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FMC Meets To Address Restrictive Chinese Shipping Policies)

June 24, 1999

FEDERAL MARITIME COMMISSION

FMC MEETS TO ADDRESS RESTRICTIVE CHINESE SHIPPING POLICIES

Washington, D.C. 20573

NR 99-12


June 24, 1999

The Federal Maritime Commission met today to review information collected in Docket No. 98-14, Shipping Restrictions, Requirements, and Practices of the People's Republic of China. The probe was launched in August 1998 in response to reports of potentially unfair or restrictive Chinese maritime policies from a number of sources, including the U.S. Departments of Transportation, State, and Commerce, U.S. Senator Ernest F. Hollings, and U.S. shipping lines and non-vessel-operating common carriers. The Commission expressed serious concerns about conditions existing in U.S. ocean trade with China. Investigatory orders were issued to U.S. and Chinese shipping lines, and public comments were solicited on issues including branch office operations, vessel agency services, licensing of vessel calls and port access, and freight forwarding and other intermediary operations.

The responses to these inquiries indicate that Chinese laws and regulations discriminate against and disadvantage U.S. carriers and other non-Chinese shipping lines with regard to a variety of maritime-related services. For example, while U.S. carriers are permitted to open wholly-owned companies in the PRC to book cargo and perform some other services, such offices can only operate in locations where carriers' vessels make monthly calls. Thus, if U.S. carriers wish to book space, accept goods, issue bills of lading, collect freight, solicit business, negotiate contracts, or provide customer service in inland locations or in port cities that they serve only by transshipment, U.S. carriers must rely on Chinese agents (affiliates of the state-owned Chinese shipping lines) to provide these functions. In contrast, Chinese carriers face no similar restrictions, either in China or the United States, allowing them to establish inland offices and provide intermodal services without impediment.

U.S. carriers' subsidiary operations face other restrictions as well. They cannot open a branch office without meeting high minimum capital requirements, or without first having operated a "representative office" (which can do no direct business) in that city for at least one year. In addition, they are barred by Chinese law from performing a number of integral vessel agency services for themselves. They cannot arrange for entry and departure with port authorities (including berthing, piloting, loading and unloading); arrange for customs entry and clearance; handle crew administration matters; arrange for salvage at sea or settlement of marine casualties and claims; or perform or make arrangements for consignment, transshipment and multimodal transport. For each of these functions, U.S. carriers must hire government-approved Chinese agents, which are state-owned entities affiliated with their Chinese competitors. Chinese carriers face no such limitations in the United States, and perform at least some of these functions in U.S. ports.

In 1996, Chinese authorities began allowing wholly-owned subsidiaries of U.S. carriers to begin performing some freight forwarding-type services. However, these operations face a number of restrictions not faced by Chinese carriers or intermediaries, either in this country or in China. These operations cannot issue bills of lading, or arrange for customs clearance or for insurance. In addition, they cannot open new branch offices beyond the six originally authorized by Chinese officials. Thus, they are barred from expanding their operations to compete effectively with Chinese lines, which have thousands of employees and dozens of subsidiaries performing freight forwarding services in that country. In contrast, Chinese carriers have faced no discriminatory barriers to establishing freight forwarding and non-vessel-operating common carrier operations in the United States.

The Commission also indicated concern about current and proposed Chinese regulatory requirements. China is alone among major maritime countries in requiring carriers to obtain governmental permission before beginning or changing international vessel services. Indeed, U.S. carriers cannot even apply for such approvals directly; rather, they must employ Chinese agents to do so for them. This system has generated delays and uncertainties for carriers and shippers. Also, other proposed Chinese shipping and multi-modal regulations could require the disclosure of confidential service contract rates or terms, and further restrict non-Chinese carriers' ability to offer multi-modal transport services in China. The Commission will continue to follow these proposals closely.

To address apparent restrictions faced by U.S. shipping companies in the U.S.-China trade, the Commission instructed its General Counsel to prepare a formal proposal for action under Section 19 of the Merchant Marine Act, 1920. That statute directs the Commission to take countervailing action if it finds that foreign laws, rules, or regulations create "conditions unfavorable to shipping in the foreign trade." The Commission may take actions including limitations on sailings, suspension of tariffs, suspension of regulated agreements, fees not to exceed $1,100,000 per voyage, or any other measure necessary and appropriate to address the unfavorable conditions. Such proposed measures would, upon Commission approval, be noticed to the public for comment by interested parties prior to becoming effective.

FMC Chairman Harold J. Creel, Jr. stated: "The Commission is deeply troubled by the responses to our inquiry, which describe numerous restrictions that handicap U.S. carriers' ability to serve the Chinese end of the U.S.-China ocean transportation chain. What I find particularly disturbing is that U.S. carriers are forced to hire their competitors' affiliates to perform everyday commercial functions. This necessarily gives control of their costs, service quality, brands, and sensitive commercial information to the Chinese companies. Chinese carriers, in contrast, have been free to develop extensive door-to-door transportation systems between the two countries. U.S. carriers' intermodal networks must be allowed to develop commercially on both sides of the ocean. If not, I believe it may be necessary to begin limiting the scope of Chinese carriers' operations in the United States to ensure that they do not obtain a permanent, unfair advantage."