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United States House of Representatives - April 9, 1997

April 9, 1997

Remarks of Commissioner Harold J. Creel, Jr.

United States House of Representatives, April 9, 1997

 

     Mr. Chairman and members of the Subcommittee, thank you for
the opportunity to appear before you to present the President's
fiscal year 1998 budget for the Federal Maritime Commission.

    I would like to begin by reminding the Subcommittee that over
the last two fiscal years, the Federal Maritime Commission
sustained significant cuts in funding, reductions of almost 25
percent from our FY 1995 budget.  Through a series of extraordinary
cost-cutting efforts, we have been able to continue to carry out
our statutory functions at these reduced budgetary levels.  Indeed,
by being a "leaner" and "wiser" FMC, in the words of recent press
reports, we have achieved a number of important objectives and
successes in the past year.  However, I must inform the
Subcommittee that all discretionary costs have been wrung from the
agency, and that continued paring of our budget will cripple the
Commission, disabling it from administering the important functions
and programs entrusted to it by Congress.

     The President's budget for the Commission provides $14,300,000
for fiscal year 1998.  While this represents an increase of
$300,000 over our FY 1997 appropriation, it is solely to fund
required annual salary and benefit adjustments for federal workers.
In fact, our proposed FY 1998 budget is a $536,000 reduction from
our FY 1996 appropriation, and represents a cut of almost
$4,000,000, or nearly 25%, from our FY 1995 level.  Official travel
has been straightlined at the 1996 and 1997 levels, and represents
a reduction of almost 50% from 1995.  Administrative expenses
likewise have been held at the low levels set for 1997, and in some
cases actually reduced, e.g., we have eliminated all funding for
computers, other equipment, and furniture, and further reduced
funding for training and supplies.  While we have reduced personnel
costs by eliminating all funding for promotions and performance and
incentive awards, overall personnel costs have risen somewhat due
to factors outside our control (i.e., annual salary and benefits
adjustments).  The number of FTEs we are able to fund has continued
to decline -- our current staffing level of 142 is our lowest since
the Commission's first full year of operation over 35 years ago.

    The Commission's budget contains no discretionary spending.
It is composed entirely of mandatory or essential expenses such as
salaries and benefits, rent and guard services, health service and
accounting services, telephone and other communications costs,
supplies, mandatory training, and printing and reproduction costs.
These items all represent the basic expenses any organization faces
in order to conduct day-to-day operations.

     The FY 1998 budget request must be viewed in the context of
the many cost-cutting actions already taken by the Commission in
the recent past to meet reduced appropriations.  In FY 1994, the
Commission was appropriated $18,900,000 and was authorized 225
FTEs; at that level, we were adequately accomplishing our statutory
mandates.  In FY 1995, the Commission's appropriation was reduced
by almost $400,000; we closed a number of field offices, conducted
a reduction in force, absorbed significant attrition, and divested
ourselves of most field office rental space and our hearing room
and other space in headquarters.  In FY 1996, our appropriation was
reduced to just $14,836,000, a 20% reduction from the FY 1995
level; we closed our remaining field offices, absorbed further
attrition, eliminated more headquarters space, cut travel to FY
1995 levels, eliminated performance and incentive awards, reduced
ATFI service levels, and initiated a virtual freeze on hiring.  In
FY 1997, with an appropriation of $14,000,000 (a 25% reduction from
our FY 1995 level), we continued what is effectively a hiring
freeze, absorbed attrition, further reduced ATFI service levels,
continued the freeze on performance and incentive awards, reduced
funding for training and supplies, eliminated positions (including
a position in the Office of the Chairman), and eliminated funding
for furniture and equipment.  All of these actions were taken while
the Commission retained its full array of statutory
responsibilities.

     The proposed 1998 budget would require that the Commission
further reduce its funded FTE level from 147 FTEs in FY 1997 to
about 143 FTEs in FY 1998.  The Commission is already at a "bare
bones" FTE level.  To illustrate this problem, ten years ago our
Office of General Counsel had twelve attorneys; today, after
absorbing significant attrition, that Office has a legal staff of
just five.  As another example, just five years ago the
Commission's Chairman had a staff of seven; today, I have a staff
of just two, and one of those two is on detail from another office
in the agency.   Further cuts, given the non-discretionary nature
of our spending, would force the further elimination of valuable
employees whom we simply cannot afford to lose.  At present, the
Commission has 142 employees on board, down from 231 employees five
years ago, and nearly 350 fifteen years ago.

     Despite the tremendous impact of attrition, the Commission is
accomplishing its statutory responsibilities, albeit at a reduced
level.  Our cost-cutting measures have helped, as have various
efficiencies we have introduced.  For example, the Commission now
has a homepage on the Internet which provides immediate public
access to agency-specific information, much of which we previously
were required to furnish telephonically.  Our homepage also
includes Commission decisions, Congressional testimony, and agency
forms which formerly were available only in paper format through
the mail.  This has partially alleviated the need for remaining
staff to take time away from important agency work to respond to
routine inquiries.  When inquiries do arrive telephonically or by
mail, we often are able to respond via e-mail, saving mailing costs
and time.  Additionally, we formerly mailed a copy of our biannual
anti-rebating certification form to every regulated entity required
to file.  Access to this form on the homepage has eliminated this
time-consuming and expensive method of distributing information.
Our area representatives in the field are available to regulated
entities and the public via e-mail, fax and cellular phone.  Their
numbers and addresses are published on our homepage, making them
more accessible, especially when traveling, than ever before.

     The Commission continues to search for the most efficient
means of carrying out its statutory functions.  As you recall, we
worked with your Subcommittee last fiscal year in downsizing our
field operations.  Two years ago, the Commission had 37 field
personnel in seven district offices.  Since June, 1996, field
activities have been the responsibility of four individuals serving
as area representatives in Los Angeles, Miami, Seattle, and New
Orleans, as well as personnel in Washington, DC who have
responsibility for the New York area and for geographic areas not
otherwise covered by the local area representatives.  The area
representatives are equipped with the latest telecommunications and
computer capabilities and have access to data bases and information
systems which allow them to conduct field activity and be in
contact with FMC headquarters and the public at all times.
     While we are pleased with the exceptional reception of the
public to our area representatives and the fine work they are
performing, we are experiencing frustration because we are not able
to respond effectively to every request for assistance. Of
necessity, we must be very selective in the use of our resources
and, at times, this selectivity may be perceived as bureaucratic
inattention or lack of concern.  This certainly is not the fact.
I can assure you that we are making every effort to carry out our
statutory responsibilities to the best of our abilities within
budgetary constraints.
     The Commission continues to be responsible for ensuring a fair
system of oceanborne transportation for the benefit of U.S.
exporters and importers, and protecting U.S. trades from unfair
foreign shipping practices.  The industry the Commission oversees
transported 13.3 million containerloads of imports and exports in
1996, with an estimated value of greater than $440 billion.  I
would like to highlight some of the Commission's most significant
activities to give you a better understanding of how we approach
our mission.
     One of the most important responsibilities vested in the
Commission is its duty to protect U.S. oceanborne trade and U.S.
carriers from discriminatory or unfavorable treatment by foreign
governments.  The Commission has used section 19 of the Merchant
Marine Act, 1920, and the Foreign Shipping Practices Act of 1988,
to force foreign governments to abandon protectionist policies and
to open maritime markets to U.S. companies.
     In recent years, the Commission has used its authority to
address foreign government trade restrictions so as to:  break down
discriminatory barriers in the freight forwarding and consolidation
sector in Korea; open up container leasing, handling, and agency
services in Taiwan; and permit branch office, trucking, feeder
vessel, and container yard operations in China.  It also has  been
successful in combating cargo reservation schemes in Peru and
Ecuador.  In addition, in cases where there has been no formal
Commission action such as last year's dispute over logistics
services in China, we understand that the ever-present threat of
FMC sanctions makes it far easier for the Administration to extract
market-opening concessions in its negotiations.  The Commission's
status as an independent agency has been vital in enabling it to
effectuate swift and effective action.
     The Commission's efforts to combat restrictive practices are
ongoing.  Most recently, on February 26, 1997, the Commission
issued a final rule imposing fees of $100,000 per voyage on
Japanese liner operators, effective April 14, 1997, in response to
unfavorable practices in Japanese ports.  The Commission found a
series of restrictive conditions involving the dominance of the
harbor services industry in Japan by the Japan Harbor
Transportation Association ("JHTA"), an association of Japanese
waterfront employers.  The Commission also found unfavorable
conditions with regard to the Government of Japan's licensing
requirement for terminal operators and stevedoring companies, which
blocks new entrants from entering into those industries in Japan
and ensures that the stevedoring market remains entirely Japanese.
Because of the restrictive licensing requirement, U.S. carriers
cannot perform stevedoring or terminal operating services for
themselves or third parties in Japan, forcing them to submit their
shoreside operations to JHTA control.  In contrast, Japanese
carriers (or their related companies or subsidiaries) freely
perform stevedoring and terminal operating services in the United
States.  There has been enormous interest in the Commission's
action with respect to Japan, and press coverage, both
international and domestic, has been extensive.  This coverage
includes a front page article in the March 31, 1997, edition of The
Washington Post describing the Commission's efforts.  The
Commission is hopeful that decisive action by the Government of
Japan will bring about meaningful and comprehensive reforms in its
port services market.
     In addition to Japanese port practices, the Commission also is
investigating and monitoring conditions in Brazil and elsewhere in
Latin America.  The Commission is concerned that U.S. carriers may
be placed at a competitive disadvantage by the imposition of
discriminatory fees, and by restrictions on warehouse operations
and "cross-trading" -- i.e., the ability of U.S. carriers to carry
cargo between two foreign countries. 
     The Commission also has serious concerns about the developing
maritime policies of the People's Republic of China.  The Chinese
government recently began implementing strict new rate filing and
regulation rules, through the newly founded "Shanghai Shipping
Exchange," on shipping lines in the non-U.S. trades.  We are
concerned that the Chinese government may try to spread this
non-market-oriented approach to shipping regulation to the China-U.S.
trades.  Furthermore, we find it troubling that rates charged by
U.S. operators might be subject to review and disapproval by the
same Chinese government agency that owns and operates the China
Ocean Shipping Company (COSCO), one of the world's largest and
fastest growing liner companies.  We intend to use all available
resources to ensure that Chinese practices do not have a
discriminatory or destabilizing effect on U.S. shipping and
commerce.
     Additional functions performed by the Commission include
ensuring that cruise vessel operators have sufficient resources to
pay judgments to passengers for personal injury or death or for
nonperformance of a voyage pursuant to sections 2 and 3 of P.L. 89-777,
licensing ocean freight forwarders under section 19 of the
1984 Act, and bonding NVOCC middlemen to protect customers using
their services.  The Commission also provides an expeditious and
inexpensive forum for the resolution of disputes between private
parties involved in ocean transportation.  A substantial number of
such complaints have been filed with and resolved by the
Commission.  The Commission also provides informal procedures for
the resolution of disputes.  The Commission's processes have
provided a more affordable and expeditious means of allowing small
shippers to obtain relief than would filing lawsuits.  Further, the
Commission's ombudsman mediates maritime disputes on behalf of the
public, thereby saving them the costs of litigation.

     The Commission also has continued investigative and
enforcement activities with respect to its other statutorily-mandated
responsibilities.  This includes prosecutions for various
types of fraud against consumers, misdescriptions or
misdeclarations of cargo, illegal or unfiled agreements, anti-competitive
abuses of antitrust immunity, unlicensed freight
forwarding, untariffed cargo carriage and illegal kickbacks, and
unbonded NVOCC and passenger vessel operations.  In most instances,
voluntary compliance is achieved in these areas without the
necessity of formal adjudicatory or assessment proceedings.  The
location of our area representatives in the offices of U.S. Customs
has greatly enhanced the cooperation of our two agencies in
combating all types of malpractice activity.
     Mr. Chairman, with the recent introduction of S. 414, Congress
has once again embarked on an effort to improve our method of
regulating the ocean shipping industry.  The Commission fully
supports this objective, and will work with Congress to achieve the
best possible system.  However, such legislation has not yet been
enacted, and even if passed immediately would make no changes to
the Commission's programs until well into FY 1998.  If enacted
later this year, that timetable could be pushed back until beyond
the end of the next fiscal year.  Until the Commission's duties are
substantively amended, however, the Commission must be permitted to
do the job that Congress has entrusted to it, under the laws
currently in force.  In our opinion, the best way to effect change
is to make substantive improvements first, then tailor funding to
enable the agency to perform functions as crafted by any new
legislation.  Shuttering or paralyzing the agency through funding
cuts will not generate balanced deregulation, but rather will
create an uncertain and chaotic climate for U.S. businesses and
oceanborne trade.
     The Commission needs its entire fiscal year 1998 budget
request in order to effectively fulfill its many statutory duties.
The Commission remains charged with its full panoply of functions
and programs, as dictated by our statutes.  If Congress ultimately
determines to revise some of the FMC's functions and programs, then
of course it would make sense to adjust the agency's budget
accordingly.  But any deregulation of the maritime industry should
flow from amending the shipping laws, not from cutting the funding
of the agency responsible for enforcing them.  Our latest
projections indicate that even a small reduction in our budget,
given the non-discretionary nature of our expenses, could require
furloughs for the entire staff, and could force us to separate a
number of valuable employees.  This would have devastating effects
on our efforts and our standing to combat restrictive foreign
shipping practices and to perform our other essential functions.
I am particularly concerned about the signal this would send to
certain of our trading partners. 
     Mr. Chairman, I hope I have adequately expressed the
importance of the work of the FMC, and I respectfully request
favorable consideration of the President's budget so that the FMC
may continue to perform our statutory functions in fiscal year 1998
without further reductions in effectiveness.