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Regulatory Agencies - General (3)
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Regulatory Agencies - General (3)
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Philip W. Buchen Files
Philip Buchen's General Subject Files
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Civil Aeronautics Board. (06/30/1940 - 01/01/1985)
Affirmative action programs
Government regulation
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The original documents are located in Box 59, folder "Regulatory Agencies - General (3)"
of the Philip Buchen Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 59 of the Philip Buchen Files at the Gerald R. Ford Presidential Library
NASA
THE WHITE HOUSE
WASHINGTON
November 3, 1975
MEMORANDUM FOR:
PHIL BUCHEN
FROM:
TED MARRS stat
As a follow-up to the meeting held last week in
Jack Marsh's office with General Crow, it appears
to me that it would be appropriate that you or OMB
sign the attached letters which should make clear the
status of the Cape Canaveral project.
General Crow and I talked with Congressman Mahon and
informally obtained his concurrence. General Crow
followed that meeting by contacting James Calloway,
General Counsel of the Senate Appropriations Committee
and Robert Christman of Senator Young's office and
found no opposition.
andommis
Attachments
Phil:
Julyou
SERALD LIBRARY F FORD
or
THE WHITE HOUSE
WASHINGTON
October 30, 1975
Dear
In a series of informal discussions during the summer
pertaining to plans and preparation for the Bicentennial,
the President reached the conclusion that attention was
largely focused to historical events and that insufficient
attention was directed to the future. Accordingly, he
approved the initiation of a Science and Technology Exposi-
tion to focus on the future, emphasizing the extraordinary
creativity of this nation in science and technology with
the hope that the Exposition would provide a psychological
lift at home and an improved image abroad.
It is planned that the Exposition be held for three months
beginning next June at the Kennedy Space Center, Cape
Canaveral, Florida. Cape Canaveral is a world-recognized
symbol of the remarkable achievements by this nation in
science and technology. As a site, it offers many striking
advantages including ample space, existing facilities and
tourist attractions, and a unique relation between scien-
tific and technological endeavors in a surrounding natural
environment of a national wildlife refuge. Plans are being
made to upgrade and expand existing tourist attractions scien
The focus of the Exposition will be in and around geodesic
dome pavilions to be constructed against the backdrop of
the mammouth and impressive Vehicle Assembly Building.
The Exposition will be national in scope with participation
by Federal agencies and industry. International participa-
tion is not planned. In view of its role in science and
technology, and with the location of the Exposition at
Cape Canaveral, NASA has been designated as the overall
FORD
manager and lead agency with management assistance to be SEAL
provided by other Government agencies.
LIBRARY
Funding for the Exposition is planned on as practical a
basis as possible to be accomplished within currently
approved agency budgets. The Exposition will be located
in an area of high unemployment and $3.0 million has been
provided from the Department of Commerce Job Opportunities
Program by the Economic Development Administration for
construction of facilities. Government agency exhibits
will be funded from currently approved appropriations.
2
In large measure this participation will simply mean that
agencies will conduct a portion of their Bicentennial
activities at Cape Canaveral as opposed to previously plan-
ned locations. There will, however, be some reprogramming
of individual agency budgets, which will be handled in
accordance with normal procedures by the agencies involved
and their respective subcommittees. Industry exhibit costs
will be borne by participating companies. For the most
part, actual direct operating costs will be met by either
tour or admission fees. Additionally, there will be an
objective of recovering as much as feasible of the orig-
inal $3.0 million initial outlays.
It is anticipated that over two million people will visit
the Exposition. They will come from every state in the
Union and from most foreign countries. The Exposition
should serve as a major stimulus to a fuller appreciation
of the benefit of science and technology to the quality
of American life.
I'm sure that your Committee will have a special interest
in this Exposition. NASA will keep you informed of progress
and will welcome any suggestions you, your Committee or
Staff Members wish to offer. Your support and endorsement
of the Exposition will be greatly appreciated.
Sincerely,
FORD & LIBRARY 07/030
The Honorable Charles A. Mosher
House of Representatives
Washington, D.C. 20515
The Honorable Olin E. Teague
Chairman
Committee on Science and
Technology
House of Representatives
Washington, D.C. 20515
The Honorable Frank E. Moss
Chairman
Aeronautics and Space Science
Committee
United States Senate
Washington, D.C. 20510
The Honorable Barry Goldwater
United States Senate
Washington, D.C. 20510
SEAL R. FORD LIBRARY
THE WHITE HOUSE
Reg.
WASHINGTON
November 4, 1975
Dear Mayor Bankhead:
Thank you for your letter to the President citing delay in a
waterworks improvement project for the City of Higbee as an
illustration of delay caused by the Interstate Commerce
Commission.
We appreciate your bringing this to our attention, as the President
is genuinely concerned to correct the problem of regulatory delays.
While it is White House policy to refrain from interferring in
particular matters before the independent agencies, the President
has specifically requested the heads of all these agencies to
cooperate in the effort to alleviate delays. In furtherance of this
objective, I am forwarding your complaint to the ICC for such
action as may be appropriate.
Sincerely,
ThulyjW.Bucken
Counsel to the President
The Honorable L. C. Bankhead, Jr.
Mayor of Higbee
Higbee, Missouri 65257
cc: The Honorable George M. Stafford
THE WHITE HOUSE
WASHINGTON
October 3, 1975
MEMORANDUM FOR PHIL BUCHEN
FROM
TOD HULLIN HTAN
In the attached letter, Mayor Bankhead of Higbee,
Missouri, is requesting the President to intercede
in a matter with the Interstate Commerce
Commission, an independent regulatory body.
I am forwarding this correspondence for your
appropriate handling, since it is dealing with
an independent regulatory agency.
CC: Jim Falk
Attachment
E. FORD LIBRARY
Municipal Offices
Higbee, Missouri 65257
L.C. BANKHEAD. JR., MAYOR
PHYLLIS HALL. CITY CLERK
September 4, 1975
JP
The President
The White House
Washington, D. C. 20500
Dear Mr. President:
The City of Higbee is at the threshold of a comprehensive
improvement period, brought on both by our successes in securing
needed financial assistance from the federal and state govern-
ments, and an increased interest and inclination to serve on
the part of our private citizens.
A keystone of this period is a $211,000.00 waterworks
improvement project to be funded under the Community Development
Act of 1974 by the Department of Housing and Urban Development.
According to local HUD officials, we will receive these funds
as soon as the contracts pertaining to them are returned, which
should be within a few days. This project is already being
hampered by slowness at the Interstate Commerce Commission,
and finding this in line with your views on reducing government
hindrances, I thought I should bring this matter to your
attention as an illustration of how a small community could
be severely hampered just when it had the inclination and
financial ability to move ahead.
Attached is a copy of a letter I sent today to Congressman
James Symington setting forth in detail our feelings in this
matter. I sincerely hope that you and your staff will have
an opportunity to review this matter in our behalf, as its
successful conclusion will open many doors for our efforts in
making Higbee a self-respecting, and I hope, self-supporting
community.
Respectfully yours,
STATE FORD
Worthing Mayor of Higbee
L. C. Bankhead, Jr.,
encl.
AMERICAN REVOLUTION
"A BICENTENNIAL CITY"
1776-1976
THE WHITE HOUSE
WASHINGTON
December 20, 1975
MEMORANDUM FOR:
DOUG BENNETT
FROM:
PHIL BUCHEN
P.
SUBJECT:
Chairman of FTC
In talking with the Attorney General the other day, he
raised a concern that the appointee be a man whose
outlook on the regulatory process is consistent with the
President's efforts toward regulatory reform. He
believes that the following people would meet this
criteria:
William Kenneth Jones of Columbia
William Baxter of Stanford
Wesley J. Liebeler, who has been Director of
the Office of Planning and Evaluation for the FTC
The Attorney General points out that John Barnum's record
on being sympathetic with reducing the degree of regulation
over private business has not been good in his judgment.
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
Regulatory Report/Administration mulls plan
to limit state insurance regulation
by Richard E. Cohen
Administration officials are assessing
ment officials, who prepared several 1743
the reaction to a proposal that would
Two-part Series
regulatory reform proposals that Ford
12/27/75
curtail substantially the state regula-
sent to Congress in 1975, say they are
NATIONAL
This is the second of two articles
tion of property and casualty insurance
uncertain whether they will advise him
JOURNAL
on the efforts of the Ford Admin-
rates. They expect to make a decision
to submit a proposal dealing with in-
©1975
within a few weeks on whether to
istration to promote freer competi-
surance regulation and, if so, exactly
continue their inquiry and eventually
tion within the insurance industry.
what it would include. However, they
submit a specific proposal to President
The first article appeared in Vol. 7,
make clear their belief that insurance
Ford.
No. 50, p. 1701.
regulation raises many of the same
A memorandum proposing "to pro-
problems they have sought to address
mote competition in the insurance
all review of anti-competitive practices
in other industries. Nor do they deny
industry," that was circulated within
sanctioned by federal law.
that the recommendations in the Jus-
the White House and Justice Depart-
The recommendations, which Anti-
tice Department memo would repre-
ment by the department's Antitrust
trust Division officials insist were only
sent the general elements of their legis-
Division, was obtained by some mem-
in "draft" or "working paper" form
lative package.
bers of the insurance industry, much
when they were leaked, would change
Different twists: Aside from the fact
to the consternation of its drafters. It
federal law to prohibit insurance com-
that property and casualty insurance
has placed the division in a swirl of
panies from pooling most of their data
is a significant sector of the economy,
controversy.
and meeting together to reach sug-
with annual premiums of $45 billion
Insurance company and trade asso-
gested rates and to remove from state
and 700,000 employees, according to
ciation representatives and even some
officials the authority to prescribe
industry figures, the issues facing the
Administration officials have said the
rates. Under the proposal, the states
White House regulatory reform group
recommendations lack adequate sup-
would retain the power to engage in
are complex and present different
porting data and demonstrate a super-
non-rate-making regulation of insur-
problems from other issues they have
ficial or even naive view of the indus-,
ance companies, such as setting insol-
faced.
try. On the other hand, many of these
vency standards and auditing the
In particular, a proposal to reduce
persons agreed that the division has
companies.
regulation of the insurance business
latched onto a good target in its over-
White House and Justice Depart-
would put Ford, who has been stress-
FORD
01/838
The Domestic Council Review Group on Regulatory Reform plans to review a proposal to reduce insurance regulation
dederal
THE WHITE HOUSE
Maritana
WASHINGTON
Come
May 31, 1976
MEMORANDUM FOR:
KEN LAZARUS
FROM:
PHIL BUCHEN T.
SUBJECT:
"Third-Flag" Legislation
Attached is material on the above subject consisting
of a memorandum to me from Paul Leach and a letter
to me from Karl Bakke. I would appreciate your
assuming responsibility for keeping track of the new
legislation being developed by OMB.
#0
you
THE WHITE HOUSE
WASHINGTON
May 31, 1976
MEMORANDUM FOR:
KEN LAZARUS
FROM:
PHIL BUCHEN T.
SUBJECT:
"Third-Flag" Legislation
Attached is material on the above subject consisting
of a memorandum to me from Paul Leach and a letter
to me from Karl Bakke. I would appreciate your
assuming responsibility for keeping track of the new
legislation being developed by OMB.
THE WHITE HOUSE
WASHINGTON
May 31, 1976
Dear Karl:
Thank you for sending on the additional items
concerning the "Third-Flag" legislation proposed
by the Federal Maritime Commission.
I understand that Paul Leach of the Domestic Council
staff and OMB are in the process of suggesting an
alternative bill.
Sincerely,
This
Philip W. Buchen
Counsel to the President
The Honorable Karl E. Bakke
Chairman
Federal Maritime Commission
Washington, D. C. 20573
MARITIME
Federal Maritime Commission
Washington, n.c. 20573
1961
Office of the Chairman
May 28, 1976
Philip W. Buchen, Esq.
Counsel to the President
The White House
Washington, D.C.
20500
Dear Phil:
Enclosed are two items that may be of more than
passing interest to you:
Copy of my testimony before the
Merchant Marine Subcommittee, House
Merchant Marine and Fisheries Committee,
on the pending "Third Flag" legislation;
and
Copy of my speech before the Maritime
Administrative Bar Association on
streamlining agency procedures and
expediting the hearing process.
I still think the Administration has passed up
a great opportunity to score a lot of points, both
here and abroad, on the "third flag" issue, but I
realize that there are many conflicting priorities
involved.
Cordially,
Karl
Karl E. Bakke
Chairman
Enclosures
THE WHITE HOUSE
WASHINGTON
May 31, 1976
MEMORANDUM FOR:
PAUL LEACH
FROM:
PHIL BUCHEN
T.
SUBJECT:
"Third-Flag" Legislation
Many thanks for your memorandum of May 27. I have
since received a note from Karl Bakke expressing dis-
appointment that the Administration has not decided to
support the Federal Maritime Commission's "Third-Flag"
bill. He has referred me to his testimony before the
Merchant Marine Subcommittee in the House on May 26th
and his speech of May 27th to the Maritime Administrative
Bar Association. I assume you have copies of both.
THE WHITE HOUSE
May 27, 1976
MEMORANDUM FOR:
PHIL BUCHEN
FROM:
PAUL LEACH
Pal
SUBJECT:
"Third-Flag" Legislation
On the same day that I received your May 11 memorandum
regarding Karl Bakke's proposal (see Tab A), Jim Lynn's
memo on the FMC "Third-Flag" Bill also arrived (see Tab B).
Subsequently, this Lynn memo went to the President for a
decision.
I have tracked this decision process and apparently the
President decided on Option 3 "Support a bill of significantly
more limited proportions than the FMC draft bill." A bill is
now in the drafting process.
I will continue to watch this one, which is now on a "fast
track."
Other than the materials which I have returned to you with
Tab A, I have kept everything else (primarily news clippings),
but will be happy to return these also should you want them.
THE WHITE HOUSE
WASHINGTON
May 11, 1976
MEMORANDUM FOR:
PAUL LEACH
P.
FROM:
PHIL BUCHEN
On Friday, May 7, Karl Bakke, Chairman of
the Maritime Commission brought in the
attached material and briefly reviewed it
with me.
I would appreciate your looking into the
possibility of having the President
become involved by proposing to Congress
a "Controlled Carrier Bill," such as that
which the Federal Maritime Commission has
drafted. Karl Bakke points out that it
would be appropriate for the President to
use that occasion for announcing his
policy initiatives concerning the Control-
led Carrier problem.
Attachments
1. Problem
A.
Penetration as non-conference carriers by merchant
fleets of non-market economy countries (principally
USSR and Poland) into U.S. trades (N. Atlantic
Europe/East Coast U.S.A. and Japan-Hong Kong/
Pacific Coast U.S.A.). Especially acute since
U.S. depends heavily on foreign flag vessels in
our liner trades -- in 1975, 70% moved on foreign
bottoms.
B. Other Free World countries also deeply concerned
over Soviet penetration into their ocean trades.
C. We are in danger of losing ground in the fundamental
area of economic survival to a system that appears
to be using its merchant fleet for political purposes
in a predatory, anti-competitive fashion.
II.
Background
A. In the last 5 years, the Soviet fleet has grown
from 0 containerships, 0 RO/RO (Ro11-On/Ro11-0ff)
ships, and 0 LASH-type (barge carrying) ships, to
11 containerships, 25 partial containerships, and
16 RO/RO ships. In addition, the USSR has launched
a building program for LASH-type ships. Current
Soviet construction plans call for bringing on line
35 new containerships over the next 5 years, each
with capacity in excess of the equivalent of 300
20-foot containers. Each ship capable of entering
U.S. trade.
B. Until 1966, the USSR did not participate in the U.S.
foreign ocean trades. By the end of 1975, the Soviet
liner fleet had penetrated our 12 major U.S. trade
routes. In Japan/U.S. trade, USSR is now carrying 9% of
our inbound cargo and 5% of our outbound cargo.
C. Rates quoted by the USSR are from 15% to almost 50%
below conference rates in our Pacific trades (Japan/
U.S. West Coast).
Examples as of 3/4/76 from published tariffs of FESCO
(Far East Steamship Co.) --
a. Westbound Rates
(1) Aluminum sheets and plates, unwrought
$37.50/short ton -- 46.2% below conference
- 2 -
(2) Aluminum bars and rods
$61.25/short ton - - 25.5% below conference
(3) Poultry feed
$54.25/1ong ton -- 23.4% below conference
(4) Peas and beans (dried)
$39.25/short ton -- 43% below conference
(5) Carpets and rugs
$59.25/short ton -- 46.5% below conference
b. Eastbound rates
(1) Bicycles/1000 kilos or cubic meter
$38.00 -- 22% below conference
(2) Nails
$43.50/1000 kilos - - 37% below conference
(3) Yarn - Man-made fibers
$54.00/1000 kilos or cubic meter --
16.9% below conference
(4) Porcelain, Earthenware, and China
$35.30/1000 kilos or cubic meter --
16.8% below conference
D. "Third Flag Bill"
Sen. Inouye introduced S. 868 on October 12, 1973.
Senate Commerce Committee reported it out on
December 12, 1974. House hearings have been held
and more are scheduled for May 26, 1976. FMC has
been asked to testify.
Inouye bill cannot be administered effectively, in
FMC opinion, because:
a. "Compensatory Rate" concept is meaningless
b. Failure to shift burden of proof
c. No suspension authority
E. "Controlled Carrier Bill"
FMC has drafted counter proposal currently under
review by OMB:
a. "Just and reasonable" concept.
- 3 -
b. 7+7 suspension authority.
C. Shift burden of proof.
There is every reason to believe that Senator
Inouye will accept the FMC counter proposal, and
that the prospect of passage is excellent.
F. At a press conference prior to a speech before the
N.Y. Chapter of the National Defense Transportation
Assn. on 4/21/76, Zumwalt was critical of Adminis-
tration for not meeting Soviet Merchant Marine
challenge. Zumwalt called for U.S. to strengthen
its rate policing activities to meet Soviet threat
as Soviets mean to "sweep us off the seas."
Zumwalt stated that U.S. has lots of carrots
(grain) to get Soviets into compliance and that
he sees long-term objective to be get Soviets
into compliance with western capitalistic standards
(conference membership). Zumwalt criticized
Administration performance under Merchant Marine
Act of 1970 which has 300 ship target by 1980.
Zumwalt stated performance poor with no chance of
meeting goal. Zumwalt theme received big play in
Japan.
G. Major trading partners are looking to us for leader-
ship in controlling inroads of nonmarket economy
merchant fleets.
III. Presidential Involvement with Controlled Carrier Bill.
A. Con.
1. Might conflict with other more compelling foreign
policy considerations
2. Truly hard evidence to document full scope of
present and future problem is difficult to obtain.
a. Size of Soviet fleet and building plans
subject to controversy.
b. No proof as to intent of deployment of fleet,
although to date it has been directed toward
the most lucrative trades (U.S., Japan,
Western Europe).
is
- 4 -
3. Against the background of detente, Soviet
protestations that intentions are honorable
(Masloff and Averin).
B. Pro.
1. Peace through strength. Viable ocean trade
is at the very heart of this theme.
2. Leadership in dealing with a major international
policy problem that Henry Kissinger hasn't pre-
empted.
3. Campaign issue of major significance, with
strong appeal to conservative and labor blocs.
Should Democrat Congress be allowed to steal
initiative from President on an issue of this
magnitude?
4. FMC has come up with a bill that will work,
thus backstopping the President.
5. The timing now is perfect, with Maritime Day
coming up on May 22.
IV. Options.
A. President do nothing.
B. FMC proceed with lead without explicit Presidential,
but tacit Administration, support.
C. Limited Presidential Involvement.
President transmit "Controlled Carrier" bill to
Congress with appropriate message, then toss ball
back to FMC.
D.. Full Presidential Involvement.
President delivers Maritime Day speech May 19, 1976,
at San Francisco, California Propeller Club. Approx-
imate audience 1000-1500. (Chairman Bakke currently
slated to make address.) At that time, President
announces transmission of Controlled Carrier Bill to
Congress and makes it a campaign issue, hitting hard
on - -
1. Peace through strength.
- 5 -
2. Foreign policy leadership independent of Kissinger.
3. Importance of a strong U.S. Merchant Marine.
4. Protecting U.S. jobs (merchant marine, longshore-
men, stevedores, and support industries).
5. Post-Vietnam hard line on predatory actions by
the Communist countries.
V. Recommendation.
Option D.
2020
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
MAY 14 1375
MEMORANDUM FOR:
THE PRESIDENT
FROM:
James T. Lynn
Ohine
SUBJECT:
Federal Maritime Commission's Successor
Bill to "Third-Flag" Legislation
ISSUE
What position should the Administration take regarding a Federal
Maritime Commission (FMC) draft bill entitled the "Ocean Shipping
Act of 1976"?
BACKGROUND
FMC is requesting Administration clearance of a draft bill entitled
the "Ocean Shipping Act of 1976," a successor bill to previous
so-called "third-flag" bills which were active last session of
Congress. These bills are commonly seen as a way to deal with
Soviet-flag shipping competition in the U.S. foreign trades.
Proponents of these bills--namely U.S. ship operators, maritime
labor unions, and the FMC--claim that state-owned or state-controlled
carriers, like the Soviet carriers, are not necessarily operated on
a profit basis. It is alleged that these carriers unfairly underprice
their services to gain larger shares of international shipping markets.
Soviets. European ship operators have made similar complaints against the
The proposed FMC bill provides the FMC with new powers in the
regulation of state-controlled ocean carriers. The basic provisions
of the proposed bill are as follows:
-- "Controlled carriers", for purposes of additional FMC
regulation, include all carriers whose assets are owned
primarily by, or whose operations are directed by,
governments whose vessels are not accorded most-favored-
nation treatment.
SEAL Years
-- Increased FMC regulation of controlled carrier rates
does not apply to trades between the U.S. and the
foreign country which owns or operates the controlled
carrier. Rather, it only applies to "third-flag"
carriage (e.g., Soviet-flag carriage between the U.S.
and Japan).
2
-- FMC is empowered to disapprove controlled carrier rates which
are below levels which are "just and reasonable." FMC is
provided with wide discretionary powers in making determi-
nations of "reascnableness."
-- The burden of proof is on controlled carriers to demon-
strate that their rates are "just and reasonable."
-- FMC is authorized to suspend controlled carrier rates for
a total period not exceeding 14 months, pending investigation
(currently FMC has no rate suspension powers). Furthermore,
controlled carriers are required to file statements of
justification for rate decreases.
-- Controlled carriers are required to designate and retain
a registered agent in the U.S. who shall maintain complete
business records.
-- FMC is provided with a $2 million appropriation authorization
for additional staffing to handle increased workload brought
about by the above provisions.
U.S. exporters and importers opposed the "third-flag" bills last session
because they felt that FMC would use its new authorities to restrict
competition by third-flag carriers by subjecting them to minimum
rate controls, the results of which would be to increase ocean freight
rates to the U.S. and to strengthen the cartel-like ocean shipping
conference system. The Administration (DOT) also opposed the third-flag
bills last session because: (a) such legislation was contrary to the
purposes of regulatory reform and tended to discriminate against
third-flag carriers; and (b) FMC was believed to have sufficient
authority to deal with alleged Soviet-flag rate-cutting.
CURRENT STATUS
Third-flag legislation was considered in both the House Merchant Marine
and Fisheries Committee and the Senate Commerce Committee last year.
However, because of importer/exporter and Administration opposition,
it never reached the House or Senate floor.
The House Committee, however, is anxious to reconsider the legislation
and has asked Chairman Bakke of the FMC to testify on May 26. The
LIBRARY
Committee has indicated that it wants the bill at least ten days
before the hearing (May 16) to distribute to other parties who wish
to testify. We anticipate that the bill will receive a favorable
House hearing. The Senate Committee is expected to await House
action before considering the bill.
3
OPTIONS
1. Oppose the FMC draft bill. Request' the FMC to use its current
authorities to deal with any unreasonably low rates which may
be. filed by the Soviets.
2. Support the FMC draft bill with some modifications agreed to
by FMC.
3. Support a bill of significantly more limited proportions than
the FMC draft bill.
DISCUSSION OF THE SOVIET-FLAG PROBLEM
Neither the FMC nor the maritime industry have made much of an effort
to demonstrate that a Soviet-flag shipping problem exists. Unanswered
questions are as follows:
-- To what degree are Soviet-flag carriers competing in the
U.S. foreign trades?
--- Is there evidence that the rates under which they are
competing are lower than other non-conference carriers
and/or are in-any way predatory?
-- If the FMC believes that rates filed by Soviet-flag carriers
are predatory, why hasn't it taken action under its existing
statutory authorities to deal with the problem?
Available information indicates the following:
Soviet-Flag Competition
The most recent statistics available from the FMC (the first 9 months of
1974) indicate that the Soviets carry a relatively modest 4% of U.S.
exports and 3% of imports in trades served by scheduled carriers
(liners). About half of Soviet carriage occurs in the U.S. Pacific
Coast--Far East market, where the Soviets carry 6% of exports and
7% of imports.
Shipowners claim that they are not SO much concerned by the relatively
STATE FORD LIBRARY
small percentage of trade now carried by the Soviets as they are about
the future, which could increase that percentage into the teens and
beyond. However, data provided by the FMC indicate that the Soviet
liner fleet is anticipated to expand in tonnage capacity by only
2% from 1976 to 1981. Although the competitive capabilities of the
Soviet fleet will be upgraded in that period by the replacement of
old breakbulk vessels with more efficient containerships, there does
4
not appear to be reason for alarm that the Soviets will suddenly emerge
as a dominant merchant maritime power. This finding has been confirmed
by a 1975 CIA report which indicates that: (a) a number of long-
standing deficiencies place the Soviet merchant fleet behind Western
fleets in maritime technology (e.g., the average size of Soviet merchant
ships is. less than half the world average); and (b) although the Soviet
fleet will be improving in the next five years, it will still lag
behind Western maritime powers.
Soviet-Flag Freight Rates
U.S. and European ship operators deeply mistrust Soviet intentions and
allege that the Soviets are charging rates which are commercially
non-compensatory. To support the contention, the ship operators
normally quote specific rates filed by the Soviets which are
substantially below comparable ocean shipping conference rates.
FMC has provided data on freight rates for selected major commodities
moving in the U.S.-Europe and U.S.-Far East trades. In comparing the
Soviet rates with other rates filed by U.S.-flag and foreign-flag
non-conference operators, it appears that the Soviets peg their
rates very closely to the rates of other non-conference carriers
(which can be as much as 20-50% lower than conference rates.) This
finding is confirmed by a 1975 FMC staff report which indicates that
although the Soviets have established rate levels substantially
below conference rates, they "have endeavored to avoid the position
of being the lowest non-conference carrier."
On the other hand, we agree that a potential problem exists in that
the Soviets, unlike other ship operators, could choose to operate
their ships for other than profit motives--for example, to earn hard
currency or for political/military reasons.
FMC Authority to Deal with Low Rates
Section 18(b) (5) of the 1916 Shipping Act authorizes FMC to "disapprove
any rate or charge filed by a common carrier of the U.S which, after
hearing, it finds to be SO unreasonably high or low as to be detrimental
to the commerce of the U.S." FMC contends that this authority is
insufficient for the following reasons:
STATE FORD LIBRAN,
-- The burden of proof is on the FMC or complainant to show
that the rate is unreasonably low;
-- Formal proceedings are by necessity lengthy (one to two
years), and FMC does not have rate suspension powers
pending the outcome of the proceedings;
5
-- Unduly low rates can only be dealt with on a rate-by-rate
basis; and
-- In the case of foreign flag lines, necessary financial data
are usually located overseas where the FMC cannot enforce its
subpoena powers to produce the necessary documents.
On the other hand, DOT, in a March 11 study on FMC's Section 18(b)(5)
authorities concluded that:
"Section 18(b) (5) provides enough authority for the FMC
to promptly and adequately address the problem of
unreasonably low rates charged by non-national or
third-flag ocean carriers in the foreign commerce of the
U.S. The duration of past Section 18(b)(5) cases was
not the result of any shortcomings in the law, but
rather the result of the administration of the law which
led to unnecessarily long delayed reports of decisions.
Revisions of FMC rules of practice may be needed, but
amendment of Section 18(b)(5) is not required."
In short, there is a basic difference of opinion as to the sufficiency
of Section 18(b) (5) to deal with unreasonably low rates. Despite the
fact that FMC believes 18(b) (5) is insufficient, it is difficult to
understand why FMC has not tried to take any regulatory action against
low Soviet rates if it believes that these rates are so low as to be
predatory. If it tried and failed, FMC's case for the need for
additional legislation would be a great deal stronger than it
currently appears to be.
AGENCY POSITIONS AND SHIPPER VIEWS
Nine agencies have provided views on the FMC draft bill. DOT, Justice,
Treasury, below: CEA, and CIEP oppose the bill for similar reasons, as cited
- The TMC has not demonstrated that a Soviet-flag problem
clearly exists; nor, if it does exist, why it cannot
use existing authorities to deal with it.
-- Insofar as the bill strengthens FMC authorities over a
segment of the ocean liner industry, it runs counter to
the trend to reduce transportation regulatory activities.
is
DEPARTMENT
FORD
LIBRARY
6
-- The bill would tend to restrict competition by state-controlled
carriers by subjecting them to minimum rate controls to which
other carriers would not be subject. The likely result of
such regulation would be to strengthen ocean shipping
conferences and thereby increase ocean freight rates (although
to an unknown degree).
State reports that it would not oppose new legislation, if properly
drafted, which would prevent predatory rate practices in the U.S.
foreign trades, but that the FMC bill presents significant foreign
policy and economic problems. Principally, under the FMC bill, the
test of state ownership or control of a vessel is not limited to
the country under whose flag the vessel is registered. Rather, it
encompasses the government which has ultimate control of the vessel
(e.g., a Soviet vessel registered under a "flag of convenience,"
such as Liberia). State indicates that under international law,
it is the state of a vessel's registry alone which determines the
legal status of a vessel. Allowing the FMC to go "behind the flag"
would be in violation of treaty commitments. Additionally, State
objects to: (a) the bookkeeping requirement imposed by the bill
because it is unnecessary and could engender similar practices in
other countries; and (b) the burden of proof and rate suspension
provisions proposed by FMC because these provisions may be overly
restrictive.
Office of the Special Representative for Trade Negotiations reports that
it favors the general intent of the legislation but that it defers on
the technical aspects' of the bill.
Commerce defers to the views of FMC and Labor defers to other agencies
more directly concerned.
Most exporters and importers that opposed last year's bills indicate
that my do not intend to oppose the TMC proposal because it limits
increased FMC regulation to ? much smaller rance of third-flau
carriers-state controlled carriers. Although they would prefer
that no bill be enacted, they would rather accept the FMC bill than
have to continue to fight against potentially more harmful
legislation. However, exporters and importers in the Great Lakes
region will continue to oppose the bill because, in many instances,
the Soviets are the only carriers providing shipping services to
the region.
DISCUSSION OF OPTIONS
Option #1 -- Oppose the FMC draft bill and request the FMC to use
SEAL 11. FOND LIBRARY
existing authorities to deal with any unreasonably low Soviet rates.
7
Reasons for this option have been cited above by the various agencies,
namely: (a) there is a lack of showing of need for a bill; (b) the
bill is contrary to the purposes of regulatory reform; (c) the bill
may have an adverse impact on freight rates; and (d) the bill has
negative foreign policy impacts.
Option #2 -- Support the FMC draft bill with some modifications agreed
to by the FMC. Reasons for supporting the bill include: (a) the
Soviets have the capability of charging non-compensatory rates,
whether or not they are actually doing so now; and (b) the
perception of a threat by U.S. operators tends to discourage
investment and create instability. Changes agreed to by the
FMC include the following:
--- Alternative language to avoid violations of treaty
and international law;
-- Softening of the provision which would shift the burden
of proof regarding low rates onto the controlled carriers;
and
-- Deletion of the $2 million appropriation authorization for
FMC.
Option #3 ---- Support a bill of significantly more limited proportions than
the FMC draft bill. -In addition to several of the modifications included
in option #2, such a bill would further restrain expansion of FMC's
authorities in the following way:
--- Burden of proof regarding rate reasonableness would be
clearly retained with the FMC, rather than shifted onto
controlled carriers;
-- Variable costs would be established == the cole standard
for determining whether rates are reasonable:
-- FMC would only be permitted to suspend controlled carrier
rates if they were: (a) lower than those charged by any
non-controlled carrier in the trade; and (b) more than
15% below shipping conference rates;
-- Although controlled carriers would be required to submit
FORD
data needed by FMC, they would not need to retain a
registered business agent in the 'U.S.; and
SECURITY
8
-- The President would be given authority to postpone, discontinue
or suspend any FMC action for foreign policy or national defense
reasons.
CONCLUSION AND OMB RECOMMENDATION
Most of the agencies primarily concerned with the legislation--notably
DOT, Justice, Treasury and CEA--have indicated a preference for option
#1 (to oppose the FMC draft bill). However, they feel that some
progress has been made in "watering down" the original FMC draft bill,
per option #2, and they believe that option #3 (to support a bill of
significantly more limited proportions) goes a long way in meeting
their objections to the FMC draft bill. State believes that some
type of limited legislation is desirable, and supports a bill along
the lines of option #3.
On merit alone, OMB recommends option #1. Like the other agencies, we
believe that the FMC has made a poor case for the need for this
legislation and has failed to make a "good faith effort" to use its
existing authorities if it believes the Soviets are charging unreasonably
low rates.
On the other hand, option #3 has some value in the following respects:
-- Without shipper opposition to the bill, there is a strong
chance that both House and Senate Committees will report
out a bill; and
-- If 2 bill is enacted by Congress (and unless you should decide
to veto it), it would be preferable to try to work in pro-
visions which minimize the potential negative aspects of the
bill.
DECISION
Option #1. Oppose the FMC draft bill and request FMC to
use its current authorities to deal with any problem.
Option #2. Support the FMC draft bill with some
modifications agreed to by FMC.
FORD
Option #3. Support a bill of significantly more limited
STATE
proportions than the FMC draft bill.
LIBRARY
NATIONAL SECURITY COUNCIL
November 1, 1976
NOTE FOR: PHILIP W. BUCHEN
Phil,
The attached draft represents an effort to
reflect your comments in the President's
response to Karl Bakke. Could you please
let me know if you find it satisfactory, or if
you have any suggested changes? Copies of
Bakke's incoming letters are attached.
OUH
Robert Hormats
x3393
Called to of the writes suggest
THE WHITE HOUSE
WASHINGTON
Dear Mr. Chairman:
Thank you for your informative letters of July 19 and
September 17 concerning the "Memorandum Agreement"
between the Federal Maritime Commission and the
Soviet Ministry of Merchant Marine, which you signed
last July. I am hopeful that your "Agreement" will help
to stabilize ocean liner trade, result in healthier compe-
tition among carriers, and bring better service to
shippers and consumers.
Please continue to keep me informed of any further
significant developments.
Sincerely,
The Honorable
Karl E. Bakke
Chairman
Federal Maritime Commission
1100 L Street, N.W.
Washington, D.C. 20573
1976 JUL 19 PM 5
Federal Maritime Commission
Washington, D.C. 20573
REC
MRITY UNIT
1961
CUSE
WASHINGTON
Office of the Chairman
July 19, 1976
Processed by: 5
2
ESTION
The President
The White House
Washington, D.C.
Dear Mr. President:
As you know, H.R. 14564, the most recent version of the
"Third Flag Bill," is now pending before the Merchant Marine
Subcommittee, House Merchant Marine and Fisheries Committee.
This proposed legislation would permit retaliatory action when
ocean cargo rates in the U.S. trades of a carrier owned or
controlled by certain countries cannot be justified on economic
grounds.
The authority proposed for FMC in the pending legislation
has been opposed by the Office of Management and Budget on
behalf of the Administration, notwithstanding which it appears
to be on the verge of a favorable Subcommittee report to the
full Committee.
In sum, the problem to which the "third flag" legislation
is addressed has two aspects: First, rates quoted by Soviet
carriers in "cross-trades" appear, in an alarming number of
instances, to have been uneconomic by the standards governing
ratemaking by free world carriers in those trades; and second,
Soviet carriers have expressed only occasional interest in
joining liner conferences in the world's ocean trades. These
two considerations have led to widespread apprehension concern-
ing the motives and intentions of the Soviet ocean carriers,
particularly in cross-trades.
BERAL R. FORD LIBRARY
- 2 the
I have just concluded a week of negotiations with officials
of the Ministry of Merchant Marine and of the Soviet ocean carriers
engaged in the U.S. ocean trades, and believe an accord has been
reached that will go far towards dispelling this uncertainty and
the instability in ocean trades that has resulted.
The outcome of those negotiations is described in the attached
press release, which contains the text of the agreement reached. I
am pleased to report this commercial solution to what is, essentially,
a commercial problem, as a result of which a legislated solution
now appears to be unnecessary so long as the carriers involved move
forward in good faith to implement the objectives of the agreement.
We will, of course, monitor developments closely.
Respectfully,
Karl E. Bakke
Karl E. Bakke
Chairman
Attachment
GERALD FORD LIBRARY
FEDERAL
MARITIME
NEWS RELEASE
COMMISSION
COMMISSION CHAIRMAN BAKKE
ANNOUNCES U.S.-SOVIET
MEMORANDUM AGREEMENT
Washington, D.C. 20573
and
Cardin - 523-5764
N-23
FOR RELEASE 9:30 A.M., MONDAY, JULY 19, 1976
Federal Maritime Commission Chairman Karl E. Bakke
today announced signing of a memorandum agreement with the
Soviet Ministry of Merchant Marine, concerning principles
to govern participation of Soviet common carriers in the
U.S. ocean cargo trades.
Chairman Bakke said: "This agreement marks what can be
a significant turning point in competitive relationships in
the common carrier ocean cargo trades of the United States,
particularly where the activity involves service between the
United States and countries other than the carriers' own.
We are now on the threshhold of stability in those liner trades,
with cooperation rather than confrontation, reasonable certainty.
rather than potential chaos, and a structure of ocean cargo rates
that will better reflect the legitimate economic interests of
carriers, shippers and consumers."
The agreement commits the good offices of the Commission
and the Ministry to accomplish two results. First, Soviet
carriers will raise, where necessary, and maintain ocean cargo
rates at a level not lower than the lowest rate actually used
for the same commodity by any non-Soviet carriers in the parti-
cular trade involved. Second, Soviet carriers will actively
pursue membership, on equitable terms and conditions for all
member carriers, in liner conferences covering the U.S. North
Atlantic and Pacific ocean cargo trades.
Chairman Bakke said: "Implementation of these commercial
solutions to a commercial problem will clearly be of benefit to
all concerned. I am confident that necessary actions can be
taken by all carriers in mutual good faith."
SERIAL R. FORD LIBRARY
(more)
BAKKE NEWS CONFERENCE, JULY 19, 1976 (CONT.)
PAGE 2
The agreement was reached and signed in Leningrad,
climaxing a'week of intensive discussions with representatives
of the Ministry of Merchant Marine and of major Soviet ocean
carriers. Chairman Bakke reported that in the course of those
meetings, "Certain definite principles emerged as the catalyst
for agreement:
"The importance of a viable liner conference system
in maintaining stability in the liner trades of the
United States in which Soviet carriers participate;
"The legitimate economic interests of carriers, shippers,
and consumers that are served by liner conferences in
the United States ocean trades;
"The long-term benefits to commercial relationships
between the Soviet Union and the United States that
can be realized from stability of ocean cargo rates
in those trades."
He also commented that: "The Soviet commitment to pursue
liner conference membership in the U.S. Pacific trades was clearly
influenced by the recent commitment of conference carriers engaged
in those trades to end malpractices and henceforth to maintain
an effective system of self-policing. Positive action in that
direction has been initiated by the carriers involved, and it
is significant that the Soviet carriers have not approached
these important developments with a "let's see what happens"
attitude. Rather, they also have committed to specific principles
to govern their course of action in the U.S. liner trades on the
basis that expectations of a commitment made in good faith will
be observed in good faith. Soviet carriers should now be able
to expect the same from other carriers operating in the U.S.
liner trades. "
Chairman Bakke concluded his remarks by saying: "When I
assumed office as FMC Chairman in November 1975, there were two
monumental problems facing the Commission: Malpractices in the
U.S. Pacific liner trades, and the rate policies of Soviet carriers
in the U.S. liner trades. Action towards resolution of the first
was set in motion at an owners' conference in Kyoto last April,
and it appears that a basis for resolution of the second has
now been established in the accord reached in Leningrad. I trust
that both initiatives will proceed with gathering momentum."
The text of the Memorandum Agreement follows:
FORD
(more)
BAKKE NEWS CONFERENCE, JULY 19, 1976 (CONT.)
PAGE 3
MEMORANDUM AGREEMENT
Having discussed fully and freely matters of mutual interest concerning
the liner trades of the Soviet Union and the United States, and
Having agreed upon the importance of a viable liner conference system
in maintaining stability in those trades, and
With due regard to the legitimate economic interests of carriers, shippers
and consumers that are served by liner conferences in the United States ocean
trades, and
With due regard to the long-term benefits to commercial relationships
between the Soviet Union and the United States that can be realized from
stability of ocean cargo rates in those trades,
The parties hereto have mutually agreed to utilize the good offices of
their respective agencies to achieve the following:
1. All ocean cargo rates contained in tariffs of Soviet carriers now
engaged as independents in the liner trades of the United States shall, as
promptly as it is feasible, be adjusted to a level no less than that of the
lowest rate in use for the same commodity of any other independent carriers
in those trades,
2. Thereafter, prompt action shall be taken, as necessary, to maintain
the foregoing relationship between ocean cargo rates of Soviet carriers engaged
as independents in the liner trades of the United States and the ocean cargo rates
for the same commodity contained in the tariffs of other independent carriers
in those trades,
3. Discussions shall promptly be resumed concerning equitable terms and
conditions for conference membership of Soviet carriers in the North Atlantic
liner trades of the United States, with particular attention to the principle
of temporary rate differentials for Soviet carriers in those trades based upon
differences in the services offered by Soviet carriers and by other carriers in
those trades, such rate differentials to be (a) reasonably related to the degree
of differences in such services, and (b) to be promptly eliminated as the
services in question reach a reasonable degree of comparability, and
4. Discussions shall promptly be initiated concerning equitable terms and
conditions for conference membership of Soviet carriers in the inbound and outbound
conferences serving Pacific liner trades of the United States in which the Soviet
carriers are not now conference members, with particular attention to the prin-
ciple of temporary rate differentials for Soviet carriers as set forth in para-
graph 3 above.
The parties hereto have also mutually agreed that henceforth there must be
closer working relationships between their respective agencies concerning exchange
of factual information and policy questions, and that the necessary steps shall
be promptly undertaken.
END MEMORANDUM AGREEMENT/END RELEASE
LIBRARY
Federal Maritime Commission
Washington, n.c. 20573
5274
office of the Chairman
September 17, 1976
The President
The White House
Washington, D.C. 20500
RH
Dear Mr. President:
Further in connection with my July 19 letter to
you concerning the "Memorandum Agreement" between the
Federal Maritime Commission and the Soviet Ministry
of Merchant Marine signed in Leningrad last July 16,
I am pleased to enclose copies of articles from today's
Journal of Commerce and Baltimore Sun, reporting
significant action by Soviet ocean carriers operating
as independents in the U.S. liner trades pursuant to
the terms of that agreement.
These developments are very encouraging, and
represent a substantial step in the direction of
allaying current concern about predatory rate policies
and practices by Soviet carriers in our ocean trades.
I will, of course, keep you advised of further
developments.
Respectfully,
Karl E. Bakke
Karl E. Bakke
Chairman
Enclosures
SERVICE E. FORD LIBRARY
THE JOURNAL OF COMMERCE, Friday, September 17, 1976
Baltatlantic
Acts to Join
Conferences
Soviet Ship Line Moves
Soviet Line Reaches
To Join Rate Conference
Agreement to Join
(Continued from Page 1)
Bakke, and that MORAM
moving between the U.S.
'On Certain Terms'
would be promulgating a
and Soviet ports.
By CHARLES F. DAVIS
The discussions and
number of tariff revisions
Journal of Commerce Staff
agreements which took
in the next several weeks.
place at the Amsterdam
While Mr. Novacek did
A major Russian-flag car-
not state the rates would be
THE SUN, Friday, September 17, 1976
Soviet to aid
rate crisis
in Pacific
By JOSEPH S. HELEWICZ
The Soviet Union, apparently satisfied
that the United States is making a serious
effort to curb cut-throat shipping prac-
tices ID the Far East trades, will make its
own move within the next few weeks to
help ease the shaky competitive situation
in the Pacific.
Arthur C. Novacek, the president of
Morflot America Shipping Company, told
Baltimore maritime interests yesterday
that his principals, the Russian-flag Far
Eastern Shipping Company (FESCO). are
Page 11A
THE JOURNAL OF COMMERCE, Monday, September 20, 1976
Russian Pact Seen Major Step Forward
FMC Acts to Stabilize, Reform
Rate Practices in U.S. Trades
By CHARLES F. DAVIS
Journal of Commerce Staff
Successful implementa-
tion of the agreement be-
Mr. Bakke had not taken
cent under conference lev-
tween the United States and
els.
a stand on the question of
Soviet Russia, in which the
minimum acceptable rates,
latter will stabilize its min-
This has been possible for
indicating. however, that he
the Soviets because of lower
imal general cargo rates at
believed them to be unnec-
the lowest level of non-Com-
costs - wages, to name one
essary interference into the
major item - and the fact
munist third flag carriers
rate making practices of
that Soviet shipping is not
engaged in U.S. offshore
common carriers. He also
conducted on the same
trades, will be a big step
expressed caution as to the
forward in bringing order to
commercial and profit
feasibility of automatic sus-
.... ...