02-6305. Shipping Restrictions, Requirements and Practices of the People's Republic of China

AGENCY:

Federal Maritime Commission.

ACTION:

Notice of inquiry.

SUMMARY:

The Federal Maritime Commission is seeking comments from the shipping public on current laws, rules, and policies of the Government of the People's Republic of China that appear to have an adverse impact on U.S. shipping, and which may merit Commission attention under section 19 of the Merchant Marine Act, 1920 or the Foreign Shipping Practices Act of 1988. The Commission is seeking information on the impact of new Chinese legislation on U.S. oceanborne trade, as well as the effects of that legislation on a number of existing Chinese practices and restrictions. Interested parties, including shippers, transportation intermediaries, vessel operators and others in the shipping industry, are invited to comment.

DATES:

Comments due on or before June 13, 2002.

ADDRESSES:

Send comments (original and 20 copies) to: Bryant L. VanBrakle, Secretary, Federal Maritime Commission, 800 North Capitol Street, NW., Washington, DC 20573-0001. [phone].

FOR FURTHER INFORMATION, CONTACT:

David R. Miles, Acting General Counsel, Federal Maritime Commission, 800 North Capitol Street, NW., Washington, DC 20573-0001. [phone].

SUPPLEMENTARY INFORMATION:

Background

This proceeding was initiated on August 12, 1998, to gather information regarding certain apparently restrictive laws, rules and regulations of the People's Republic of China (“PRC” or “China”) in order to determine if further Commission action under section 19 of the Merchant Marine Act, 1920 or the Foreign Shipping Practices Act of 1988 was warranted.^[1] In its effort to continue to monitor the issues identified in this proceeding, the Commission, by this Notice of Inquiry is inviting affected parties to comment on the effects of recent changes in Chinese law.

The Commission has learned that the PRC recently issued a new law, “Regulations of the PRC on the International Maritime Transportation,” which became effective January 1, 2002,^[2] and is expected very soon to promulgate implementing regulations addressing requirements for operators in international shipping generally. It appears that this new law and regulations may significantly affect the Commission's review of the potentially restrictive practices that existed prior to January 1, 2002. Therefore, through this Notice of Inquiry, and Information Demand Orders to be formulated as appropriate, the Commission seeks to ensure that it has the most accurate information with regard to these issues, so that it may in turn determine whether any current Chinese laws, rules, regulations or practices merit the initiation of a proceeding under section 19 of the Merchant Marine Act, 1920 (“Section 19”), or the Foreign Shipping Practices Act of 1988 (“FSPA”).

The Commission has received expressions of concern regarding the new Chinese legislation from several sources. These include the U.S. Government Executive Branch agencies with responsibilities affecting transportation policy and the conduct of negotiations with foreign governments as well as organizations representing shippers and ocean transportation intermediaries (“OTIs”) operating or seeking to provide shipping and shipping-related services in the U.S. trade with China.

A. Comments From Intermediaries

Concerns about the new Chinese shipping legislation were raised in a March 4, 2002 letter to Bruce J. Carlton, Acting Deputy Maritime Administrator, (with copies to the Commission) from the National Customs Brokers and Forwarders Association of America (“NCBFAA”), a trade association of ocean freight forwarders and non-vessel-operating common carriers (“NVOCCs”). NCBFAA states that “U.S. intermediary and shipper interests will be directly and discriminatorily affected in an adverse manner.”

NCBFAA expresses specific concerns regarding the effects of Chinese law on the ability of its members to do business in China, including possibly conflicting and confusing requirements for direct ownership and control of NVOCC businesses and separate Chinese incorporation of foreign NVOCCs; the required maintenance of substantial funds in Chinese banks (rather than bonding or insurance); provisions governing the filing of rates, waiting periods for rate changes and the confidentiality of service contract rates (which may subject NVOCCs to requirements inconsistent with recently amended U.S. laws); and the required use of vouchers prepared by Chinese tax authorities to invoice customers in China. NCBFAA identifies other matters as to which the new Chinese law is ambiguous, including whether the PRC intends to regulate rate levels and which entities will be subject to such rate regulation, and the mandatory or other status of rate-fixing conferences, discussion agreements, and capacity fixing agreements.

B. The Executive Agencies

On March 1, 2002, Maritime Administrator William G. Schubert wrote Chairman Harold J. Creel, Jr., expressing concern that the new law may restrict the operations not only of shipping companies, but also of shippers and OTIs. The Administrator further indicates that he has made these concerns known to the Chinese government, and that he has sought clarification on the law and the suspension of the effectiveness of any implementing regulations pending an opportunity to discuss the impact they may have with the Government of the PRC. The Maritime Administration has now announced that a U.S. government delegation will meet with PRC authorities in Beijing March 19-22, 2002 to obtain clarification about the meaning and impact of the Decree and any related implementing regulations.

Discussion and Request for Comments

It appears that U.S. OTIs, carriers and other providers of transportation services may face serious restrictions in obtaining the necessary licenses and permissions to do business in China. Indeed, it appears that wholly foreign-owned NVOCCs continue to be completely barred from engaging in a number of commercial activities, such as offering through transportation as an NVOCC. Other types of services may be permitted, but only if a foreign firm enters a joint venture with a Chinese entity.

The Commission is seeking to establish a clear record of what types of services U.S. NVOCCs or ocean freight forwarders, as those terms are defined by the Shipping Act of 1984, are now permitted to perform in China, what activities are prohibited, what requirements or prerequisites are imposed and what, if any, detrimental effects these requirements and prohibitions have on U.S. companies seeking to do business in China. It would be most useful for the Commission to receive comments describing, in detail, what types of ocean transportation intermediary activities are permitted under Chinese law in effect since January 1, 2002; what are prohibited; and in what situations joint ventures or similar arrangements are required.

The Commission, in order to determine how the new Chinese laws, rules, regulations, policies and/or practices will affect its consideration of whether further Commission action under section 19 or the Foreign Shipping Practices Act may be merited, is now collecting information on the following specific areas.

1. General

Individual companies' accounts of their efforts, successful or otherwise, to establish operations in China, and their dealings with Chinese authorities, would be especially useful. Any supporting documentation would be welcomed. The Commission also seeks to determine the effects on shippers of any such restrictions; that is, will the Chinese law in effect since January 1, 2002 as it is applicable to non-Chinese ocean transportation intermediaries and vessel operators, have any effects on shippers' ability to secure efficient and economical intermodal transportation services in U.S. oceanborne commerce? The Commission would welcome comments from any carrier, shipper, or other party on the details or effects of these issues.

2. Licensing Requirements

The Commission has concerns about apparent new Chinese requirements for the licensing of vessel operators, non-vessel operators, international ocean freight forwarders, shipping agency operators and ship management operators. It is not clear whether there continue to be nationality-or investment-based limitations on a company's ability to obtain certain types of transportation business licenses in China or what the criteria are by which licenses can be withheld or denied, and what, if any, appeal rights applicants enjoy. The Commission would welcome comments from any carrier, shipper, or other party that could shed light on these practices and their effects on U.S.-China oceanborne trade.

3. Branch Offices and Multimodal Transport Operations

It appears that after January 1, 2002, non-Chinese vessel operators continue to face a number of restrictions on operating and increasing the number of the branch offices they may operate in China. For the branch offices that do exist, it appears that there may continue to be serious restrictions on their operations, both in terms of the geographic area they may serve and the scope of services they may offer. A number of these may be the same as, or similar to, the restrictions faced by NVOCCs and freight forwarders in China. Apparently, there are certain narrowly prescribed business areas in which non-Chinese vessel operators are now allowed to operate; however, it remains unclear just what those are as a result of the new Chinese law that went into effect on January 1, 2002.

We are particularly concerned that there may continue to be restrictions that seriously limit vessel operators' and ocean transportation intermediaries' ability to offer multimodal transportation services in China. The Commission requires more information on such restrictions on vessel operators' and ocean transportation intermediaries' branch office or multimodal operations.

4. Rate Filing Requirements

It appears that the new Chinese legislation may require vessel operators and NVOCCs to file the rates they charge customers for carriage to and from China. Please describe the Chinese ministry or regulatory body with whom you must file these matters, how they are filed, and what types of review or analysis of the rates are made by the relevant authority. Describe whether there are any mechanisms to protect the confidentiality of service contract rates. Please also describe what action may be taken by the relevant authority upon a finding that the rate in question does not meet regulatory criteria.

5. Ocean Transportation Intermediaries

What conditions, requirements or restrictions are placed on OTI activities? ^[3] What types of licenses are required, and what restrictions are placed on their issuance? Who issues the necessary licenses and permissions, and what are the legal standards and procedures for granting them? What are the capital investment or deposit requirements to obtain such a license? Also, what commercial partners are available in China for joint ventures, and under what commercial conditions? If your company had already been doing OTI operations in China prior to January 1, 2002, please describe how your ability to do business in China has been affected, if at all, by the new Chinese law effective that day. Are there nationality or investment-based differences? If your company has sought a license to do these types of activities since January 1, 2002, please describe that process, including the criteria, requirements and procedure for obtaining a license, whether there are any limitations on the type of license your company may obtain, and the Chinese government authority(ies) to whom applications must be submitted or from which approvals must be sought.

Now Therefore, It is ordered, that this Notice of Inquiry be published in the Federal Register.

By the Commission.*

Bryant L. VanBrakle,

Secretary.

Footnotes

1.  Section 19 of the Merchant Marine Act, 1920, 46 U.S.C. app. § 876, authorizes and directs the Commission, inter alia, to “make rules and regulations affecting shipping in the foreign trade not in conflict with law in order to adjust or meet general or special conditions unfavorable to shipping in the foreign trade * * * which arise out of or result from foreign laws, rules, or regulations or from competitive methods or practices employed by owners, operators, agents, or masters of vessels of a foreign country. * * *.”

The Foreign Shipping Practices Act of 1988, 46 U.S.C. app. § 1710a, authorizes the Commission to investigate whether any laws, rules, regulations, policies, or practices of foreign governments, or any practices of foreign carriers or other persons providing maritime or maritime related services in a foreign country result in the existence of conditions that (1) adversely affect the operations of United States carriers in the United States oceanborne trade; and (2) do not exist for foreign carriers of that country in the United States under the laws of the United States or as a result of acts of United States carriers or other persons providing maritime or maritime-related services in the United States. If the Commission determines that such adverse conditions exist, it may take actions including limitations on sailings, suspension of tariffs, suspension of agreements, or fees not to exceed $1,000,000 per voyage.

2.  The law is in the form of a Decree promulgated by the State Council of the PRC on December 5, 2001, signed by Prime Minister Zhu Rong Ji, which was published on December 21, 2001 and became effective on January 1, 2002.

3.  E.g., arranging inland or ocean transportation, preparing documentation and issuing bills of lading, consolidation, warehousing, cargo agency, and logistics services.

 *Commissioner John A. Moran is not participating.

*.  Commissioner John A. Moran is not participating.