTS ON SHIPS REGISTERED UNDER THE LAWS OF THE UNITED STATES ,WHERE SUCH SHIPS ARE AVAILABLE," UNLESS THE NECESSITY OF HIS MISSION REQUIRES THE USE OF A SHIP UNDER A FOREIGN FLAG OR THERE IS OTHERWISE SATISFACTORY PROOF (TO BE CONSIDERED BY THE COMPTROLLER GENERAL) OF THE NECESSITY FOR THE USE OF A FOREIGN FLAG VESSEL.

WHILE IT MAY BE PROPER TO REACH THE CONCLUSION THAT THE USE OF A FOREIGN FLAG VESSEL TO TRANSPORT MILITARY SUPPLIES WHEN AN AMERICAN VESSEL IS UNAVAILABLE WOULD NOT VIOLATE THE 1904 PREFERENCE ACT, IT IS QUESTIONABLE WHETHER WEIGHT SHOULD BE GIVEN TO TIME, DISTANCE, AND COST FACTORS IN RESOLVING THE QUESTION WHETHER AMERICAN FLAG VESSELS ARE AVAILABLE. THE CASES INVOLVING THE PASSENGER AND PERSONAL EFFECTS PREFERENCE ACT (46 U.S.C. 1241 (A) ( ARE INAPPOSITE BECAUSE THAT STATUTE EXPRESSLY PROVIDES THAT A TRAVELER MAY USE A FOREIGN FLAG VESSEL IF THE NECESSITY OF THE TRAVELER'S MISSION REQUIRES SUCH USE. OBVIOUSLY, IN RESOLVING THE QUESTION WHETHER THE NECESSITY OF THE MISSION REQUIRES USE OF FOREIGN FLAG TRANSPORTATION, ELEMENTS OF TIME, DISTANCE AND COST MUST BE CONSIDERED, BUT THERE IS NO COMPARABLE PROVISION IN THE 1904 PREFERENCE ACT. THE MANDATORY LANGUAGE OF THAT LAW CLEARLY WOULD SEEM TO INDICATE THAT COST CONSIDERATIONS CANNOT BE USED TO AVOID THE STATUTORY REQUIREMENT THAT UNITED STATES VESSELS BE USED EXCEPT FOR CASES WHERE THE FREIGHT CHARGED BY SUCH VESSELS IS EXCESSIVE OR OTHERWISE UNREASONABLE. ALSO TO BE CONSIDERED IS THE FACT THAT ORDINARILY THE TIME FACTOR IS NOT AS IMPORTANT IN THE CASE OF CARGO TRANSPORTATION AS IT IS IN THE CASE OF PASSENGER TRANSPORTATION.

AS WE UNDERSTAND IT, UNITED STATES VESSELS USUALLY ARE AVAILABLE AT TIDEWATER PORTS TO CARRY MILITARY SUPPLIES. THEY MAY NOT BE AVAILABLE AT GREAT LAKES PORTS BUT THIS FACT WOULD NOT SEEM TO JUSTIFY, DESPITE A COST DIFFERENTIAL IN FAVOR OF THE GREAT LAKES PORTS, A POLICY CHANGE WHICH WOULD RESULT IN THE DIVERSION OF TRAFFIC FROM AMERICAN SHIPPING TO FOREIGN SHIPPING UNLESS AMERICAN FLAG VESSELS ARE NOT AVAILABLE AT TIDEWATER PORTS. IN OUR OPINION, THE SHIPMENT OF MILITARY SUPPLIES TO GREAT LAKES PORTS WITH THE INTENTION TO TRANSSHIP BY FOREIGN VESSELS WOULD VIOLATE THE 1904 ACT IF SUCH VESSELS WERE USED.

CONGRESSIONAL POLICY TO PROMOTE AND MAINTAIN A STRONG AMERICAN MERCHANT MARINE EXTENDS BACK TO THE FIRST YEAR OF OUR GOVERNMENT WHEN DISCOUNTS WERE ALLOWED ON DUTIES PAID FOR GOODS IMPORTED IN VESSELS OWNED BY AMERICAN CITIZENS. THE ACT OF JULY 4, 1789, CH. 2, SECTION 5, 1 STAT. 24, 27. THIS LEGISLATIVE POLICY HAS CONTINUED SUBSTANTIALLY UNCHANGED TO THE PRESENT DAY. FOR EXAMPLE, THE JONES ACT WAS AMENDED IN 1960 TO PROHIBIT THE COASTWISE OPERATION OF A REBUILT VESSEL UNLESS THE ENTIRE REBUILDING WAS ACCOMPLISHED IN THE UNITED STATES. ACT OF JULY 5, 1960, PUBLIC LAW 86 -583, 74 STAT. 321, 46 U.S.C. 883. FOR A COMPILATION OF THE EARLY PREFERENCE STATUTES, SEE CENTRAL VERMONT TRANSPORTATION CO. V DURNING, 71 F.2D 273, 276 (1934), AFFIRMED 294 U.S. 33. IN COMMODITIES--- PAN- ATLANTIC STEAMSHIP CORP., 313 I.C.C. 23, 47-48 (1960), REVERSED 199 F.SUPP. 635, MODIFIED 372 U.S. 744, APPEAR EXCERPTS FROM GOVERNMENT PUBLICATIONS STRESSING THE IMPORTANCE OF AN ADEQUATE DOMESTIC FLEET IN COASTWISE SHIPPING FOR NATIONAL DEFENSE PURPOSES AND ALSO FOR THE USE OF THE GENERAL PUBLIC AS AN INTEGRAL PART OF THE NATIONAL TRANSPORTATION SYSTEM.

AT THE TIME OF THE PASSAGE OF THE 1904 ACT, THE SECRETARY OF WAR WAS REQUIRED BY STATUTE TO AWARD CONTRACTS FOR THE PURCHASE AND TRANSPORTATION OF SUPPLIES TO THE LOWEST BIDDER. THE APPLICATION OF THESE LAWS RESULTED IN THE TRANSPORTATION OF ALL COAL TO THE PHILIPPINE ISLANDS IN FOREIGN SHIPS. S.REPT. NO. 182, 58 CONG., 2D SESS. 1. WITH AN AWARENESS OF THE DIFFICULTIES ENCOUNTERED BY THE UNITED STATES AT THE COMMENCEMENT OF THE SPANISH-AMERICAN WAR (THE SHORTAGE OF AMERICAN SUPPLY VESSELS REQUIRED THE PURCHASE OF 51 FOREIGN STEAMERS, SOME AT AN EXCESSIVE PRICE AND, AS IT TURNED OUT, OF LIMITED USEFULNESS, WHOSE FOREIGN CREWS IN MANY INSTANCES REFUSED TO SERVE UNDER THE AMERICAN FLAG) CONGRESS ENACTED LEGISLATION TO RESERVE FOR AMERICAN SHIPS THE TRANSPORTATION OF DEFENSE SUPPLIES. NOT ONLY WAS THIS LEGISLATION INTENDED TO ENCOURAGE A READY MERCHANT FLEET CAPABILITY IN TIMES OF NATIONAL EMERGENCY, IT ALSO WAS INTENDED TO BE BENEFICIAL IN THE ESTABLISHMENT OF GENERAL COMMERCE, THE EMPLOYMENT OF AMERICAN SEAMEN, AND THE STIMULATION OF THE AMERICAN SHIPBUILDING INDUSTRY.

SINCE AMERICAN SHIPS WERE COMPETING WITH CHEAPLY BUILT AND OPERATED FOREIGN VESSELS, HEAVILY SUBSIDIZED BY FOREIGN NATIONS, CONGRESS FELT THAT IT SHOULD RESERVE GOVERNMENT TRAFFIC FOR AMERICAN SHIPS--- IN LINE WITH THE POLICY OF OTHER COUNTRIES WHICH REQUIRED THE TRANSPORTATION OF THEIR NATIONAL SUPPLIES IN VESSELS UNDER THEIR OWN FLAG--- EVEN IF THE COST OF SUCH TRANSPORTATION WERE INCREASED BY AS MUCH AS 300 PERCENT. H.REPT. NO. 1893, 58TH CONG., 2D SESS. 2-4 AND 38 CONG. REC. 5799. THE BROAD SCOPE OF THE 1904 ACT IS INDICATED BY THE FOLLOWING PASSAGES EXCERPTED FROM THE SENATE DEBATE OCCURRING ON FEBRUARY 27, 1904:

MR. PERKINS. * * * MY FRIEND FROM OREGON (MR. MITCHELL) SEEMED TO THINK THERE WAS SOME LOCAL PREFERENCE GIVEN BY THE PROVISIONS OF THIS BILL, AND THAT THE GREAT STATE OF OREGON, WHICH HE IN PART REPRESENTS, WOULD NOT HAVE A FAIR CHANCE. MR. PRESIDENT, THIS IS TOO BROAD A QUESTION TO CONFINE IT TO ANY PARTICULAR PORT OR STATE OR EVEN COAST. IT IS A BROAD, PATRIOTIC QUESTION THAT THE SHIPS SHOULD BE BUILT IN THE UNITED STATES, MANNED AND OFFICERED BY AMERICAN CITIZENS, THAT ARE TRANSPORTING THE MUNITIONS OF WAR AND OUR SAILORS AND THE SUPPLIES OF THE GOVERNMENT FROM ONE PORT OF THE UNITED STATES TO ANOTHER OR FROM ANY PORT OF THE UNITED STATES TO A FOREIGN PORT. 38 CONG. REC. 2464.

MR. PERKINS. * * * I BELIEVE IN BUILDING UP THE MERCHANT MARINE AND THE COMMERCE OF THIS COUNTRY. I BELIEVE IN CARRYING THE FREIGHT AND CARGO AND TRANSPORTING THE SOLDIERS OF OUR ARMY IN VESSELS BUILT IN THE UNITED STATES * * *.38 CONG. REC. 2465.

MR. PERKINS. IS THERE ANYTHING IN THIS LAW THAT PREVENTS THE GOVERNMENT FROM BUYING AUSTRALIAN OR CARDIFF COAL DELIVERED IN MANILA OR HONOLULU OR THE UNITED STATES?

MR. BACON. I SHOULD THINK MOST UNDOUBTEDLY THERE IS. THAT WOULD CERTAINLY BE A VIOLATION OF THE SPIRIT OF THE LAW. WHAT BENEFIT WOULD THAT BE TO VESSELS OF AMERICAN REGISTRY, IF THE LAW CAN BE EVADED IN THAT WAY? 38 CONG. REC. 2473. THUS, THE INTENT OF CONGRESS IS PLAINLY MANIFESTED TO INSURE THAT SHIPMENTS OF DEFENSE SUPPLIES MOVE ON AMERICAN VESSELS AND THAT ANY PURCHASING ARRANGEMENTS PERMITTING THE USE OF FOREIGN BOTTOMS IN TRANSPORTING SUCH SUPPLIES WOULD BE IN VIOLATION OF THE MEANING AND SPIRIT OF THE LAW.

OUR READING OF THE 1904 PREFERENCE ACT AND ITS LEGISLATIVE HISTORY CONVINCES US THAT ITS PRIMARY PURPOSE IS TO PROTECT AMERICAN SHIPPING FROM FOREIGN COMPETITION. TO PERMIT THE CARRIAGE OF DEFENSE SUPPLIES IN FOREIGN FLAG SHIPS WHEN UNITED STATES FLAG SHIPS ARE AVAILABLE, EVEN THOUGH AT OTHER PORTS AND AT SIGNIFICANTLY HIGHER COSTS, WOULD DEVIATE FROM THE PURPOSE OF THE 1904 ACT; IT WOULD NOT SEEM TO REMEDY THE DISADVANTAGES WHICH THE 1904 ACT WAS INTENDED TO REMOVE. THAT ACT IS SOMETHING MORE THAN A PRIVILEGE INURING TO PRIVATE CONCERNS. BESIDES ITS OBVIOUS PURPOSE TO PROVIDE A READY MERCHANT FLEET CAPABILITY IN TIMES OF NATIONAL EMERGENCY, THE PUBLIC INTEREST IS INVOLVED IN THE NEED FOR A STRONG MERCHANT MARINE TO BOLSTER THE COMMERCE OF THE NATION AS A WHOLE. CONSEQUENTLY, A LIBERAL INTERPRETATION IN FAVOR OF THE PUBLIC INTEREST OF THE UNITED STATES AND THE PRIVATE BUSINESS ACTIVITIES INTENDED TO BE PROTECTED IS REQUIRED IN THE CIRCUMSTANCES. IN VIEW OF THE FOREGOING CONSIDERATIONS, WE ARE OBLIGED TO CONCLUDE THAT THE PRESENT POLICY CHANGE PROPOSAL, WHICH WOULD RESULT IN THE TRANSFER OF MILITARY SHIPMENTS FROM AMERICAN SHIPS AT TIDEWATER PORTS TO FOREIGN SHIPS AT GREAT LAKES PORTS, WOULD BE ILLEGAL. THERE ARE SOME ALTERNATIVE CHANGES, HOWEVER, WHICH MIGHT PERMIT THE USE OF GREAT LAKES PORTS AND NOT RESULT IN VIOLATIONS OF THE 1904 ACT BECAUSE FOREIGN SHIPS WOULD NOT BE USED.

WE UNDERSTAND THAT SOME AMERICAN SHIPPING ON SOME TRADE ROUTES IS AVAILABLE AT GREAT LAKES PORTS. THERE IS NO REASON WHY THIS SHIPPING COULD NOT BE USED WHERE IT IS COST COMPETITIVE, OVER ALL, WITH THE TOTAL COST OF OVERLAND TRANSPORTATION AND OCEAN TRANSPORTATION BY AMERICAN VESSELS OPERATING FROM TIDEWATER PORTS. ALSO, IF MILITARY SUPPLIES ARE BEING PURCHASED IN ANY GREAT VOLUME FROM PLANTS LOCATED IN THE GREAT LAKES BASIN, IT MIGHT BE ADVANTAGEOUS, FROM A COST STANDPOINT, TO ARRANGE FOR THE CARRIAGE OF SUCH SUPPLIES FROM GREAT LAKES PORTS IN VESSELS CONTROLLED BY OR OWNED BY THE MILITARY SEA TRANSPORTATION SERVICE (MSTS). THE USE OF SUCH VESSELS WOULD NOT SEEM TO DEPRIVE PRIVATELY OWNED AMERICAN SHIPS OF CARGO BECAUSE, IN EFFECT, THE MSTS VESSELS WOULD BE MERELY DIVERTED FROM PRESENT CARGO CARRYING OPERATIONS TO FUTURE OPERATIONS, AS NEEDED, FROM GREAT LAKES PORTS.