[Title 46 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 1998 Edition]
[From the U.S. Government Printing Office]


          46



          Shipping



[[Page i]]

          PARTS 200 TO 499

                         Revised as of October 1, 1998

          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT

          AS OF OCTOBER 1, 1998
          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration

          as a Special Edition of
          the Federal Register



[[Page ii]]

                                      




                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1998



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 46:
          Chapter II--Maritime Administration, Department of 
          Transportation                                             3
          Chapter III--Coast Guard (Great Lakes Pilotage), 
          Department of Transportation                             401
  Finding Aids:
      Table of CFR Titles and Chapters........................     433
      Alphabetical List of Agencies Appearing in the CFR......     451
      List of CFR Sections Affected...........................     461



[[Page iv]]


      


                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  46 CFR 201.1 refers 
                       to title 46, part 201, 
                       section 1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, October 1, 1998), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I), and Acts Requiring Publication 
in the Federal Register (Table II). A list of CFR titles, chapters, and 
parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-523-5227 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
info@fedreg.nara.gov.

SALES

    The Government Printing Office (GPO) processes all sales and 
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ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, The United States 
Government Manual, the Federal Register, Public Laws, Weekly Compilation 
of Presidential Documents and the Privacy Act Compilation are available 
in electronic format at www.access.gpo.gov/nara (``GPO Access''). For 
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(toll-free). E-mail, gpoaccess@gpo.gov.

[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.nara.gov/fedreg. The NARA 
site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 1998.



[[Page ix]]



                               THIS TITLE

    Title 46--Shipping is composed of nine volumes. The parts in these 
volumes are arranged in the following order: Parts 1-40, 41-69, 70-89, 
90-139, 140-155, 156-165, 166-199, 200-499 and 500 to End. The first 
seven volumes containing parts 1-199 comprise chapter I--Coast Guard, 
DOT. The eighth volume, containing parts 200 to 499, includes chapter 
II--Maritime Administration, DOT and chapter III--Coast Guard (Great 
Lakes Pilotage), DOT. The ninth volume, containing part 500 to End, 
includes chapter IV--Federal Maritime Commission. The contents of these 
volumes represent all current regulations codified under this title of 
the CFR as of October 1, 1998.

    Subject indexes appear for subchapter B--Merchant Marine Officers 
and Seamen, subchapter C--Uninspected Vessels, and subchapter D--Tank 
Vessels following the subchapters in parts 1-40; for subchapter F--
Marine Engineering following the subchapter in parts 41-69; for 
subchapter H--Passenger Vessels following the subchapter in parts 70-89; 
for subchapter I--Cargo and Miscellaneous Vessels, subchapter I-A--
Mobile Offshore Drilling Units, subchapter J--Electrical Engineering, 
subchapter K--Small Passenger Vessels Carrying More Than 150 Passengers 
or With Overnight Accommodations for More Than 49 Passengers, and 
subchapter L--Offshore Supply Vessels following the subchapters in parts 
90-139; for subchapter S--Subdivision and Stability, subchapter T--Small 
Passenger Vessels (Under 100 Gross Tons), and subchapter W--Lifesaving 
Appliances and Arrangements following the subchapters in parts 166-199.

    For this volume, Gregory R. Walton was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

[[Page x]]



CFRORDR.FRM2

[[Page 1]]



                           TITLE 46--SHIPPING




                  (This book contains parts 200 to 499)

  --------------------------------------------------------------------
                                                                    Part

chapter ii--Maritime Administration, Department of 
  Transportation............................................         201

chapter iii--Coast Guard (Great Lakes Pilotage), Department 
  of Transportation.........................................         401

Cross References: U.S. Customs Service, Department of the Treasury: See 
  Customs Duties, 19 CFR chapter I.

  Coast Guard, Department of Transportation: See Navigation and 
Navigable Waters, 33 CFR chapter I; Federal Acquisition Regulations 
System, 48 CFR, chapter 12; Shipping, 46 CFR, chapter I.

  Foreign-Trade Zones Board: See Commerce and Foreign Trade, 15 CFR 
chapter IV.

  Interstate Commerce Commission: See Transportation, 49 CFR chapter X.

  Panama Canal Regulations: See Panama Canal, 35 CFR chapter I.

[[Page 3]]



    CHAPTER II--MARITIME ADMINISTRATION, DEPARTMENT OF TRANSPORTATION




  --------------------------------------------------------------------

              SUBCHAPTER A--POLICY, PRACTICE AND PROCEDURE
Part                                                                Page
200

[Reserved]

201             Rules of practice and procedure.............           7
202             Procedures relating to review by Secretary 
                    of Transportation of actions by Maritime 
                    Subsidy Board...........................          29
203             Procedures relating to conduct of certain 
                    hearings under the Merchant Marine Act, 
                    1936, as amended........................          33
204             Claims against the Maritime Administration 
                    under the Federal Tort Claims Act.......          35
205             Audit appeals; policy and procedure.........          37
207             Statistical data for use in operating-
                    differential subsidy application 
                    hearings................................          38
   SUBCHAPTER B--REGULATIONS AFFECTING MARITIME CARRIERS AND RELATED 
                               ACTIVITIES
221             Regulated transactions involving documented 
                    vessels and other maritime interests....          44
232             Uniform financial reporting requirements....          58
  SUBCHAPTER C--REGULATIONS AFFECTING SUBSIDIZED VESSELS AND OPERATORS
249             Approval of underwriters for marine hull 
                    insurance...............................          68
251             Application for subsidies and other direct 
                    financial aid...........................          71
252             Operating-differential subsidy for bulk 
                    cargo vessels engaged in worldwide 
                    services................................          75
272             Requirements and procedures for conducting 
                    condition surveys and administering 
                    maintenance and repair subsidy..........          93
276             Construction-differential subsidy repayment.         102
277             Domestic and foreign trade; interpretations.         102

[[Page 4]]

280             Limitations on the award and payment of 
                    operating-differential subsidy for liner 
                    operators...............................         102
281             Information and procedure required under 
                    liner operating-differential subsidy 
                    agreements..............................         108
282             Operating-differential subsidy for liner 
                    vessels engaged in essential services in 
                    the foreign commerce of the United 
                    States..................................         115
283             Dividend policy for operators receiving 
                    operating-differential subsidy..........         133
287             Establishment of construction reserve funds.         138
289             Insurance of construction-differential 
                    subsidy vessels, operating-differential 
                    subsidy vessels and of vessels sold or 
                    adjusted under the Merchant Ship Sales 
                    Act 1946................................         154
295             Maritime Security Program (MSP).............         155
                SUBCHAPTER D--VESSEL FINANCING ASSISTANCE
298             Obligation guarantees.......................         163
                        SUBCHAPTER E  [RESERVED]
                 SUBCHAPTER F--POSITION REPORTING SYSTEM
307             Establishment of mandatory position 
                    reporting system for vessels............         200
                   SUBCHAPTER G--EMERGENCY OPERATIONS
308             War risk insurance..........................         203
309             Values for war risk insurance...............         226
                         SUBCHAPTER H--TRAINING
310             Merchant Marine training....................         234
               SUBCHAPTER I-A--NATIONAL SHIPPING AUTHORITY
315             Agency agreements and appointment of agents.         261
317             Bonding of ship's personnel.................         262
324             Procedural rules for financial transactions 
                    under Agency agreements.................         265
325             Procedure to be followed by general agents 
                    in preparation of invoices and payment 
                    of compensation pursuant to provisions 
                    of NSA Order No. 47.....................         270
326             Marine protection and indemnity insurance 
                    under agreements with agents............         271
327             Seamen's claims; administrative action and 
                    litigation..............................         273
328             Slop chests.................................         275
329             Voyage data.................................         277

[[Page 5]]

330             Launch services.............................         279
332             Repatriation of seamen......................         279
335             Authority and responsibility of general 
                    agents to undertake emergency repairs in 
                    foreign ports...........................         281
336             Authority and responsibility of general 
                    agents to undertake in continental 
                    United States ports voyage repairs and 
                    service equipment of vessels operated 
                    for the account of the National Shipping 
                    Authority under general agency agreement         282
337             General agent's responsibility in connection 
                    with foreign repair custom's entries....         284
338             Procedure for accomplishment of vessel 
                    repairs under National Shipping 
                    Authority master lump sum repair 
                    contract--NSA-LUMPSUMREP................         285
339             Procedure for accomplishment of ship repairs 
                    under National Shipping Authority 
                    individual contract for minor repairs--
                    NSA-WORKSMALREP.........................         296
340             Priority use and allocation of shipping 
                    services, containers and chassis, and 
                    port facilities and services for 
                    national security and national defense 
                    related operations......................         297
            SUBCHAPTER I-B--CONTROL AND UTILIZATION OF PORTS
345             Restrictions upon the transfer or change in 
                    use or in terms governing utilization of 
                    port facilities.........................         304
346             Federal port controllers....................         306
347             Operating contract..........................         309
349             Reemployment rights of certain merchant 
                    seamen..................................         315
                       SUBCHAPTER J--MISCELLANEOUS
350             Seamen's service awards.....................         319
351             Depositories................................         321
355             Requirements for establishing United States 
                    citizenship.............................         321
370             Claims......................................         324
380             Procedures..................................         325
381             Cargo preference--U.S.-flag vessels.........         330
382             Determination of fair and reasonable rates 
                    for the carriage of bulk and packaged 
                    preference cargoes on U.S.-FLAG 
                    commercial vessels......................         334
383

[Reserved]

385             Research and development grant and 
                    cooperative agreements regulations......         338
386             Regulations governing public buildings and 
                    grounds at the United States Merchant 
                    Marine Academy..........................         346

[[Page 6]]

387             Utilization and disposal of surplus Federal 
                    real property for development or 
                    operation of a port facility............         349
            SUBCHAPTER K--REGULATIONS UNDER PUBLIC LAW 91-469
390             Capital Construction Fund...................         353
391             Federal income tax aspects of the Capital 
                    Construction Fund.......................         380
392-399

[Reserved]

[[Page 7]]



              SUBCHAPTER A--POLICY, PRACTICE AND PROCEDURE



                          PART 200  [RESERVED]



PART 201--RULES OF PRACTICE AND PROCEDURE--Table of Contents




                 Subpart A--General Information (Rule 1)

Sec.
201.1  Scope of rules.
201.2  Mailing address; hours.
201.3  Authentication of rules, orders, determinations and decisions of 
          the Administration.
201.4-201.5  [Reserved]
201.6  Documents in foreign languages.
201.7  Information; special instructions.
201.8  Use of gender and number.
201.9  Suspension, amendment, etc., of rules.

  Subpart B--Appearance and Practice Before the Administration (Rule 2)

201.15  Appearance in person or by representative.
201.16  Authority for representation.
201.17  Written appearance.
201.18  Practice before the Administration defined.
201.19  Presiding officers.
201.20  Attorneys at law.
201.21  [Reserved]
201.22  Firms and corporations.
201.23  [Reserved]
201.24  Suspension or disbarment.
201.25  Statement of interest.
201.26  Former employees.

                       Subpart C--Parties (Rule 3)

201.30  Parties; how designated.
201.31  Public counsel.
201.32  Substitution of parties.

      Subpart D--Form, Execution and Service of Documents (Rule 4)

201.41  Form and appearance of documents filed with the Administration.
201.42  Subscription, authentication of documents.
201.43  Service by parties.
201.44  Date of service.
201.45  Certificate of service.
201.46  Copies of documents for use of the Administration.

                        Subpart E--Time (Rule 5)

201.51  Computation.
201.52  Additional time after service by mail.
201.53  Extension of time to file documents.
201.54  Reduction of time to file documents.
201.55  Postponement of hearing.

                     Subpart F--Rule Making (Rule 6)

201.61  Petition for issuance, amendment, or repeal of rule or 
          regulation.
201.62  Notice of proposed rule making.
201.63  Participation in rule making.
201.64  Contents of rules.
201.65  Effective date of rules.

   Subpart G--Formal Proceedings, Notice, Pleadings, Replies (Rule 7)

201.71  Commencement of proceedings.
201.72  Notice.
201.73  Joinder of proceedings.
201.74  Declaratory orders.
201.75  Petitions--general.
201.76  Applications for Government aid.
201.77  Amendments or supplements to pleadings.
201.78  Petition for leave to intervene.
201.79  Motions.
201.80  Answers to applications, petitions, or motions.

  Subpart H--Responsibilities and Duties of Presiding Officer (Rule 8)

201.85  Commencement of functions of Department of Transportation Office 
          of Hearings.
201.86  Presiding officer.
201.87  Authority of presiding officer.
201.88  Postponement or change of place by presiding officer.
201.89  Disqualification of presiding officer.

                 Subpart I--Summary Disposition (Rule 9)

201.91  Filing of motions, answers.
201.92  Ruling on motion.
201.93  Review of ruling, appeal.

  Subpart J--Prehearing Conference; Settlements; Procedural Agreements 
                                (Rule 10)

201.101  Prehearing conference.
201.102  Prehearing rulings.
201.103  Opportunity for agreement of parties and settlement of case.

            Subpart  K--Discovery  and  Depositions (Rule 11)

201.109  Discovery and production of documents.
201.110  Depositions: request for orders to take; time of filing.
201.111  Contents of order.
201.112  Record of examination; oath; objections.
201.113  Submission to witness, changes, signing.

[[Page 8]]

201.114  Certification and filing by officer; copies.
201.115  Waiver of objections and admissibility.
201.116  Time of filing.
201.117  Inclusion in record.
201.118  Witness fees; expenses of taking depositions.

                     Subpart L--Subpoenas (Rule 12)

201.121  Application for subpoena ad testificandum.
201.122  Application for subpoena duces tecum.
201.123  Standards for issuance of subpoena duces tecum.
201.124  Service and quashing of subpoenas.
201.125  Attendance and mileage fees.
201.126  Service of subpoenas.
201.127  Subpoena of Administration employees, documents, or things.

                 Subpart M--Hearing Procedures (Rule 13)

201.131  Presentation of evidence.
201.132  Conduct of the hearing.
201.133  Appeal from ruling of presiding officer.
201.134  Separation of functions.

                      Subpart N--Evidence (Rule 14)

201.136  Evidence admissible.
201.137  Rights of parties as to presentation of evidence.
201.138  Unsponsored written material.
201.139  Documents containing matter both material and not material.
201.140  Records in other proceedings.
201.141  Stipulations.
201.142  Further evidence required by presiding officer during hearing.
201.143  Exceptions to rulings of presiding officer unnecessary.
201.144  Offer of proof.

 Subpart O--The Record: Contents; Development; Perfection; Confidential 
                           Treatment (Rule 15)

201.146  Receipt of documents after hearing.
201.147  Official transcript.
201.148  Corrections of transcript.
201.149  Copies of data or evidence.
201.150  Record for decision.
201.151  Objections to public disclosure of information.

 Subpart P--Briefs, Requests for Findings, Decisions, Exceptions (Rule 
                                   16)

201.155  Briefs; request for findings.
201.156  Requests for extension of time for filing briefs.
201.157  Reopening of a case by presiding officer prior to decision.
201.158  Decisions, authority to make and kinds.
201.159  Decisions, contents and service.
201.160  Decision based on official notice.
201.161  Exceptions to, and review by the Administration of initial or 
          recommended decisions.
201.162  Replies to exceptions.
201.163  Request for extension of time for filing exceptions and replies 
          thereto.
201.164  Certification of record by presiding officer.

    Subpart Q--Oral Argument; Submittal for Final Decision (Rule 17)

201.166  Oral argument.
201.167  Submission to Administration for final decision.

 Subpart R--Stay of Administration's Decision, Reopening of Proceedings 
                                (Rule 18)

201.171  Stay of Administration's decision.
201.172  Time for filing petition to reopen.
201.173  Reopening by Administration and modification or setting aside 
          of decision.
201.174  Petition for reopening.
201.175  Answers to petition to reopen.

         Subpart  S--Judicial  Standards  of  Practice (Rule 19)

201.181  General matters.
201.182  Improper pressures.
201.183  Ex parte communications.

                   Subpart T--Effective Date (Rule 20)

201.185  Effective date and applicability of rules.

    Authority: 46 App. U.S.C. 1114(b); 49 CFR 1.66 and 1.69.

    Source: General Order 41, 3d Rev., 29 FR 14475, Oct. 22, 1964; 29 FR 
15374, Nov. 17, 1964, unless otherwise noted.



                 Subpart A--General Information (Rule 1)



Sec. 201.1  Scope of rules.

    The regulations in this part govern practice and procedure before 
the Maritime Administration and Maritime Subsidy Board (as described in 
49 CFR 1.66 and 1.67), hereinafter referred to collectively as the 
``Administration,'' under the Merchant Marine Act, 1920, as amended, 
Merchant Marine Act, 1936, as amended, Merchant Ship Sales Act, 1946, 
Administrative Procedure Act, and related Acts. In addition, certain 
proceedings under sections 605(c)

[[Page 9]]

and 805(a) of the Merchant Marine Act, 1936, as amended, shall be 
conducted in accordance with part 203 of this chapter except as may be 
provided otherwise by the Administration.

[55 FR 12358, Apr. 3, 1990]



Sec. 201.2  Mailing address; hours.

    Documents required to be filed in, and correspondence relating to, 
proceedings governed by the regulations in this part should be addressed 
to ``Secretary, Maritime Administration, Department of Transportation, 
Washington, DC 20590.'' The Office of the Secretary, Maritime 
Administration, including the public document reading room, located in 
room 7210, 400 Seventh Street, SW., Washington, DC 20590, is open from 
8:30 a.m. to 5:00 p.m.

[55 FR 12358, Apr. 3, 1990, as amended at 63 FR 9157, Feb. 24, 1998]



Sec. 201.3  Authentication of rules, orders, determinations and decisions of the Administration.

    All rules, orders, determinations or decisions issued in any 
proceeding covered by the regulations in this part shall, unless 
otherwise specifically provided by the Administration, be signed and 
authenticated by seal by the Secretary of the Administration in the name 
of the Administration.



Secs. 201.4-201.5  [Reserved]



Sec. 201.6  Documents in foreign languages.

    Every document, exhibit, or other paper written in a language other 
than English and filed with the Administration or offered in evidence in 
any proceeding before the Administration under the regulations in this 
part or in response to any rule or order of the Administration pursuant 
to the regulations in this part, shall be filed or offered in the 
language in which it is written and shall be accompanied by an English 
translation thereof duly subscribed.



Sec. 201.7  Information; special instructions.

    Information as to procedure under the regulations in this part, and 
instructions supplementing the regulations in this part in special 
instances, will be furnished upon application to the Secretary of the 
Administration.



Sec. 201.8  Use of gender and number.

    Words importing the singular number may extend and be applied to 
several persons or things; words importing the plural number may include 
the singular; and words importing the masculine gender may be applied to 
females.



Sec. 201.9  Suspension, amendment, etc., of rules.

    The regulations in this part may, from time to time, be suspended, 
amended, or revoked, in whole or in part. Notice of any such action will 
be published in the Federal Register. Also, any regulation in this part 
may be waived by the Administration or the Presiding Officer to prevent 
undue hardship in any particular case.



  Subpart B--Appearance and Practice Before the Administration (Rule 2)



Sec. 201.15  Appearance in person or by representative.

    A party may appear in person or by an officer, partner, or regular 
employee of the party, or by or with counsel or other duly qualified 
representative, in any proceeding under the regulations in this part. A 
party may offer testimony, produce and examine witnesses, and be heard 
upon brief and at oral argument if oral argument is granted. Any person 
compelled to appear in a proceeding pursuant to subpoena may be 
accompanied, represented, and advised by counsel and may purchase a 
transcript of his testimony.



Sec. 201.16  Authority for representation.

    Any individual acting in a representative capacity in any proceeding 
before the Administration may be required by the Administration or the 
Presiding Officer to show his authority to act in such capacity.



Sec. 201.17  Written appearance.

    Persons who appear at any hearing shall deliver a written notation 
of appearance to the reporter, stating for whom the appearance is made. 
The

[[Page 10]]

written appearance shall be made a part of the record.



Sec. 201.18  Practice before the Administration defined.

    Practice before the Administration shall be deemed to comprehend all 
matters connected with any presentation to the Administration or its 
staff.



Sec. 201.19  Presiding officers.

    Hearings on any matter before the Administration will be held by a 
duly designated Member or Members thereof, or a Hearing Examiner 
qualified under section 11 of the Administrative Procedure Act, assigned 
by the Chief Hearing Examiner, who shall be designated as the Presiding 
Officers. Where appropriate the Administration may designate other 
members of the staff to serve as Presiding Officers in hearings not 
required by statute, as provided in Sec. 201.86.



Sec. 201.20  Attorneys at law.

    Attorneys at law who are admitted to practice before the Federal 
courts or before the courts of any State or territory of the United 
States may practice before the Administration. An attorney's own 
representation that he is such in good standing before any of the courts 
herein referred to will be sufficient proof thereof.



Sec. 201.21  [Reserved]



Sec. 201.22  Firms and corporations.

    Except as regards law firms, practice before the Administration by 
firms or corporations on behalf of others shall not be permitted.



Sec. 201.23  [Reserved]



Sec. 201.24  Suspension or disbarment.

    The Administration may, in its discretion, deny admission to, 
suspend, or disbar any person from practice before the Administration 
who it finds does not possess the requisite qualifications to represent 
others or is lacking in character, integrity, or to have engaged in 
unethical or improper professional conduct. Disrespectful, disorderly, 
or contumacious language or contemptuous conduct at any hearing before 
the Administration or a presiding officer shall constitute grounds for 
immediate exclusion from said hearing by the Presiding Officer. Any 
person who has been admitted to practice before the Administration may 
be disbarred from such practice only after he has been afforded an 
opportunity to be heard.



Sec. 201.25  Statement of interest.

    The Administration, in its discretion, may call upon any 
practitioner for a full statement of the nature and extent of his 
interest in the subject matter presented by him before the 
Administration. Attorneys retained on a contingent fee basis shall file 
with the Administration a copy of the contract of employment.

[General Order 41, 3d Rev., 29 FR 14475, Oct. 22, 1964; 29 FR 15374, 
Nov. 17, 1964, as amended at 60 FR 38735, July 28, 1995]



Sec. 201.26  Former employees.

    (a) No former officer or employee of the Administration, after his 
or her employment with the Administration has ceased, shall act as agent 
or attorney for anyone other than the United States in connection with 
any particular matter in which a specific party or parties are involved 
and in which the United States is a party or has a direct and 
substantial interest and in which the former officer or employee 
participated personally and substantially as an officer or employee of 
the Maritime Administration through decision, approval, disapproval, 
recommendation, the rendering of advice, investigation, or otherwise 
while so employed by the Maritime Administration.
    (b) No former officer or employee of the Administration shall 
practice, appear, or represent anyone, directly or indirectly, other 
than the United States, before the Administration in any matter for a 
period of 1 year subsequent to the termination of his or her employment 
with the Administration in connection with any proceeding, application, 
request for a ruling or other determination, contract, claim, 
controversy, or other particular matter involving a specific party or 
parties in which the United States is a party or directly and 
substantially interested and which was under his or her official

[[Page 11]]

responsibility as an officer or employee of the Administration at any 
time during the last year of his or her service.
    (c) Any person in doubt as to the applicability of paragraph (a) or 
(b) of this Sec. 201.26 to a particular case or to the postemployment 
activities of a former officer or employee of the Administration may 
address an application to the Administration for the Administration's 
consent to appear, stating his former connection with the Administration 
or predecessor agency, identifying the matter in which he or she desires 
to appear and describe in detail his or her participation in or 
responsibility for the particular matter and the specific party or 
parties involved and the extent, if any, in which the former officer or 
employee had participated while employed by the Administration. The 
applicant shall be promptly advised as to his or her privilege to appear 
in the particular matter. Separate consents to appear must be obtained 
in each particular matter.

[G.O. 41, 3d Rev., Amdt. 3, 36 FR 4377, Mar. 5, 1971]



                       Subpart C--Parties (Rule 3)



Sec. 201.30  Parties; how designated.

    The term party, whenever used in these Rules, shall include any 
natural person, corporation, association, firm, partnership, trustee, 
receiver, agency, public or private organization, or governmental 
agency. A party requesting official action subject to these Rules shall 
be designated as applicant. A party whose petition for leave to 
intervene is granted pursuant to Sec. 201.78 shall be designated as 
intervenor. Only a party as designated in this section may introduce 
evidence or examine witnesses at hearings.



Sec. 201.31  Public counsel.

    The Assistant General Counsel, Chief, Division of Operating Subsidy 
Contracts, shall be a party to all proceedings involving operating-
differential subsidy contracts. The Assistant General Counsel and his 
representatives shall be designated as Public Counsel and shall be 
served with copies of all papers, pleadings, and documents in such 
proceedings. In addition the General Counsel may designate any member of 
his staff to serve as Staff Counsel in contract appeal cases or any 
other proceeding governed by the regulations in this part. Public 
Counsel or Staff Counsel shall participate in any proceeding to which he 
is a party, to the extent he deems required in the public interest, 
subject to the separation of functions required by section 5(c) of the 
Administrative Procedure Act.



Sec. 201.32  Substitution of parties.

    Upon petition and for good cause shown, the Administration may order 
a substitution of parties; except that in case of death of a party 
substitution may be ordered upon suggestion and without the filing of a 
petition.



      Subpart D--Form, Execution and Service of Documents (Rule 4)



Sec. 201.41  Form and appearance of documents filed with the Administration.

    All papers to be filed under the regulations in this part may be 
reproduced by printing or by any other process, provided the copies are 
clear and legible; shall be dated, the original signed in ink, and shall 
show the docket description and title of the proceeding, and the title, 
if any, and address of the signatory. If typewritten, the impression 
shall be on only one side of the paper and shall be double spaced, 
except that quotations shall be single spaced and indented. Documents 
not printed, except correspondence and exhibits, should be on strong, 
durable paper and shall not be more than 8\1/2\ inches wide and 12 
inches long, with a left margin 1\1/2\ inches wide. Printed documents 
shall be printed in clear type (never smaller than pica or 11-point 
type) adequately leaded, and the paper shall be opaque and unglazed. 
Briefs, if printed, shall be printed on paper not less than 6\1/8\ 
inches wide and 9\1/4\ inches long, with inside margin not less than 1 
inch wide. All briefs over 15 pages shall contain a subject index with 
page references and a list of authorities cited.

[[Page 12]]



Sec. 201.42  Subscription, authentication of documents.

    (a) Documents filed shall be subscribed: (1) By the person or 
persons filing same, (2) by an officer thereof if it be a corporation, 
(3) by an officer or employee if it be a government instrumentality, or 
(4) by an attorney or other person having authority with respect 
thereto.
    (b) Documents submitted pursuant to stipulation of counsel where no 
sponsoring witness will be used must be verified.



Sec. 201.43  Service by parties.

    All documents, when tendered for filing should show that service has 
been made upon all parties to the proceeding. Such service shall be made 
by delivering one copy to each party in person or by mailing by first-
class mail properly addressed with postage prepaid. When a party has 
appeared by attorney or other representative, service upon such attorney 
or other representative will be deemed service upon the party. All 
documents served by mail preferably should be mailed in sufficient time 
to reach the parties on the date on which the original is due to be 
filed and should be air mailed if addressee is more than 300 miles 
distant.



Sec. 201.44  Date of service.

    The date of service of documents shall be the day when the matter 
served is deposited in the United States mail, shown by the postmark 
thereon, or is delivered in person, as the case may be.



Sec. 201.45  Certificate of service.

    The original of every document filed with the Administration and 
required to be served upon all parties to a proceeding shall be 
accompanied by a certificate of service signed by the party making 
service, stating that such service has been made upon each party to the 
proceeding. Certificates of service may be in substantially the 
following form:

    I hereby certify that I have this day served the foregoing document 
upon all parties of record in this proceeding by mailing, postage 
prepaid (or by delivering in person) a copy to each such party.
    Dated at ______ this ____ day of ______, 19__
(Signature)________________
  For________________



Sec. 201.46  Copies of documents for use of the Administration.

    Except as otherwise provided in the regulations in this part, an 
original and fifteen copies of every document shall be filed for use of 
the Administration, except written testimony and exhibits to be made a 
part of a record, which shall be filed in triplicate unless otherwise 
directed.



                        Subpart E--Time (Rule 5)



Sec. 201.51  Computation.

    In computing any period of time under these Rules, the time begins 
with the day following the act, event, or default, and includes the last 
day of the period, unless it is a Saturday, Sunday, or national legal 
holiday. When the period of time prescribed or allowed is less than 
seven (7) days, intermediate Saturdays, Sundays, and holidays shall be 
excluded from the computation.



Sec. 201.52  Additional time after service by mail.

    Whenever service of a document has been made by mail in accordance 
with Sec. 201.43 three (3) days shall be added to the prescribed period 
for answer.



Sec. 201.53  Extension of time to file documents.

    Applications for extension of time for the filing of any document 
shall set forth the reasons for the application and may be granted upon 
a showing of good cause on the part of applicant. Answers to such 
applications are permitted.



Sec. 201.54  Reduction of time to file documents.

    Except as prohibited by law, for good cause the Administration, or 
the Presiding Officer with respect to matters pending before him, may 
reduce any time limit prescribed in the regulations in this part.



Sec. 201.55  Postponement of hearing.

    Applications for postponement of any hearing date may be granted 
upon a showing of good cause on the part of

[[Page 13]]

the applicant. Answers to such applications are permitted.



                     Subpart F--Rule Making (Rule 6)



Sec. 201.61  Petition for issuance, amendment, or repeal of rule or regulation.

    Any interested person may file with the Administration a petition 
for the issuance, amendment, or repeal of a rule designed to implement, 
interpret, or prescribe law, policy, organization, procedure, or 
practice requirements of the Administration. The petition shall set 
forth the interest of petitioner and the nature of the relief desired, 
shall include any facts, views, arguments, and data deemed relevant by 
petitioner, and shall be subscribed to. If such petition is for the 
amendment or repeal of a rule, it shall be accompanied by proof of 
service on all persons, if any, specifically named in such rule, and 
shall conform in all other aspects to subpart D of this part. Answers to 
such petition shall conform to the requirements of subpart D of this 
part.



Sec. 201.62  Notice of proposed rule making.

    After receipt of petitions and any answers thereto described in 
Sec. 201.61, or upon its own initiative, the Administration may, in its 
discretion, direct that notice thereof be published in the Federal 
Register unless all persons subject thereto are named and either are 
personally served or otherwise have actual notice thereof in accordance 
with law. Except where publication of notice of proposed rule making and 
public hearing is required by statute, this section shall not apply to 
interpretative rules, general statements of policy, organization rules, 
rules of procedure, or practice of the Administration, or amendments 
thereto, or any situation in which the Administration for good cause 
finds that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.



Sec. 201.63  Participation in rule making.

    Interested persons will be afforded an opportunity to participate in 
rule making through submission of written data, views, or arguments, 
with or without opportunity to present the same orally in any manner: 
Provided, That where the proposed rules are such as are required by 
statute to be made on the record after opportunity for a hearing, or 
where a hearing is ordered by the Administration upon petition of any 
party or upon its own initiative, such hearing shall be conducted 
pursuant to sections 7 and 8 of the Administrative Procedure Act.



Sec. 201.64  Contents of rules.

    The Administration will incorporate in any rule to be adopted a 
concise general statement of their basis and purpose.



Sec. 201.65  Effective date of rules.

    The publication or service of any substantive rule shall be made not 
less than 30 days prior to its effective date except: (a) As otherwise 
provided by the Administration for good cause found and published in the 
Federal Register or (b) in the case of rules granting or recognizing 
exemption or relieving restriction, interpretative rules, and statements 
of policy.



   Subpart G--Formal Proceedings, Notice, Pleadings, Replies (Rule 7)



Sec. 201.71  Commencement of proceedings.

    Formal proceedings may be commenced with respect to any phase of an 
application for Government aid or other relief, the processing of which 
by statute requires a public hearing. The Administration may, in its 
discretion, also direct the holding of a hearing not required by statute 
for any purpose authorized in the statutes it administers.



Sec. 201.72  Notice.

    Notice of any matter which may result in or involves the institution 
of a formal proceeding will be given by publication in the Federal 
Register in sufficient detail and in sufficient time to apprise 
interested persons of the nature of the issues to be heard and to allow 
for an opportunity to file petitions for leave to intervene.

[[Page 14]]



Sec. 201.73  Joinder of proceedings.

    (a) Two or more matters which have been set for hearing by the 
Administration, and which involve similar issues, may be consolidated 
for the purpose of hearing. Such consolidation may, at the discretion of 
the Administration, or Presiding Officer after hearing has been ordered, 
be ordered upon petition of any party to said hearing or upon the 
initiative of the Administration.
    (b) A petition to consolidate shall be filed not later than the 
first prehearing conference in the proceeding with which consolidation 
is requested, and shall relate only to then pending applications. If 
made at such conference, the petition may be oral. A petition which is 
not timely filed shall be dismissed unless the petitioner shall clearly 
show good cause for the failure to file said petition on time. A 
petition which does not relate to an application pending at the time of 
or before a prehearing conference in a proceeding with which 
consolidation is requested, shall likewise be dismissed unless the 
petitioner shall clearly show good cause for a failure to file the 
application within the prescribed period.



Sec. 201.74  Declaratory orders.

    The Administration may issue a declaratory order to terminate a 
proceeding or to remove uncertainty. Petitions for the issuance thereof 
shall state clearly and concisely the nature of the controversy or 
uncertainty, shall cite the statutory authority involved, shall include 
a complete statement of the facts and grounds supporting the petition, 
together with a full disclosure of petitioner's interest.



Sec. 201.75  Petitions--general.

    All petitions shall be written and shall state the petitioner's 
grounds of interest in the subject matter, the facts relied upon, and 
the relief sought, and shall cite the authority upon which the petition 
rests. The petition shall be served upon all parties named therein or 
affected thereby. Answers to petitions may be filed.



Sec. 201.76  Applications for Government aid.

    Applications for operating-differential subsidies, charter of 
Government-owned vessels, and other types of Government aid shall 
conform to the requirements set forth in the various general orders and 
other regulations of the Administration specifically provided therefor.



Sec. 201.77  Amendments or supplements to pleadings.

    Amendments or supplements to any pleading will be allowed or refused 
in the discretion of the Administration if the case has not been 
assigned for hearing, otherwise in the discretion of the presiding 
officer designated to conduct the hearing; Provided, That after a 
prehearing conference has been held no amendment shall be allowed which 
would substantially broaden the issues, unless an opportunity is 
afforded all parties to answer such amended pleadings and to prepare for 
hearing upon the broadened issues. The presiding officer may direct a 
party to state its case more fully and in more detail by way of 
amendment. If a response to an amended pleading is necessary, it may be 
filed and served. Amendments or supplements allowed prior to hearing 
will be served in the same manner as the original pleading. Whenever by 
the regulations in this part a pleading is required to be subscribed, 
the amendment or supplement shall also be subscribed.



Sec. 201.78  Petition for leave to intervene.

    A petition for leave to intervene may be filed in any proceeding 
before the Administration. The petition will be granted by the presiding 
officer if the proposed intervenor establishes that it has a substantial 
interest in the proceeding and will not unduly broaden the issues 
therein or unduly delay the proceeding. All such petitions shall be 
filed prior to the opening of the prehearing conference, or if none is 
held, before the commencement of hearing, unless petitioner shows good 
cause for allowing the petition at a later time. Intervention petitions 
shall be served in the same manner as other petitions, and shall be 
subject to answer. Intervention petitions will be granted where 
necessary to protect substantial interests of the petitioner and where 
intervention will not materially broaden the issues. A person granted 
permission

[[Page 15]]

to intervene becomes a party to the proceeding.



Sec. 201.79  Motions.

    All motions and requests for rulings shall state the relief sought, 
the authority relied upon, and the facts alleged. If made before or 
after the hearing, such motions shall be in writing. If made at the 
hearing, they may be stated orally: Provided, however, That the 
presiding officer may require that such motion be reduced to writing and 
filed and served in the same manner as a formal motion. Answers to 
formal motions shall comply with the requirements of Sec. 201.80. 
Motions and answers thereto shall be addressed to the presiding officer 
if the case is pending before such officer. Oral argument upon a written 
motion in which an answer has been filed may be granted within the 
discretion of the Administration or the presiding officer, as the case 
may be. A repetitious motion will not be entertained.



Sec. 201.80  Answers to applications, petitions, or motions.

    A pleading filed in response to an application, petition, or motion 
is called an answer. An answer may be filed to any application, 
petition, motion or pleading which is required to be served on the 
answering party or noticed in the Federal Register. An answer to a 
written application, petition, or motion shall be in writing and shall 
be filed within ten days after service of the pleading which it answers. 
Any new matter raised in an answer shall be deemed to be controverted. A 
response to an answer is called a reply. A short reply restricted to 
such new matters may be filed within five days of service of the answer.



  Subpart H--Responsibilities and Duties of Presiding Officer (Rule 8)



Sec. 201.85  Commencement of functions of Department of Transportation Office of Hearings.

    In proceedings handled by the Department of Transportation Office of 
Hearings, its functions shall attach upon notice of the institution of a 
formal proceeding involving a prehearing conference and/or a hearing by 
the Administration.

[General Order 41, 3d Rev., 29 FR 14475, Oct. 22, 1964; 29 FR 15374, 
Nov. 17, 1964, as amended at 63 FR 9157, Feb. 24, 1998]



Sec. 201.86  Presiding officer.

    An Administrative Law Judge in the Department of Transportation 
Office of Hearings will be designated by the Department's Chief 
Administrative Law Judge to preside at hearings required by statute, or 
directed to be held under the Administration's discretionary authority 
in hearings not required by statute, in rotation so far as practicable, 
unless the Administration shall designate one or more of its officials 
to serve as presiding officer(s) in hearings required by statute, or 
member(s) of the staff in proceedings not required by statute.

[63 FR 9157, Feb. 24, 1998]



Sec. 201.87  Authority of presiding officer.

    The officer designated to hear a case shall have authority to 
arrange and issue notice of the date, time and place of hearings; under 
appropriate circumstances consolidate dockets for joint hearing; sign 
and issue subpoenas authorized by law; take or cause depositions to be 
taken; rule upon proposed amendments or supplements to pleadings; hold 
conferences for the settlement or simplification of matters embraced in 
the proceedings; regulate the course of the hearing; prescribe the order 
in which evidence shall be presented; dispose of procedural requests or 
similar matters; hear and initially rule upon all motions and petitions 
before him; administer oaths and affirmations; examine witnesses, direct 
witnesses to testify or produce available evidence and to submit 
reports, studies and analyses of data available to them which may be 
generally relevant and material to the determination of any questions of 
fact in issue; rule upon offers of proof and receive competent, 
relevant, material, reliable, and probative evidence; exclude 
irrelevant, immaterial, unreliable, repetitious or cumulative evidence; 
exclude cross-examination which is primarily intended to elicit self-
serving declarations in favor

[[Page 16]]

of the witness; and limit cross-examination of any questions of fact in 
issue; for a full and true disclosure of the facts in issue; act upon 
petitions to intervene; act upon submission of facts, or argument; 
initially consider offers of settlement or other proposals of adjustment 
upon which recommendations to the Administration may be made; hear oral 
argument at the close of testimony; fix the time for filing briefs, 
motions and other documents to be filed in connection with hearings and 
replies thereto; and issue the initial or recommended decisions and 
dispose of any other pertinent matter that normally and properly arises 
in the course of proceedings. When the presiding officer is unavailable 
for any reason, and the exercise of any of his powers and functions, as 
described herein, is due, timely, and necessary, the Chief 
Administrative Law Judge may exercise such powers and functions until 
the presiding officer becomes available or until his successor is 
designated.

[General Order 41, 3d Rev., 29 FR 14475, Oct. 22, 1964; 29 FR 15374, 
Nov. 17, 1964, as amended at 63 FR 9157, Feb. 24, 1998]



Sec. 201.88  Postponement or change of place by presiding officer.

    If, in the judgment of the presiding officer, convenience or 
necessity so requires he may postpone the time or change the place of 
hearing.



Sec. 201.89  Disqualification of presiding officer.

    Any presiding officer may at any time withdraw if he deems himself 
disqualified, in which case another presiding officer will be 
designated. If a party to a proceeding, or his representative, files in 
good faith a timely and sufficient affidavit of personal bias or 
disqualification of a presiding officer, the Administration will 
determine the matter as a part of the record and decision in the case.



                 Subpart I--Summary Disposition (Rule 9)



Sec. 201.91  Filing of motions, answers.

    Any party or (if a petition to intervene shall have been filed but 
not have been acted upon) any prospective party may at or before the 
first prehearing conference in any proceeding, or at such later time as 
might be allowed by the presiding officer, move with supporting 
affidavits for a summary disposition in his favor of all or any part of 
the proceeding. Any adverse party may within 20 days serve opposing 
affidavits or may countermove for summary disposition. Oral argument 
thereon may be granted in the discretion of the presiding officer.



Sec. 201.92  Ruling on motion.

    The presiding officer may grant such motion if the application, 
motion, or other pleadings, affidavits or depositions, if any, and 
matters of official notice show that there is no genuine issue as to any 
material facts, that there is no necessity that further facts be 
developed in the record, and that such party is entitled to a decision 
as a matter of law.



Sec. 201.93  Review of ruling, appeal.

    The order of the presiding officer denying a motion for summary 
disposition shall be subject to interlocutory appeal under the 
provisions of Sec. 201.123. An order granting a motion for summary 
disposition is automatically reviewable by the Administration in 
accordance with the provisions of Sec. 201.133 and shall not be final 
until acted upon by the Administration.



  Subpart J--Prehearing Conference; Settlements; Procedural Agreements 
                                (Rule 10)



Sec. 201.101  Prehearing conference.

    Prior to any hearing a prehearing conference may be held before the 
presiding officer. Written notice of a prehearing conference shall be 
transmitted by the Secretary of the Administration or the Chief Hearing 
Examiner to all parties of record including persons whose petitions for 
leave to intervene in the proceeding have not theretofore been granted, 
and where practicable, by general release to the public press.
    (a) At the prehearing conference the following matters, among 
others, shall be considered: (1) Petitions for leave to intervene; (2) 
motions for consolidation

[[Page 17]]

or severance of dockets for joint or separate hearing to the extent that 
the Administration has not theretofore taken specific action; (3) 
simplification and delineation of the issues to be heard; (4) 
designation of matters in respect of which official notice may be taken; 
(5) requests for discovery and production of evidence considered to be 
generally relevant and material to the issues in the proceeding; (6) 
stipulations; (7) limitation of number of witnesses, particularly the 
avoidance of duplicate expert witnesses; (8) procedure applicable to the 
proceeding; (9) offers of settlement, as hereinafter to be more 
particularly discussed in Sec. 201.103; and (10) scheduling of the dates 
for exchange of exhibits, written testimony both affirmative and 
rebuttal and establishing the date, time and place for hearing.
    (b) If deemed necessary or appropriate, the presiding officer may 
also, on his own motion, or on motion of Public Counsel direct any party 
to a proceeding to prepare and submit exhibits setting forth studies, 
forecasts, or estimates on matters relevant and material to the issues 
in the proceeding to be sponsored by witnesses available for cross-
examination thereon.



Sec. 201.102  Prehearing rulings.

    The presiding officer will, where practicable, issue prehearing 
rulings, acting on petitions for leave to intervene, delineating the 
issues, summarizing the rulings made at the conference, specifying a 
schedule for the exchange of exhibits and written testimony, the date, 
time and place of hearing and specifying a time for the filing of 
exceptions to the rulings. The prehearing rulings shall be served upon 
all parties to the proceeding and any persons who participated in the 
conference. Exceptions to the prehearing rulings may be filed by any 
such party or person within the time specified therein. The presiding 
officer may serve amended rulings in the light of the exceptions 
presented. Such rulings and amendments, if any, shall constitute the 
official account of the conference and shall control the subsequent 
course of the proceeding, but they may be reconsidered and modified at 
any time to protect the public interest or to prevent injustice.



Sec. 201.103  Opportunity for agreement of parties and settlement of case.

    Where time, the nature of the proceeding, and the public interest 
permit, all interested parties shall have the opportunity for submission 
to and consideration by the presiding officer of offers of settlement, 
or proposals of adjustment together with facts and/or arguments relevant 
to such offers or proposals without prejudice to the rights of the 
parties. The presiding officer need not be present at any negotiations 
of such nature. The presiding officer shall issue an initial or 
recommended decision thereon recommending approval or disapproval of 
such offer of settlement or proposal of adjustment to the Administration 
for final action thereon. No agreement, offer, or proposal shall be 
admissible in evidence over the objection of any party in any hearing on 
the matter. When any settlement does not dispose of the whole 
proceeding, the remaining issues shall be determined in accordance with 
sections 7 and 8 of the Administrative Procedure Act.



             Subpart K--Discovery and Depositions (Rule 11)



Sec. 201.109  Discovery and production of documents.

    Upon request of any party showing good cause therefor, at the 
prehearing conference or otherwise upon notice to all other parties, the 
Administration or presiding officer may direct any party to produce and 
permit the inspection and copying or photographing, by or on behalf of 
the moving party, of any designated documents, papers, books, accounts, 
letters, photographs, objects, or tangible things, not privileged which 
constitute or contain evidence relating to any matter, not privileged, 
which is relevant to the subject matter involved in the pending 
proceeding, and which are in his possession, custody or control. The 
order shall specify the time, place, and manner of making the inspection 
and taking the copies and photographs and may prescribe such terms and 
conditions as are just. In lieu of such inspections the material may be

[[Page 18]]

produced in exhibit form and served upon all parties to a formal 
proceeding. Such exhibits may also, upon request of any party, be 
offered in evidence at a hearing.



Sec. 201.110  Depositions: request for orders to take; time of filing.

    The Administration or presiding officer may, upon proper request of 
a party to a proceeding or under circumstances deemed proper, issue an 
order to take a deposition regarding any matter, not privileged, which 
is relevant to the subject matter involved in the proceedings. A motion 
to take a deposition shall be filed not less than fifteen (15) days 
before the proposed date for taking the deposition, unless a shorter 
period is fixed under Sec. 201.54, and shall set forth the reason for 
the deposition, the place and time of taking, the officer before whom it 
is to be taken, the name and address of each witness to be examined, if 
known, and, if the name is not known, a general description sufficient 
to identify him or the particular class or group to which he belongs, 
and whether the deposition is to be based upon written interrogatories 
or upon oral examination. If the deposition is to be based upon oral 
examination, the motion shall contain a statement of the matters 
concerning which each witness will testify. If the deposition is to be 
based on written interrogatories, the motion shall be accompanied by the 
interrogatories to be propounded, serially numbered. Copies of all 
motions to take depositions, and accompanying interrogatories, if any, 
shall conform to the requirements of subpart D of this part. Objection 
to the taking of such depositions may be made in an answer to such 
motion. Without prejudice to objection, the answer may also state 
objection to any individual interrogatory, and if the deposition is 
permitted, the presiding officer will rule upon such objections to 
interrogatories. A party served with an order to take a deposition on 
written interrogatories shall have ten (10) days after date of service 
of such order unless a shorter period is fixed under Sec. 201.54, within 
which to file and serve written cross interrogatories, which shall be 
served pursuant to subpart D of this part. Answers to applications for 
cross interrogatories may be filed in accordance with Sec. 201.80. Upon 
the issuance of an order by the Administration or the presiding officer 
for the taking of a deposition, the Docket Clerk shall mail a copy 
thereof to all parties, including the party who requested the 
deposition. An application to take a deposition in a foreign country 
will be entertained when necessary or convenient, and authority to take 
such deposition will be granted upon such notice and other terms and 
directions as are lawful and appropriate.



Sec. 201.111  Contents of order.

    The order issued authorizing the taking of a deposition will state 
the name and address of each witness or a general description sufficient 
to identify him or the particular class or group to which he belongs, 
the matters concerning which the witness may be questioned, the place 
where, the time when, and the officer before whom the deposition is to 
be taken, any or all of which may or may not be the same as set forth in 
the motion filed. If the deposition is to be taken upon written 
interrogatories, a list of the interrogatories will accompany the order.



Sec. 201.112  Record of examination; oath; objections.

    The officer before whom the deposition is to be taken shall put the 
witness under oath and shall personally, or by someone acting under his 
direction and in his presence, record the testimony of the witness. The 
testimony shall be taken stenographically, shall be translated to 
English, if necessary, and shall be transcribed unless the parties agree 
otherwise. All objections made at the time of the examination to the 
qualifications of the officer taking the deposition, or to the manner of 
taking it, or to the evidence presented, or to the conduct of any party, 
and any other objections to the proceedings, shall be noted by the 
officer upon the deposition. Any party served with a notice to take an 
oral deposition may cross-examine a witness whose testimony is taken 
under such deposition. In lieu of cross-examination, parties served with 
notice of taking a deposition may transmit written interrogatories or 
cross-interrogatories to the

[[Page 19]]

officer taking the deposition, who shall propound them to the witness 
and record the answers verbatim together with any objections interposed 
thereto by adverse parties.



Sec. 201.113  Submission to witness, changes, signing.

    When the testimony is fully transcribed the deposition of each 
witness shall be submitted to him for examination and shall be read to 
or by him. Any changes in form or substance which the witness desires to 
make shall be entered upon the deposition by the officer with a 
statement of the reasons given by the witness for making them. The 
deposition shall then be signed by the witness, unless the parties by 
stipulation waive the signing or the witness is ill or cannot be found 
or refuses to sign. If the deposition is not signed by the witness, the 
officer shall sign it and state on the record the fact of the waiver or 
of the illness or absence of the witness or the fact of the refusal to 
sign, together with the reason, if any, given therefor; and the 
deposition may then be used as fully as though signed, unless upon 
objection the presiding officer holds that the reasons given for the 
refusal to sign require rejection of the deposition in whole or in part.



Sec. 201.114  Certification and filing by officer; copies.

    The officer taking the deposition shall certify on the deposition 
that the witness was duly sworn by him and that the deposition is a true 
record of the testimony given by the witness, and that said officer is 
not of counsel or attorney to either of the parties and is not directly 
or indirectly interested in the outcome of the proceeding or 
investigation. He shall then securely seal the deposition in an envelope 
endorsed with the title of the proceeding and marked ``Deposition of 
(here insert name of witness)'', and shall promptly send the original 
and two copies thereof, together with the original and two copies of all 
exhibits, by registered mail to the Administration. Parties shall make 
their own arrangements with the officer taking the deposition for copies 
of the testimony and exhibits.



Sec. 201.115  Waiver of objections and admissibility.

    Objections to the form of question and answer shall be made before 
the officer taking the deposition by parties or representatives present, 
and if not so made, shall be deemed waived. Depositions shall, when 
offered at the hearing, be subject to proper legal objections.



Sec. 201.116  Time of filing.

    Any depositions to be offered in evidence shall be filed with the 
presiding officer not later than the close of the offering party's 
presentation.



Sec. 201.117  Inclusion in record.

    No deposition or part thereof shall constitute a part of the record 
in any proceeding until received in evidence.



Sec. 201.118  Witness fees; expenses of taking depositions.

    Witnesses whose depositions are taken pursuant to the regulations in 
this part, and the officer taking such deposition, shall severally be 
entitled to the same fees and mileage as are paid in the courts of the 
United States. All expenses of taking such depositions shall be paid by 
the party at whose instance the deposition is taken.



                     Subpart L--Subpoenas (Rule 12)



Sec. 201.121  Application for subpoena ad testificandum.

    An application for a subpoena requiring attendance of a witness at a 
hearing may be made without notice by any party to the presiding 
officer, or, in the event that a presiding officer has not been assigned 
to a proceeding or the presiding officer is not available, to the Chief 
Hearing Examiner, for action by him or by a member of the 
Administration. A subpoena for the attendance of a witness shall be 
issued on oral application at any time and shall be issued upon request 
of any interested party upon tender of an original and two copies of 
such subpoena. A record of the issuance of such a subpoena shall be 
entered in the docket.

[[Page 20]]



Sec. 201.122  Application for subpoena duces tecum.

    An application for a subpoena duces tecum for documentary or 
tangible evidence shall be in duplicate except that for good cause shown 
it may be made during the course of a hearing on the record to the 
presiding officer. Such application need not be served upon all parties. 
All such applications, whether written or oral, shall contain a 
statement or showing of general relevance and reasonable scope of the 
evidence sought and shall be accompanied by an original and two copies 
of the subpoena sought which shall describe the documentary or tangible 
evidence to be subpoenaed with as much particularity as is feasible.



Sec. 201.123  Standards for issuance of subpoena duces tecum.

    The officer considering any application for a subpoena duces tecum 
shall issue the subpoena requested if he is satisfied the application 
complies with this section and the request is not unreasonable, 
oppressive, excessive in scope or unduly burdensome. No attempt shall be 
made to determine the admissibility of evidence in passing upon an 
application for a subpoena duces tecum and no detailed or burdensome 
showing shall be required as a condition to the issuance of any 
subpoena.



Sec. 201.124  Service and quashing of subpoenas.

    Subpoenas issued under this section may be served upon the person to 
whom directed in accordance with subpart D of this part. Any person upon 
whom a subpoena is served may within seven (7) days after service or at 
any time prior to the return date thereof, whichever is earlier, file a 
motion to quash or modify the subpoena with the officer who issued the 
subpoena for action by him, and serve a copy of such motion to quash 
upon the party requesting the subpoena. If the person to whom the motion 
to modify or quash the subpoena has been addressed or directed has not 
acted upon such a motion by the return date, such date shall be stayed 
pending his final action thereon. The Administration may at any time 
review, upon its own initiative, the ruling of the officer denying a 
motion to quash a subpoena. In such cases, the Administration may at any 
time order that the return date of a subpoena which it has elected to 
review be stayed pending Administration action thereon.



Sec. 201.125  Attendance and mileage fees.

    Persons attending hearings under requirement of subpoenas are 
entitled to the same fees and mileage as in the courts of the United 
States, to be paid by the party at whose instance the persons are 
called.



Sec. 201.126  Service of subpoenas.

    If service of subpoena is made by a United States marshal or his 
deputy, such service shall be evidenced by his return thereon. If made 
by any other person, such person shall make affidavit thereto, 
describing the manner in which service is made, and return such 
affidavit on or with the original subpoena. In case of failure to make 
service, the reasons for the failure shall be stated on the original 
subpoena. In making service the original subpoena shall be exhibited to 
the person served, shall be read to him if he is unable to read, and a 
copy thereof shall be left with him. The original subpoena, bearing or 
accompanied by required return, affidavit, or statement, shall be 
returned without delay to the Administration, or if so directed on the 
subpoena, to the presiding officer before whom the person named in the 
subpoena is required to appear.



Sec. 201.127  Subpoena of Administration employees, documents, or things.

    No subpoena for the attendance of an Administration officer or 
employee, or for the production of Administration documents or things 
shall be complied with except upon written authorization of the General 
Counsel upon written application by the party requesting the subpoena.



                 Subpart M--Hearing Procedures  (Rule 13)



Sec. 201.131  Presentation of evidence.

    (a) Testimony. Where appropriate, the Presiding officer may direct 
that the testimony of witnesses be prepared in

[[Page 21]]

written exhibit form and shall be served at designated dates in advance 
of the hearing. Evidence as to events occurring after the exhibit-
exchange dates shall be presented by a revision of exhibits. Witnesses 
sponsoring exhibits shall be made available for cross-examination. 
However, unless authorized by the presiding officer, witnesses will not 
be permitted to read prepared testimony into the record. The evidentiary 
record shall be limited to factual and expert opinion testimony. 
Argument will not be received in evidence but rather should be presented 
in opening and/or closing statements of counsel and in briefs to the 
presiding officer subsequently filed.
    (b) Exhibits. All exhibits and responses to requests for evidence 
shall be numbered consecutively by the party submitting same and 
appropriately indexed as to number and title and shall be exchanged on 
dates prior to the hearing prescribed in the prehearing rulings. Written 
testimony should be identified alphabetically. Two copies shall be sent 
to each party and two to the presiding officer. No response to a request 
for evidence will be received into the record unless offered and 
received as an exhibit at the hearing. The exhibits, other than the 
written testimony, shall include appropriate footnotes or narrative 
material explaining the source of the information used and the methods 
employed in statistical compilations and estimates and shall contain a 
short commentary explaining the conclusions which the offeror draws from 
the data. Rebuttal exhibits should refer specifically to the exhibits 
being rebutted. Where one part of a multipage exhibit is based upon 
another part, appropriate cross-reference should be made. The principal 
title of each exhibit should state precisely what it contains and may 
also contain a statement of the purpose for which the exhibit is 
offered. However, such explanatory statement, if phrased in an 
argumentative fashion, will not be considered as a part of the 
evidentiary record. Additional exhibits pertinent to the issues may be 
submitted in a proceeding with the approval of the presiding officer.
    (c) Cooperation on basic data. Parties having like interests are 
specifically encouraged to cooperate with each other in joint 
presentations particularly in such items as basic passenger, cargo, and 
scheduling data compiled from official or semiofficial sources, and any 
other evidence susceptible to joint presentation. Duplicate presentation 
of the same evidence should be avoided wherever possible.
    (d) Authenticity. The authenticity of all documents submitted as 
proposed exhibits in advance of the hearing shall be deemed admitted 
unless written objection thereto is filed prior to the hearing, except 
that a party will be permitted to challenge such authenticity at a later 
time upon a clear showing of good cause for failure to have filed such 
written objection.
    (e) Statement of position and trial briefs. A written statement of 
position should be exchanged by all counsel with copies to all other 
parties prior to the beginning of the hearing: Provided, however, That 
Public Counsel or counsel for a public body which has intervened as its 
interests may appear, may offer his statement of position at the 
conclusion of the evidentiary hearing, unless such is impracticable. 
This statement should include a showing of the theory of the case of the 
party submitting the statement and will not be subject to cross-
examination. Trial briefs are acceptable but will not be required.



Sec. 201.132  Conduct of the hearing.

    (a) Order of presentation. Normally the order of presentation at the 
hearing will be alphabetical in each of the following categories:
    (1) MarAd statistical material.
    (2) Shipper interests, United States and foreign government 
departments.
    (3) Applicants.
    (4) Intervenors.
    (5) Public counsel.

Normally, rebuttal should be presented without any adjournment in the 
proceedings.
    (b) Burden of proof. The burden of proof shall be (1) upon an 
applicant for any form of government aid or grant; and (2) upon a 
proponent for the issuance of any rule or order within the jurisdiction 
of the Administration. The burden of going forward with rebuttal

[[Page 22]]

evidence in proceedings involving matters under paragraphs (b) (1) and 
(2) of this section shall fall upon opposing intervenors. Whenever an 
intervenor is permitted by the presiding officer to raise or advance a 
new issue in the proceeding, the burden of proof as to such issue shall 
fall upon such intervenor. If the burden of proof is met as to such new 
issue, the other parties shall have the burden of going forward with 
rebuttal evidence in such regard.
    (c) Requirement for submission of corrected copies of exhibits. Each 
party shall present three fully corrected copies of its exhibits to be 
offered in evidence, one for the docket and two for the presiding 
officer.
    (d) Offer of exhibits in evidence. The exhibits and written 
testimony sponsored by each witness shall be offered in evidence at the 
close of his direct examination to the extent practicable. After ruling 
upon motions to strike they shall be received in evidence subject to 
cross-examination. The presiding officer, in his discretion, may defer 
such ruling until after completion of cross-examination.
    (e)(1) Cross-examination. Cross-examination shall be limited to the 
scope of the direct examination and, except for Public Counsel and 
counsel for public bodies which have intervened as their interests may 
appear, to witnesses whose testimony is adverse to the party desiring to 
cross-examine--this being intended specifically to prohibit so-called 
``friendly cross-examination''. Cross-examination, which is not 
necessary to test the truth and completeness of the direct testimony and 
exhibits, will not be permitted.
    (2) Re-cross-examination. Second rounds of cross-examination 
normally will not be permitted unless it is necessary to cover new 
matters raised by a subsequent examination. Cross-examination of any 
particular witness shall be limited to one attorney for each party and 
shall not include subjects which are not germane to the interest 
represented by the cross-examiner.
    (f) Oral motions. Oral presentation on any motion or objection shall 
be limited to the party or parties making the motion or objection and 
the party or parties against which the motion or objection is directed 
and Public Counsel. Such presentation shall also be limited to one 
attorney for each party.
    (g) Official notice; public document items. Whenever there is 
offered (in whole or in part) a public document, such as an official 
report, decision, opinion, or published scientific or economic 
statistical data issued by any of the executive departments (or their 
subdivisions), legislative agencies or committees, or administrative 
agencies of the Federal Government (including Government-owned 
corporations), or a similar document issued by a State or its agencies, 
and such document (or part thereof) has been shown by the offerer to be 
reasonably available to the public, such document need not be produced 
or marked for identification, but may be offered for official notice as 
a public document item by specifying the document or relevant part 
thereof.
    (h) Oral argument at hearings. A request for oral argument at the 
close of testimony will be granted or denied by the presiding officer in 
his discretion.



Sec. 201.133  Appeal from ruling of presiding officer.

    Rulings of presiding officers may not be appealed prior to, or 
during the course of, the hearing except where the presiding officer has 
granted a Motion for Summary Disposition under subpart I of this part, 
or in extraordinary circumstances where prompt decision by the 
Administration is necessary to prevent unusual delay, expense, or 
detriment to the public interest, in which instances the matter shall be 
referred forthwith by the presiding officer to the Administration. Any 
such appeal shall be filed within fifteen (15) days from the date of the 
ruling by the presiding officer.



Sec. 201.134  Separation of functions.

    The separation of functions as required by section 5(c) of the 
Administrative Procedure Act shall be observed in adversary proceedings 
involving controverted factual issues arising under the regulations in 
this part.

[[Page 23]]



                      Subpart N--Evidence (Rule 14)



Sec. 201.136  Evidence admissible.

    In any proceeding under the regulations in this part all evidence 
which is relevant, material, reliable and probative, and not unduly 
repetitious or cumulative shall be admissible. Irrelevant and immaterial 
or unduly repetitious or cumulative evidence shall be excluded.



Sec. 201.137  Rights of parties as to presentation of evidence.

    Every party shall have the right to present his case or defense by 
oral or documentary evidence, to submit rebuttal evidence, and to 
conduct such cross-examination as may be required for a full and true 
disclosure of the facts.



Sec. 201.138  Unsponsored written material.

    (a) Material that may be deemed evidence. Where a formal hearing is 
held, a party shall be afforded an opportunity to participate through 
submission of relevant, material, reliable and probative written 
evidence including official notice matters covered in Sec. 201.132(g): 
Provided, That such evidence submitted by persons not present at the 
hearing will not be made a part of the record if opposed to by any party 
for good cause shown.
    (b) Material that may not be deemed evidence. Letters expressing 
views or urging action and other unsponsored written material in respect 
of matters embraced in, or related to, a formal hearing will be placed 
in the correspondence section of the docket of the proceeding. These 
data are not to be deemed part of the evidence or part of the record in 
the material unless sponsored at the public hearing by an authenticating 
and supporting witness.



Sec. 201.139  Documents containing matter both material and not material.

    Where written matter offered in evidence is embraced in a document 
containing other matter which is not intended to be offered in evidence, 
the party offering shall present the original document to all parties at 
the hearing for their inspection, and shall offer a true copy of the 
matter which is to be introduced unless the presiding officer determines 
that the matter is short enough to be read into the record. Opposing 
parties shall be afforded an opportunity to introduce in evidence, or by 
stipulations other portions of the original document which are material 
and relevant.



Sec. 201.140  Records in other proceedings.

    When any portion of the record before the Administration in any 
proceeding other than the one being heard is offered in evidence, a true 
copy of such portion shall be presented for the record in the form of an 
exhibit unless the parties represented at the hearing stipulate upon the 
record that such portion may be incorporated by reference.



Sec. 201.141  Stipulations.

    The parties may, by stipulation in writing filed at the prehearing 
conference, or by written or oral stipulation presented at the hearing 
or by written stipulation subsequent to the hearing, agree upon any 
facts involved in the proceeding and include them in the record with the 
consent of the presiding officer. Proposed written stipulations shall be 
subscribed by the sponsors and served upon all parties of record. Only 
upon acceptance by all parties to the proceeding may a stipulation be 
noted for the record or received as evidence.



Sec. 201.142  Further evidence required by presiding officer during hearing.

    At any time during the hearing the presiding officer may call for 
the production of further relevant and material evidence, reports, 
studies, and analyses upon any issue, and require such evidence, where 
available, to be presented by the party or parties concerned, either at 
the hearing or adjournment thereof in accordance with Sec. 201.132(b). 
Such material shall be received subject to appropriate motions, cross-
examination and/or rebuttal. If a witness refuses to testify or produce 
the evidence as requested, the presiding officer shall report such 
refusal to the Administration forthwith.

[[Page 24]]



Sec. 201.143  Exceptions to rulings of presiding officer unnecessary.

    Formal exceptions to rulings of the presiding officer are 
unnecessary. It is sufficient that a party, at the time the ruling of 
the presiding officer is made or sought, makes known the action which he 
desires the presiding officer to take or his objection to an action 
taken, and his grounds therefor.



Sec. 201.144  Offer of proof.

    An offer of proof made in connection with an objection taken to any 
ruling of the presiding officer rejecting or excluding proffered oral 
testimony shall consist of a statement of the substance of the evidence 
which counsel contends would be adduced by such testimony; and, if the 
excluded evidence consists of evidence in documentary or written form or 
of reference to documents or records, a copy of such evidence shall be 
marked for identification and shall accompany the record as the offer of 
proof.



 Subpart O--The Record: Contents; Development; Perfection; Confidential 
                           Treatment (Rule 15)



Sec. 201.146  Receipt of documents after hearing.

    Documents to be submitted for the record after the close of the 
hearing will not be received in evidence except upon ruling of the 
presiding officer. Such documents when submitted shall be accompanied by 
proof that copies have been served upon all parties, who shall have an 
opportunity to comment thereon; and shall be received not later than ten 
(10) days after the close of the hearing except for good cause shown, 
and not less than ten (10) days prior to the date set for filing briefs. 
Exhibit numbers should be assigned by counsel or the party. In computing 
the time within which to file such documents or other writings the five 
(5) additional days provided in Sec. 201.54 shall not apply. Documents 
which are submitted but do not comply with the provisions of this rule 
will be filed in the correspondence section of the docket.



Sec. 201.147  Official transcript.

    The Administration will designate the official reporter for all 
hearings. The official transcript of testimony taken, together with any 
exhibits and any briefs or memoranda of law filed therewith shall be 
filed with the Administration. Transcripts of testimony will be 
available in any proceeding under the regulations in this section, and 
will be supplied by the official reporter to the parties and to the 
public except when required for good cause to be held confidential, at 
rates not to exceed the maximum rates fixed by the contract between the 
Administration and the reporter.



Sec. 201.148  Corrections of transcript.

    Motions made at the hearing to correct the record will be acted upon 
by the presiding officer. Motions made after the hearing to correct the 
record as to matters of substance rather than form, shall be filed with 
the presiding officer within ten (10) days after receipt of the 
transcript, unless otherwise directed by the presiding officer, and 
shall be served on all parties. Such motions may be in the form of a 
letter and shall certify the date when the transcript was received. If 
no objections are received within ten (10) days after date of service, 
the transcript will, upon approval of the presiding officer, be changed 
to reflect such corrections. If objections are received, the motion will 
be acted upon with due consideration of the stenographic record of the 
hearing.



Sec. 201.149  Copies of data or evidence.

    Every person compelled to submit data or evidence shall be entitled 
to retain or procure a copy of transcript thereof on payment of proper 
costs.



Sec. 201.150  Record for decision.

    The transcript of testimony and exhibits, together with all papers 
and requests (except the correspondence section of the docket), 
including rulings and any recommended or initial decisions filed in the 
proceeding shall constitute the exclusive record for decision. Final 
decisions will be predicated on the same record, including the initial 
decision of the presiding officer.

[[Page 25]]



Sec. 201.151  Objections to public disclosure of information.

    Upon objection to public disclosure of any information sought to be 
elicited during a hearing, and a showing of cause satisfactory to the 
presiding officer, the witness shall disclose such information only in 
the presence of the presiding officer, official reporter and such 
attorneys or representatives of each party with demonstrated interests, 
as the presiding officer shall determine and after all present have been 
sworn to secrecy. The transcript of testimony shall be held 
confidential. Within five (5) days after such testimony is given, or 
document received, the objecting party shall file with the presiding 
officer a verified written motion to withhold such information from 
public disclosure, setting forth sufficient identification of same and 
the basis upon which public disclosure should not be made. Copies of 
said transcript and motion need not be served upon any other parties 
than those sworn to secrecy unless so ordered by the presiding officer.



 Subpart P--Briefs, Requests for Findings, Decisions, Exceptions (Rule 
                                   16)



Sec. 201.155  Briefs; request for findings.

    The time for filing briefs to the presiding officer, and extensions 
thereof, shall be fixed by him. The period of time allowed shall be the 
same for all parties unless the presiding officer, for good cause shown, 
directs otherwise. Normally there shall be an opening brief by the 
moving parties, an answering brief by the proponents of a contrary 
conclusion and a short reply by the moving parties. Briefs and 
statements of position as authorized, shall be served upon all parties 
pursuant to subpart D of this part. Briefs shall include a summary of 
evidence, together with references to exhibit numbers and pages of the 
transcript, and memoranda of law with appropriate citations of the 
authorities relied upon. They shall contain proposed findings of fact 
and conclusions in serially numbered paragraphs.



Sec. 201.156  Requests for extension of time for filing briefs.

    Requests for extension of time within which to file briefs shall 
conform to the requirements of Sec. 201.53. Except for good cause shown, 
such requests shall be filed and served not later than five (5) days 
before the expiration of the time fixed for the filing of briefs.



Sec. 201.157  Reopening of a case by presiding officer prior to decision.

    At any time prior to the filing of his initial or recommended 
decision, the presiding officer, either upon petition or upon his own 
initiative may, for good cause shown and upon reasonable notice, reopen 
the case for the receipt of further evidence.



Sec. 201.158  Decisions, authority to make and kinds.

    To the presiding officer is delegated the authority to render 
initial or recommended decisions in all proceedings before him, 
including motions, petitions and other pleadings. Tentative or final 
decisions will be rendered by the Administration. The same officers who 
preside at the reception of evidence pursuant to section 7 of the 
Administrative Procedure Act shall render the initial or recommended 
decisions except where such officers become unavailable to the 
Administration, in which case another Presiding Officer will be 
designated to make such decision or certify the record to the 
Administration. Where the Administration requires the entire record in 
the case to be certified to it for initial decision, the Presiding 
Officer shall first recommend a decision, except that in rule making:
    (a) In lieu thereof the Administration may issue a tentative 
decision or any of its responsible officers may recommend a decision or 
(b) any such procedure may be omitted in any case in which the 
Administration finds upon the record that due and timely execution of 
its functions in the public interest imperatively and unavoidably so 
requires.



Sec. 201.159  Decisions; contents and service.

    All initial, recommended, tentative, and final decisions, whether 
rendered

[[Page 26]]

orally or in writing shall include a statement of findings and 
conclusions, as well as the reasons or bases therefor, upon the material 
issues presented, as well as a statement of the appropriate rule, order, 
sanction, relief to be imposed, or the denial thereof. A copy of each 
decision when issued or when transcribed if orally rendered (and all 
orally presented decisions shall be stenographically recorded) shall be 
served on the parties to the proceeding, and furnished to interested 
persons upon request.



Sec. 201.160  Decision based on official notice.

    Official notice may be taken of such matters as might be judicially 
noticed by the courts, or of technical or scientific facts within the 
general or specialized knowledge of the Administration as an expert body 
or of a document required to be filed with or published by a duly 
constituted governmental body: Provided, That where a decision or part 
thereof rests on the official notice of a material fact not appearing in 
the evidence of the record, the fact of official notice shall be so 
stated in the decision, and any party, on timely request, shall be 
afforded an opportunity to show the contrary.



Sec. 201.161  Exceptions to, and review by the Administration of initial or recommended decisions.

    Within twenty (20) days after the service date of the initial or 
recommended decision, whether oral or in writing, unless a shorter 
period is fixed under Sec. 201.54, any party may file exceptions to any 
conclusions, findings, or statements contained in such decision, and a 
brief in support of such exceptions. Such exceptions and brief shall 
constitute one document, shall indicate with particularity alleged 
errors, shall indicate pages of transcript and exhibit numbers when 
referring to the record, and shall be served on all parties pursuant to 
subpart D of this part. Whenever the presiding officer renders an 
initial decision, in the absence of the filing of exceptions thereto, or 
notice of review thereof by the Administration, such decision, shall 
upon the issuance of an appropriate order by the Administration, become 
the decision of the Administration. Upon the filing of exceptions to, or 
notice of review of, an initial or recommended decision, such decision 
shall become inoperative until the Administration determines the matter. 
Where exceptions are filed to, or the Administration reviews, an initial 
or recommended decision, the Administration, except as it may limit the 
issues upon notice or by rule, will have all the powers which it would 
have in making the initial decision. Whenever the Administration shall 
determine to review an initial or recommended decision on its own 
initiative, notice of such intention shall be served upon the parties 
within thirty (30) days after the date when the initial or recommended 
decision is orally rendered and, if in writing, served.



Sec. 201.162  Replies to exceptions.

    Any party may file and serve a reply to exceptions within twenty 
(20) days after date of service thereof, unless a shorter period is 
fixed pursuant to Sec. 201.54. Such reply shall indicate pages of the 
transcript and exhibit numbers when referring to the record.



Sec. 201.163  Request for extension of time for filing exceptions and replies thereto.

    Requests for extension of time within which to file exceptions, and 
briefs in support thereof, or replies to exceptions shall conform to the 
applicable provisions of subpart E of this part. Except for good cause 
shown, such requests shall be filed and served not later than five (5) 
days before the expiration of the time fixed for the filing of such 
documents.



Sec. 201.164  Certification of record by presiding officer.

    The presiding officer shall certify and transmit the entire record 
to the Administration when: (a) Exceptions are filed or the time 
therefor has expired, (b) notice is given by the Administration that the 
initial or recommended decision will be reviewed on its own initiative, 
or (c) the Administration requires the case to be certified to it for 
initial decision.

[[Page 27]]



    Subpart Q--Oral Argument; Submittal for Final Decision (Rule 17)



Sec. 201.166  Oral argument.

    If oral argument before the Administration is desired on exceptions 
or replies to exceptions to an initial, recommended, or tentative 
decision, or on a motion, petition, or application, a request therefor 
shall be made in writing properly addressed to the Administration. Any 
party may make such request irrespective of his filing exceptions or 
replies. If a brief on exceptions or replies thereto are filed, the 
request for oral argument shall be incorporated therein. Requests for 
oral argument on any motion, petition, or application shall be made in 
the motion, petition, or application or in the reply thereto. Requests 
for oral argument will be granted or denied in the discretion of the 
Administration, and, if granted, the notice of oral argument will set 
forth the order of presentation and the amount of time to be allotted. 
Those who appear before the Administration for oral argument should 
confine their argument to points of controlling importance and shall 
limit their argument to points upon which exceptions have been filed. 
Where the facts of a case are adequately and accurately dealt with in 
the initial, recommended, or tentative decision, parties should, as far 
as possible, address themselves in argument to the conclusions. Effort 
should be made by parties taking the same position to agree in advance 
of the argument upon those who are to present their side of the case. 
The names of persons who will argue and the amount of time requested by 
each should be received by the Administration not later than ten (10) 
days before the date set for the argument. Ordinarily, consolidation of 
appearances at oral argument will permit the parties' interests to be 
presented more effectively in the time allotted.



Sec. 201.167  Submission to Administration for final decision.

    A proceeding will be deemed submitted to the Administration for its 
determination as follows: (a) If oral argument is had, on the date of 
completion thereof, or if memoranda on points of law are permitted to be 
filed after argument, the last date of such filing; (b) if oral argument 
is not had, the last date when exceptions or replies thereto are filed, 
or if exceptions are not filed, the expiration date for such exceptions 
or the date when all parties have stated that no exceptions will be 
filed; (c) in the case of an initial decision, the date of notice of the 
Administration to review the decision, if such notice is given.



 Subpart R--Stay of Administration's Decision, Reopening of Proceedings 
                                (Rule 18)



Sec. 201.171  Stay of Administration's decision.

    The Administration's decision or order shall be stayed pending 
resolution by the Administration of a petition for reopening, duly 
filed, and for so long as such Administration's action has not been 
finally disposed of in accordance with the provisions of section 7 of 
Department of Commerce Order 117 (Revised).



Sec. 201.172  Time for filing petition to reopen.

    Except for good cause shown, and upon leave granted, petition to 
reopen under Sec. 201.174, shall be filed with the Administration within 
twenty (20) days after the date of service of the Administration's 
decision or order in the proceeding, unless a different period is fixed 
under Sec. 201.54.



Sec. 201.173  Reopening by Administration and modification or setting aside of decision.

    Upon petition and a showing of compelling cause, filed in accordance 
with Sec. 201.174, or on its own motion, the Administration may at any 
time reopen any proceeding under the regulation in this part for 
rehearing, reargument, or reconsideration in whole or in part. After 
reasonable notice and opportunity for hearing or such other procedure as 
the Administration may direct, the Administration may alter, modify or 
set aside in whole or in part its decision therein if it finds such 
action is required by changed conditions in fact or law or by the public 
interest.

[[Page 28]]



Sec. 201.174  Petition for reopening.

    A petition for reopening for the purpose of rehearing, reargument, 
or reconsideration, shall be made in writing, shall state the grounds 
relied upon, and conform to the requirements of subpart D of this part. 
If the petition is for the purpose of rehearing, said petition shall 
state the nature and purpose of the new evidence to be adduced and that 
such evidence was not available at the time of the prior hearing. If the 
petition be for reargument or reconsideration, the matter claimed to 
have been erroneously decided shall be specified and the alleged errors 
briefly stated. In case of exceptional circumstances, satisfactorily 
shown by the petitioner, a request for modification of rules or orders 
may be made by telegram or otherwise, upon notice to all parties or 
attorneys of record, but such request shall be followed by a petition 
filed and served in accordance with subpart D of this part.



Sec. 201.175  Answers to petition to reopen.

    Answers to petitions to reopen shall conform to the requirements of 
subpart D of this part.



           Subpart S--Judicial Standards of Practice (Rule 19)



Sec. 201.181  General matters.

    (a) In general, the functions of the Administration involve hearing 
procedures comparable to those of a court and accordingly parties to 
proceedings before the Administration and persons representing these 
parties are expected to conduct themselves with honor and dignity. For 
the same reasons, the members of the Administration and those of its 
employees who participate with the Administration in the determination 
of formal proceedings are expected to conduct themselves with the same 
fidelity to standards of propriety that characterizes a court and its 
staff. The standing and the effectiveness of the Administration are in 
direct relation to the observance by it, its staff and the parties and 
attorneys appearing before it of the highest of judicial and 
professional ethics.
    (b) It is essential in cases to be determined after notice and 
hearing and upon a record, or in any other cases which the 
Administration by order may designate, that the judicial character of 
the Administration be recognized and protected. As a consequence, from 
the time of the filing of an application or a petition which can be 
granted by the Administration only after notice and opportunity for 
hearing, or in the case of other matters from the time of notice by the 
Administration that such matters shall be determined after notice and 
opportunity for hearing, no ex parte communications, as hereinafter 
defined, are to constitute or be considered part of the record on which 
the final decision is to be predicated.



Sec. 201.182  Improper pressures.

    It is determined to be improper that there be any effort by any 
person interested in a case before the Administration to attempt to sway 
the judgment of the Administration by undertaking to bring pressure or 
influence to bear upon the Administration, its staff, or the presiding 
officer assigned to the proceeding. It is further determined to be 
improper that such interested persons or any member of the 
Administration's staff or the presiding officer directly or indirectly 
give statements to the press or radio, by paid advertisements or 
otherwise, designed to influence the Administration's judgment in the 
matter. In addition, it is further determined to be improper that any 
person solicit communications to the Administration or any of its 
members, its staff or the presiding officer in the case other than by 
counsel of record who shall serve copies thereof on all other parties to 
the proceeding.



Sec. 201.183  Ex parte communications.

    (a) Requests for expeditious treatment of matters pending with the 
Administration are deemed communications on the merits and as such are 
improper except when forwarded from parties to a proceeding and served 
upon all other parties thereto. Such communications from parties to a 
proceeding should be in the form of a motion and are to be dealt with as 
such by the Administration, the presiding officer, and

[[Page 29]]

the parties to the proceeding. Any such request which is not made as a 
motion shall be placed in the public correspondence file and will not be 
considered by the Administration or any of its staff members or the 
presiding officer in connection with the disposition of the case.
    (b) Written or oral communications involving any substantive or 
procedural issue in a matter subject to public hearing directed to a 
Member of the Administration, its staff, or the presiding officer in the 
case, from any individual in private or public life shall be deemed a 
private communication in respect of the merits of the case. These 
communications, unless otherwise provided for by law or a published rule 
of the Administration are deemed ex parte communications and are not to 
be considered part of any record or the basis for any official action by 
the Administration, members of its staff or the presiding officer: 
Provided, however, That this prohibition shall not be determined to 
apply to informal petitions or applications filed with the 
Administration; the usual informal communications between counsel 
including discussions directed toward the development of a stipulation 
or settlement between parties; communications of a nature deemed proper 
in proceedings in U.S. Federal courts; and communications which merely 
inquire as to the status of a proceeding without discussing issues or 
expressing points of view. Any prohibited communications in writing 
received by a Member of the Administration, its staff or the presiding 
officer shall be made public by placing it in the correspondence file of 
the docket which is available for public inspection and will not be 
considered by the Administration or the presiding officer as part of the 
record for decision. If the ex parte communication is received orally, a 
memorandum setting forth the substance of the conversation shall be made 
and filed in the correspondence section of the appropriate public 
docket.



                   Subpart T--Effective Date (Rule 20)



Sec. 201.185  Effective date and applicability of rules.

    The regulations in this part shall become effective October 23, 
1964, and shall apply only to cases which are designated for hearing on 
or after October 23, 1964: Provided, however, That the regulations in 
this part shall be applicable to cases designated for hearing prior to 
October 23, 1964, if consolidated with a case designated for hearing on 
or after that date. All other cases designated for hearing prior to 
October 23, 1964, shall be governed by the rules in effect immediately 
prior to such date.



PART 202--PROCEDURES RELATING TO REVIEW BY SECRETARY OF TRANSPORTATION OF ACTIONS BY MARITIME SUBSIDY BOARD--Table of Contents




Sec.
202.1  Purpose.
202.2  Time and place for filings.
202.3  Form of petitions, requests and replies.
202.4  Petitions and requests for review--content.
202.5  Replies and requests that review not be exercised--content.
202.6  Grant or denial of review.
202.7  Supplemental briefs.
202.8  Oral argument.
202.9  Decisions by the Secretary of Transportation.
202.10  Petitions for reconsideration.
202.11  Ex parte communications.

    Authority: Sec. 204, 49 Stat. 1987, as amended; sec. 204(b), as 
amended, 46 U.S.C. 1114(b); Reorganization Plan No. 7 of 1961 (26 FR 
7315).

    Source: 32 FR 2705, Feb. 9, 1967, unless otherwise noted.



Sec. 202.1  Purpose.

    The rules of this part prescribe procedures relating to Secretarial 
review of any decision, report, order or action of the Maritime Subsidy 
Board (Board) pursuant to Department Order 117-A (31 FR 8087, 15331). 
Section 6 of Department Order 117-A is reprinted here for the 
convenience of the public.


[[Page 30]]


    Sec. 6. Review and finality of actions by Maritime Subsidy Board. 
.01 The Secretary of Transportation (hereinafter referred to as 
``Secretary'') may, on his own motion or on the basis of a petition 
filed as hereinafter provided, review any decision, report and/or order 
of the Maritime Subsidy Board based on a hearing held pursuant to (a) 
statutory requirements or (b) Board order, by entering a written order 
stating that he elects to review the action of the Board. Copies of all 
orders for review shall be served on all parties of record (which phrase 
includes the Board). Petitions for review under this paragraph may be 
filed by parties of record, shall be in writing, and shall state the 
grounds upon which petitioner relies. Ten (10) copies of such petitions 
for review, together with proof of service thereof on all parties of 
record, shall be filed with the Secretary within fifteen (15) days after 
the date of the service of the Board's decision, report or order. 
Parties of record may file replies in writing thereto. Ten (10) copies 
of such replies, together with proof of service thereof on the 
petitioner and all other parties of record, shall be filed with the 
Secretary within ten (10) days after the date the petition for review is 
timely filed. Petitions for review and replies thereto shall be limited 
to the record before the Board. If a petition for review is filed within 
the time prescribed, a decision, report or order of the Board shall be 
final fifteen (15) days after expiration of the time prescribed for 
filing a reply thereto unless the Secretary, prior to expiration of the 
fifteen (15) days, enters a written order granting the petition for 
review. If no petition for review is filed within the time prescribed, a 
decision, report or order of the Board shall be final twenty (20) days 
after the date of service of the decision unless the Secretary, prior to 
expiration of the twenty (20) days, enters a written order stating that 
he elects to review the action of the Board. If upon any review the 
decision of the Secretary rests on official notice of a material fact 
not appearing in the evidence in the record, any party of record shall, 
if request is made within ten (10) days after the date of service of the 
Secretary's decision on said party, be afforded an opportunity to show 
the contrary. The said ten (10) days shall constitute the period for a 
``timely request'' within the meaning of section 7(d) of the 
Administrative Procedure Act.
    .02 The Secretary may on his own motion review all actions of the 
Maritime Subsidy Board other than those referred to in paragraph .01 of 
this section by entering a written order stating that he elects to 
review the action of the Board. Any person having an interest in any 
action of the Board under this paragraph shall have the privilege of 
submitting to the Secretary within ten (10) days after the date of such 
Board action, a request that the Secretary undertake such review. Such 
request shall be in writing and shall state the grounds upon which the 
person submitting the same relies and his interest in the action for 
which review is requested. Ten (10) copies of such requests shall be 
submitted to the Secretary. Any other person having an interest in such 
matter shall have the privilege of submitting within fifteen (15) days 
after the date of the Board's action, a written request that the 
Secretary not exercise such review. Copies of request that the Secretary 
undertake or not exercise review will be open for public inspection at 
the office of the Secretary of the Board. If either a request that the 
Secretary undertake review or a request that he not exercise review is 
submitted within the time prescribed, an action of the Board shall be 
final in ten (10) days after expiration of the time prescribed for 
submission of a request that review not be exercised unless the 
Secretary, prior to the expiration of the ten (10) days, enters a 
written order stating that he elects to review the action of the Board. 
If neither a request that the Secretary undertake review nor a request 
that he not exercise review is submitted within the time prescribed, an 
action of the Board shall be final in twenty (20) days after the date of 
such action unless the Secretary, prior to expiration of the twenty (20) 
days, enters a written order stating that he elects to review the action 
of the Board. Copies of all orders for review shall be served upon the 
Board, and upon all persons filing requests as herein described.
    .03 If a timely petition for reconsideration is filed under the 
rules prescribed by the Board, the time for filing a petition or request 
for review by the Secretary under paragraph .01 or .02 of this section, 
respectively, or the entry of an order by the Secretary on his own 
motion electing to review an action of the Board under paragraph .01 or 
.02 of this section, shall, in the case of actions under paragraph .01 
of this section run from the date of service of the Board's action and, 
in the case of actions under paragraph .02 of this section, run from the 
date of the Board's action, finally disposing of the issues presented by 
the petition for reconsideration.
    .04 In computing any period of time under this section, the time 
begins with the day following the act, event, or default, and includes 
the last day of the period unless it is Saturday, Sunday, or national 
legal holiday, in which event the period runs until the end of the next 
day which is not a Saturday, Sunday, or such holiday. The prescribed 
time for action by the Secretary in a proceeding in which additional 
days have been added pursuant to the provisions of this paragraph shall 
be extended by the total of such additional days.
    .05 Petitions and requests for review by the Secretary shall not be 
filed:

[[Page 31]]

    a. Unless the petitioner shall have first exhausted his 
administrative remedies (other than a petition for reconsideration) 
before the Maritime Subsidy Board; nor
    b. With respect to interlocutory decisions of the Maritime Subsidy 
Board in actions or proceedings referred to in paragraphs .01 and .02 of 
this section.
    .06 The Secretary may, for good cause and/or in order to prevent 
undue hardship in any particular case, waive or modify any procedural 
provision of this section by written order.



Sec. 202.2  Time and place for filings.

    All petitions, requests and replies relating to Secretarial review 
of Maritime Subsidy Board actions shall be filed with the Office of the 
Secretary of Transportation, Department of Transportation. Such papers 
shall be filed in accordance with the provisions of and within the time 
periods prescribed by Department Order 117-A.



Sec. 202.3  Form of petitions, requests and replies.

    (a) All papers presented to the Secretary, other than records, shall 
bear on the cover the name and post office address of the party, and the 
name and address of the principal attorney or authorized representative 
(if any) for the party concerned. Certification shall be made that 
service of the paper has been made upon all parties of record (if any) 
and upon the Secretary of the Maritime Subsidy Board. One copy of every 
paper filed with the Secretary must in addition bear at its close the 
hand written signature of the party or attorney.
    (b) All papers presented to the Secretary, other than records, 
shall, unless they are fewer than 10 pages in length, be preceded by a 
subject index of the matter contained therein, with page references, and 
a table of the cases (alphabetically arranged), textbooks, statutes and 
other material cited, with references to the pages where they are cited.
    (c) Whenever a reference is made to a transcript, exhibit or other 
part of the record, such reference must be accompanied by a specific 
citation identifying the document and indicating the relevant page 
number of the document concerned.
    (d) Papers filed with the Secretary should be logically arranged, 
with proper headings, concise, and free from irrelevant and unduly 
repetitious matter.
    (e) It will not be necessary to reproduce the opinion of the Board.



Sec. 202.4  Petitions and requests for review--content.

    Petitions and requests for review shall contain in the order here 
indicated--
    (a) A reference to the decision, report, order or action of the 
Board;
    (b) A concise statement of the interest of the party submitting the 
paper;
    (c) A concise summary statement of the case containing that which is 
material to the consideration of the questions presented;
    (d) A listing of each of the grounds upon which the party seeking 
review relies, expressed in the terms and circumstances of the case, 
each ground set forth in a separate, numbered paragraph;
    (e) The argument, generally amplifying the material in paragraph (d) 
of this section and exhibiting clearly the points of law, policy and 
fact being presented, citing the authorities, statutes and other 
material relied upon. The argument should separately identify and treat 
each of the grounds upon which review is sought. In cases where 
reversible legal error is contended, a full legal argument on the points 
concerned should be presented. In cases where policy error is contended, 
it should be pointed out what policy of the Board is alleged to be 
wrong, what is wrong with it and what policy the submitting party 
advocates as the correct one. In cases where reversible factual error is 
contended, the findings of fact alleged to be erroneous should be 
pointed out along with citations to the record where appropriate. The 
party should further indicate precisely what it contends to be the 
correct findings of fact, with supporting references;
    (f) A conclusion, specifying with particularity the action which the 
submitting party believes the Secretary should take.

[[Page 32]]



Sec. 202.5  Replies and requests that review not be exercised--content.

    Replies and requests that review not be exercised shall contain in 
the order here indicated--
    (a) A reference to the decision, report, order, or action of the 
Board;
    (b) A concise statement of the interests of the party submitting the 
paper;
    (c) Where deemed necessary by the submitting party, a concise 
summary statement of the case explicitly pointing out any inaccuracy or 
omission in the statement of the other side, with references to the 
record where appropriate;
    (d) A listing of the reasons why review should not be exercised, 
each reason set forth in a separate, numbered paragraph;
    (e) The argument generally amplifying the material in paragraph (d) 
of this section and, in addition, specifically replying to the points of 
law, policy and fact presented by the other side (each stated 
separately) citing the authorities, statutes, and other material relied 
upon by the submitting party;
    (f) A conclusion, specifying with particularity the action which the 
submitting party believes the Secretary should take.



Sec. 202.6  Grant or denial of review.

    (a) A petition or request for review by the Secretary of any 
decision, report, order or action of the Board will not be granted 
unless significant and important questions of over-all policy requiring 
the Secretary's attention are involved or there appears to be 
significant legal, policy, or factual error in the Board's action.
    (b) The parties and the Secretary of the Board will be notified, by 
Order, of the Secretary's decision to review a case on his own motion, 
and of his decision to review or to deny review of a case where a 
petition or request concerning review has been filed.
    (c) Promptly upon notice of a decision by the Secretary to review a 
case subject to review under section 6.01 of Department Order 117-A, the 
Secretary of the Board shall certify to the Secretary the complete 
record of the proceeding before the Board and shall serve upon all 
parties a copy of such certification which shall adequately identify the 
matter so certified. The Secretary of the Board shall further serve upon 
all parties a copy of any further communication from the Board or 
Maritime Administration on such a case.



Sec. 202.7  Supplemental briefs.

    If an order taking review is entered by the Secretary, further 
briefs supplementing the arguments set forth in the petitions and 
replies may be requested in cases where the Secretary deems such to be 
appropriate and desirable.



Sec. 202.8  Oral argument.

    Generally, oral argument will not be necessary. However, the 
Secretary reserves the right to schedule such when he deems it 
desirable.



Sec. 202.9  Decisions by the Secretary of Transportation.

    Decisions of the Secretary will be reached in accordance with 
applicable law and the evidence. Upon the determination of a case taken 
under review by the Secretary, a written decision and opinion which 
states the Secretary's conclusions and an explanation thereof will be 
issued.



Sec. 202.10  Petitions for reconsideration.

    Petitions for reconsideration of decisions by the Secretary in any 
case taken under review will be considered, upon a showing of good 
cause, if filed within ten (10) days of service of the Secretary's 
decision.



Sec. 202.11  Ex parte communications.

    Oral or written communications with the Department concerning a 
matter subject to Secretarial review under section 6.01 of Department 
Order 117-A, unless otherwise provided by law or by order, rule, or 
regulation of the Department, shall be deemed ex parte communications 
and shall not be part of the record and shall not be considered in 
making any recommendation, decision or action; Provided, however, That 
this rule shall not apply to customary informal communications with 
Department counsel, including discussions directed toward the 
development of a stipulation or settlement between parties; 
communications of a nature

[[Page 33]]

deemed proper in proceedings in U.S. Federal courts; and communications 
with Department counsel which merely inquire as to procedures or the 
status of a proceeding without discussing issues or expressing points of 
view. Any written communication subject to the above stated rule 
received by the Department shall be placed in the correspondence file of 
the case, which is available for public inspection. If an oral 
communication subject to the above stated rule is received, a memorandum 
setting for the the substance of the conversation shall be made and 
placed in the correspondence file.



PART 203--PROCEDURES RELATING TO CONDUCT OF CERTAIN HEARINGS UNDER THE MERCHANT MARINE ACT, 1936, AS AMENDED--Table of Contents




Sec.
203.1  Scope of rules.
203.2  Applications.
203.3  Opposition to applications.
203.4  Replies.
203.5  Types of hearings.
203.6  Oral evidentiary hearing before one or more members.

    Authority: Secs. 204(b), 605(c) and 805(a), Merchant Marine Act, 
1936, as amended (46 U.S.C. app. 1114(b), 1175(c) and 1223(a)).

    Source: 55 FR 12358, Apr. 3, 1990, unless otherwise noted.



Sec. 203.1  Scope of rules.

    (a) The provisions of this part apply to applications which involve 
statutorily mandated hearings under sections 605(c) and 805(a) of the 
Merchant Marine Act, 1936, as amended (46 U.S.C. app. 1175(c), 1223(a)), 
hereinafter referred to as the ``Act'', conducted by the Maritime 
Administrator or Maritime Subsidy Board of the Maritime Administration, 
hereinafter referred to collectively as the ``Administration''.
    (b) The provisions of this part are to be construed consistently 
with the Administration Rules of Practice and Procedure in 46 CFR part 
201. If this part and 46 CFR part 201 conflict, this part shall govern.



Sec. 203.2  Applications.

    (a) Notice of all applications subject to this part shall be 
published in the Federal Register, in accordance with the provisions of 
46 CFR 201.72.
    (b) All applications under section 605(c) of the Act shall specify, 
at a minimum, full details of the existing or proposed new or amended 
service, to include itineraries and the number and type of vessels 
currently operated in the trade or trade route, the number and type of 
vessels proposed to be operated in the trade or trade route, the 
frequency of sailings and port calls and the nature and extent of U.S.-
flag and any foreign-flag competition. As a matter of discretion, the 
Administration may request additional information, which may be 
protected by a confidentiality ruling, if justified. If the application 
is one for additional service on a route in which the applicant has an 
established service, or for an existing service, then the applicant must 
include information on its previous three years of operation. Applicants 
for permission under section 805(a) of the Act must describe clearly the 
scope of permission sought, including details of proposed domestic 
service and existing or proposed foreign service, as well as the 
applicant's operating structure.
    (c) Applications under section 605(c) of the Act shall be filed on 
Form MA-964, in accordance with the instructions annexed thereto. Copies 
of Form MA-964 may be obtained on request from the Secretary of the 
Administration.
    (d) Applications for permission under section 805(a) of the Act 
shall be submitted in accordance with the procedures set forth in 46 CFR 
part 380, and shall comply with all of the requirements of that part.



Sec. 203.3  Opposition to applications.

    (a) Required documents. A person seeking to oppose an application 
shall file with the Secretary of the Administration, and concurrently 
serve upon the applicant, a petition for leave to intervene, together 
with an answer, within the time period specified in the Federal Register 
notice of the application. Normally, twenty days will be provided.
    (b) Petition for leave to intervene. The petition for leave to 
intervene shall

[[Page 34]]

specify the basis upon which such person asserts a right to intervene 
and shall set forth with particularity:
    (1) The number and type of U.S.-flag vessels currently operated by 
the person seeking intervention in the trade or trade route to which the 
application pertains.
    (2) The frequency of sailings of vessels operated by such person in 
the trade or trade route to which the application pertains in the 36 
calendar months immediately preceding the date of the application.
    (3) The specific ports of call conducted by such person in the trade 
or trade route to which the application pertains in the 36 calendar 
months immediately preceding the date of the application.
    (4) The average annual carriage by such person for the past 36 
months on the trade route to which the application pertains.
    (5) If applicable, specific information detailing firm and definite 
plans for the inauguration of a new service, including, as appropriate, 
but not limited to, approval by the board of directors or general 
partners, membership in applicable conference agreements, office 
openings or the retention of agents in the proposed service area, 
acquisition of vessels and related equipment, subsidy applications, 
applications for any needed Government approvals or advertisement for 
the proposed service.
    (6) Such other information as the person believes should be 
considered in a determination of such person's right to intervene.
    (c) Answer. (1) The answer shall be simultaneously filed with the 
petition for leave to intervene and shall specify the basis upon which 
such person asserts the application should be denied or granted subject 
to modifications.
    (2) The answer shall set forth with particularity:
    (i) The ground upon which opposition is based;
    (ii) The factual matters which such person believes must be 
determined by the Administration;
    (iii) The legal matters which such person believes must be 
determined by the Administration;
    (iv) For each factual and legal matter raised such person's position 
and basis therefor; and
    (v) The precise nexus between each factual and legal matter raised 
and the decision of the Administration.
    (d) Right to intervene in Opposition to applications. (1) Leave to 
intervene in opposition to applications under section 605(c) of the Act 
will only be granted to operators of U.S.-flag vessels, and only to the 
extent, as demonstrated by the petition for leave to intervene, that 
such person provides an existing service, or that such person has firm 
and definite plans to provide a service, by a showing that its vessels 
operate in the same trade or on the same trade route as that proposed by 
the applicant and so operate in a manner competitive with the specific 
service proposed by the applicant. Although persons seeking intervention 
need not call at the same specific ports proposed by the applicant by 
direct vessel calls, any filing based on intermodal service in 
opposition to an application shall demonstrate that such person 
regularly competes by intermodal service for cargo moving to or from 
ports in the service proposed by the applicant. The burden of 
demonstrating competition between the vessels of the person seeking 
intervention and those of the applicant will be with the person seeking 
such intervention. Leave to intervene will not be granted to those 
conducting a competing service on an intermittent or de minimis basis.
    (2) Leave to intervene in opposition to applications under section 
805(a) of the Act will be granted, as provided in the statute, to every 
person, firm, or corporation ``having any interest'' in such 
application.



Sec. 203.4  Replies.

    Within ten (10) days after the date for filing answers, the 
applicant may file a reply specifically addressed to the issues raised 
in the answers and to oppose the grant to any petitioner of leave to 
intervene.



Sec. 203.5  Types of hearings.

    (a) Oral Evidentiary Hearing: If, upon review of the application, 
answers, petitions to intervene and replies, the Administration 
determines that the

[[Page 35]]

proceeding involves a disputed issue of material fact which cannot be 
resolved on the basis of available information of record, and that the 
case is anticipated to involve the submission of extensive evidence, or 
the Administration determines that it is otherwise appropriate, the 
Administration may issue an order referring the case to an 
Administrative Law Judge for oral evidentiary hearing. Such hearing 
shall be conducted in accordance with the procedures set out in 46 CFR 
part 201. The Administration may resolve issues of intervention in such 
order or refer such issues to the Administrative Law Judge. The burden 
of establishing that there is a disputed issue of material fact is upon 
the party seeking the oral evidentiary hearing.
    (b) Hearing on Submission of Written Evidence and Argument: If, upon 
review of the application, answers, petitions to intervene and replies, 
the Administration determines that the proceeding involves a disputed 
issue of material fact which cannot be resolved on the basis of 
available information of record, but which is not anticipated to involve 
the submission of extensive evidence, the Administration may fulfill the 
hearing requirement in sections 605(c) and 805(a) of the Act by 
rendering a decision solely on the merits of papers submitted, provided 
that a full and true disclosure of the facts is made and such procedure 
is fair to all parties. The Administration may, in its discretion, 
direct the submission of briefs on legal issues together with evidence 
in written form, and/or the holding of oral argument before the 
Administration prior to issuing its final decision on the proceeding.
    (c) Show Cause Proceeding: If, upon review of the application, 
answers, petitions to intervene and replies, the Administration 
determines that the proceeding does not or is not likely to involve a 
disputed issue of material fact or that if such facts exist they can be 
resolved on the basis of available information subject to official 
notice, and if the case is not anticipated to involve the submission of 
extensive evidence, the Administration may determine to handle the 
matter by show-cause proceeding. In that event, it will issue a decision 
setting out its tentative conclusions on all of the matters of fact and 
law at issue in the proceeding. A Notice summarizing such decision shall 
be published in the Federal Register in accordance with 46 CFR 201.72. 
Interested persons may file comments, including support or rebuttal for 
any matter officially noticed, within 30 days of the date of service of 
the tentative decision and responses to such comments shall be filed 
within ten days thereafter unless a shorter or longer period is provided 
by the Administration for such comments and answers.



Sec. 203.6  Oral evidentiary hearing before one or more members.

    If an oral evidentiary hearing is to be conducted, the Maritime 
Administration, or the Maritime Subsidy Board or one or more of its 
members, may conduct such hearing. A member who is not present at the 
hearing may participate in the consideration and the decision of the 
case where the oral evidentiary hearing, if held, has been 
stenographically recorded in full and transcribed for the member's 
review.



PART 204--CLAIMS AGAINST THE MARITIME ADMINISTRATION UNDER THE FEDERAL TORT CLAIMS ACT--Table of Contents




Sec.
204.1  Scope and procedure for filing claims.
204.2  Claims payable.
204.3  Claims not payable.
204.4  Time limitations on claims.
204.5  Notification to claimant of action on claim.
204.6  Payment of claims.
204.7  Delegation of authority.
204.8  Where to file claims.
204.9  Indemnity or contribution.
204.10  Attorney's fees.

    Authority: 28 U.S.C. 2672; 28 CFR 14.11; 49 CFR 1.45(a) (2) and (3).

    Source: 50 FR 25711, June 21, 1985, unless otherwise noted.



Sec. 204.1  Scope and procedure for filing claims.

    This part prescribes the requirements and procedure for 
administrative settlement of claims against the United States, involving 
the Maritime Administration, under the Federal Tort Claims Act, based on 
death, personal

[[Page 36]]

injury, or damage to or loss of property. The controlling regulations 
are promulgated by the Department of Justice at 28 CFR Part 14--
Administrative Claims Under Federal Tort Claims Act. These regulations 
supplement those of the Department of Justice and provide specific 
guidance regarding claims processing in the Maritime Administration.



Sec. 204.2  Claims payable.

    Claims for death, personal injury, or damage to or loss of real or 
personal property are payable when the death, injury or damage is caused 
by a negligent or wrongful act or omission of an employee of the 
Maritime Administration, while acting within the scope of employment and 
under circumstances in which the United States, if a private person, 
would be liable to the claimant under the law of the place where the act 
or omission occurred.



Sec. 204.3  Claims not payable.

    A claim is not payable under the regulations in this part 204, if 
such tort claim is excluded from the scope of the Federal Tort Claims 
Act, as amended, pursuant to 28 U.S.C. 2680.



Sec. 204.4  Time limitations on claims.

    (a) A claim can be settled only if presented in writing within two 
years after it accrues.
    (b) The two year statute of limitations is not tolled until the 
Maritime Administration receives from a claimant, or the claimant's duly 
authorized agent or legal representative, an executed Standard Form 95, 
``Claims for Damage, Injury, or Death,'' or written notification of an 
incident, together with a claim for money damages in a sum certain, for 
death, personal injury, or damage to or loss of real or personal 
property. When a claim is received in any office, mail unit, or other 
Maritime Administration activity which does not have settlement 
authority over the claim, such office, unit or activity shall transmit 
it to the official vested with such authority without delay (see 
Sec. 204.13, this part).



Sec. 204.5  Notification to claimant of action on claim.

    (a) If a claim is approved (either for the amount claimed or less 
than such full amount), the claimant, prior to the disbursement of an 
award, shall sign a document releasing the United States, its agents and 
employees from all further claims relating to the incident giving rise 
to the approved claim.
    (b) If the claim is finally denied, the official vested with such 
authority shall inform the claimant by certified or registered mail of 
the final denial of the claim. Notification of final denial shall 
include a statement that a claimant who does not accept or is 
dissatisfied with the action may institute suit against the United 
States not later than six months after the date of mailing of the notice 
of final denial.
    (c) A claimant may regard the failure of the Maritime Administration 
to make a final disposition of a claim within six months after the date 
of receipt of the claim by the Maritime Administration as a final denial 
for the purpose of filing suit.



Sec. 204.6  Payment of claims.

    (a) Once the amount to be paid has been agreed upon, the agency 
shall attempt to forward a check for such amount to the claimant within 
thirty days.
    (b) If a claimant is represented by an attorney, both the claimant 
and the claimant's attorney shall be designated as payees on any check 
delivered to the claimant's attorney.



Sec. 204.7  Delegation of authority.

    (a) Subject to written approval of the Attorney General of the 
United States of any payment in excess of $100,000, the Chief Counsel of 
the Maritime Administration is authorized to deny or settle and 
authorize payment of tort claims.
    (b) The Associate Administrator for Administration is authorized to 
deny or settle and authorize payment of all tort claims in an amount not 
exceeding $50,000.
    (c) The Superintendent, United States Merchant Marine Academy 
(Academy), is authorized to deny or settle and authorize payment of tort 
claims originating from occurrences at

[[Page 37]]

the Academy in amounts not exceeding $20,000.

[58 FR 29351, May 20, 1993]



Sec. 204.8  Where to file claims.

    Claims shall be filed with the appropriate official as follows:
    (a) Chief Counsel (MAR-200), Maritime Administration, Department of 
Transportation, Room 7232, Nassif Building, 7th and D Streets SW., 
Washington, DC 20590 (All claims over $50,000).
    (b) Associate Administrator for Administration (MAR-300), Maritime 
Administration, Room 7217, Nassif Building, 7th and D Streets SW., 
Washington, DC 20590 (All claims over $20,000, but not over $50,000, 
originating at the Academy, and all other claims not over $50,000).
    (c) Superintendent (MMA-5100), United States Merchant Marine 
Academy, Maritime Administration, Kings Point, N.Y. 11024 (All claims 
not over $20,000 originating at the Academy).

[58 FR 29351, May 20, 1993]



Sec. 204.9  Indemnity or contribution.

    (a) Sought by the United States. If a claim arises under 
circumstances in which the United States is entitled to indemnity or 
contribution under a contract or the applicable law governing joint 
tort-feasors, the Chief Counsel of the Maritime Administration shall 
notify the third party of the claim and request the third party to honor 
its obligation to the United States or to accept its share of joint 
liability. If the issue of third party indemnity or contribution is not 
satisfactorily adjusted, the underlying claim shall be settled only 
after consultation with the Department of Justice as provided in 28 CFR 
14.7
    (b) Sought from the United States. Claims for indemnity or 
contribution from the United States shall be settled under this part 
only if the incident giving rise to liability and the claim is otherwise 
cognizable under this part.



Sec. 204.10  Attorney's fees.

    Attorney's fees for any claim settled under this part are limited to 
not more than twenty percent of the amount paid in settlement.



PART 205--AUDIT APPEALS; POLICY AND PROCEDURE--Table of Contents




                   Contracts Without Disputes Article

Sec.
205.1  Purpose.
205.2  Policy.
205.3  Procedure.
205.4  Finality of decisions.

                     Contracts With Disputes Article

205.5  Contracts containing disputes article.

    Authority: Sec. 204, 49 Stat. 1987, 1998, 2004, 2011; 46 U.S.C. 
1114, 1155, 1176, 1212.

    Source: General Order 78, Rev., 30 FR 11680, Sept. 11, 1965, unless 
otherwise noted.

                   Contracts Without Disputes Article



Sec. 205.1  Purpose.

    The purpose of this part is to establish the policy and procedure 
for seeking redress and for appeals by parties to any contracts entered 
into by the Maritime Subsidy Board or the Maritime Administration under 
its authorities, from the findings, interpretations, or decisions 
reflected in annual or special audits made by the Maritime 
Administration pursuant to the provisions of such contracts.



Sec. 205.2  Policy.

    Any contractor who disagrees with the findings, interpretations, or 
decisions in connection with audit reports of the Maritime 
Administration and who fails to settle said differences by negotiation 
with the appropriate Coast Director's office, may submit an appeal from 
such findings, interpretations, or decisions in accordance with 
Sec. 205.3.



Sec. 205.3  Procedure.

    (a) Appeals shall be made in writing to the Maritime Administrator 
within 6 months following the date of the document notifying the 
contractor of the audit findings, interpretations, or decisions of the 
appropriate Coast Director's office. However, the Maritime Administrator 
may, at his discretion, extend this limitation in the case of 
extenuating circumstances.
    (b) The appellant will be notified, in writing, if a hearing is to 
be held or if additional facts are to be submitted for consideration in 
connection with the appeal.

[[Page 38]]

    (c) After a decision has been rendered by the Maritime 
Administrator, the appellant will be notified accordingly, in writing.



Sec. 205.4  Finality of decisions.

    A decision of the Maritime Administrator shall be final on all 
questions of fact involved in the appeal, unless determined by a court 
of competent jurisdiction to have been fraudulent, capricious, 
arbitrary, so grossly erroneous as necessarily to imply bad faith, or 
not supported by substantial evidence.

                     Contracts With Disputes Article



Sec. 205.5  Contracts containing disputes article.

    Where the contract contains a disputes article the contractor may 
dispute audit findings, interpretations, or decisions made by the 
Maritime Administration pursuant to the provisions of said contract and 
the decision on such dispute and any appeal therefrom shall be governed 
by the terms of the disputes article of the contract.



PART 207--STATISTICAL DATA FOR USE IN OPERATING-DIFFERENTIAL SUBSIDY APPLICATION HEARINGS--Table of Contents




Sec.
207.1  Purpose.
207.2  Basic statistical data.
207.3  Procedures.

    Authority: Sec. 204(b), Merchant Marine Act, 1936, as amended (46 
U.S.C. 1114), Reorganization Plans No. 21 of 1950 (64 Stat. 1273) and 
No. 7 of 1961 (75 Stat. 840) as amended by Pub. L. 91-469 (84 Stat. 
1036); Department of Commerce Organization Order 10-8 (38 FR 19707, July 
23, 1973).

    Source: 41 FR 50257, Nov. 15, 1976, unless otherwise noted.



Sec. 207.1  Purpose.

    The purpose of this part is to identify the basic statistical data 
and reports required by the Maritime Subsidy Board (Board) in hearings 
held under section 605(c), Merchant Marine Act, 1936, as amended (Act), 
in regard to applications for operating-differential subsidy (ODS) under 
Title VI of the Act and to provide procedures for the production of 
these data and reports. Statistical data not expressly covered by this 
part are subject to subpart A of part 206 of this subchapter. There 
shall be no charge for the production of the basic statistical data and 
reports identified in this part.



Sec. 207.2  Basic statistical data.

    (a) Data and reports available. The basic statistical data and 
reports that will be provided pursuant to Sec. 207.3 of this part in 
regard to any hearing held by the Board under section 605(c) of the Act 
in connection with an application for ODS are as follows, with the 
accompanying ``Notes'' forming an integral part of each report:

[[Page 39]]



                                                                                               19--Census Trade Data \1\ MSB Docket ______                                                                                              
                                                                                            Report 001    Page ______    Date prepared ______                                                                                           
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Inbound liner \2\                                                                      
                                                                         ---------------------------------------------------------------------------------------------------------------------------------------------------------------
           Trade route                 Commodity           Commodity                                Tonnage                                                                          Value                                              
                                                          description    ------------------------------------------------------------   Percent United   ------------------------------------------------------------   Percent United  
                                                                             United States          Foreign              Total              States           United States          Foreign              Total              States      
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total trade route by inbound liner \3\                                                                                                                                                                                                  
(For an explanation of terms and numbers see ``Notes''.)                                                                                                                                                                                
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                               19--Census Trade Data \4\ MSB Docket______                                                                                               
                                                                                            Report 002    Page ______    Date prepared ______                                                                                           
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                             Inbound liner \2\                                                          
                                                                                                 ---------------------------------------------------------------------------------------------------------------------------------------
         Trade route              Coastal      Foreign country     Commodity        Commodity                          Tonnage                                                              Value                                       
                                  district                                         description   ---------------------------------------------------  Percent United ---------------------------------------------------  Percent United
                                                                                                   United States       Foreign           Total            States       United States       Foreign           Total            States    
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total trade route by coastal district by foreign country by inbound liner \6\                                                                                                                                                           
Total trade route by coastal district by inbound liner \5\                                                                                                                                                                              
Total trade route by inbound liner \3\                                                                                                                                                                                                  
(For an explanation of terms and numbers see ``Notes''.)                                                                                                                                                                                
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                        19--Marad Liner Foreign Trade Data \7\ MSB Docket ______                                                                                        
                                                                                            Report 003    Page ______    Date prepared ______                                                                                           
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Inbound                                                                 Outbound                               
                                                                                        ------------------------------------------------------------------------------------------------------------------------------------------------
          Trade route            Coastal district   Foreign country          Flag                                        Tonnage                                                                  Tonnage                               
                                                                                        ------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              General             Bulk             Defense            Total            General            Bulk             Defense            Total     
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total trade route by coastal district by foreign country \8\                                                                                                                                                                            
Total trade route by coastal district \9\                                                                                                                                                                                               
Total trade route \10\                                                                                                                                                                                                                  
(For explanation of terms and numbers see ``Notes.'')                                                                                                                                                                                   
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 40]]


                                                                                                        19--Marad Containerized Foreign Trade Data \11\ MSB Docket ______                                                                                                       
                                                                                                                Report 004    Page ______    Date prepared ______                                                                                                               
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    Inbound                                                                                     Outbound                                        
                                                                                        ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
          Trade route            Coastal district   Foreign country          Flag                                Tonnage                                                                                       Tonnage                                                          
                                                                                        --------------------------------------------------------- Number containers      Cubic feet    ------------------------------------------------------      Number          Cubic feet   
                                                                                             Commercial          Defense             Total                                                 Commercial          Defense            Total          containers                     
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total by trade route by coastal district by foreign country \8\                                                                                                                                                                                                                 
Total by trade route by coastal district \9\                                                                                                                                                                                                                                    
Total by trade route \10\                                                                                                                                                                                                                                                       
(For an explanation of terms and numbers see ``Notes.'')                                                                                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                          19--Marad Sailings Foreign Trade Data \12\ MSB Docket ______                          
                                Report 005    Page ______    Date prepared ______                               
----------------------------------------------------------------------------------------------------------------
                                                                            Sailing \13\                        
         Trade route                   Flag        -------------------------------------------------------------
                                                          Inbound              Outbound              Total      
----------------------------------------------------------------------------------------------------------------
Total sailings by trade route                                                                                   
 \14\                                                                                                           
Total sailings \15\                                                                                             
(For an explanation of terms and numbers see                                                                    
 ``Notes.'')                                                                                                    
----------------------------------------------------------------------------------------------------------------


[[Page 41]]

                                  Notes

                          explanation of terms

Trade Route--A two digit numerical code signifying a waterborne route 
between a specific U.S. coastal district(s) and foreign port range.
Commodity--A three digit numerical Statistical Classification of 
Commodities (SCC) code assigned by the Bureau of the Census to a major 
category of commodities.
Commodity Description--A literal definition of each three digit 
numerical (SCC) code.
Value Outbound--The dollar value of commodities at time and place of 
export. It is based on the selling price (or cost if not sold) and 
includes inland freight insurance, and other charges to the port of 
exportation.
Value Inbound--The market dollar value of commodities in the exporting 
foreign country, and therefore excludes U.S. import duties, freight 
charges from the foreign country to the United States and insurance.
Tonnage Inbound--The number of long tons (2,240 lbs.) of entries for 
immediate consumption and entries into customs bonded storage and 
manufacturing warehouses. Excludes American goods returned by U.S. 
military forces for their own use and imports arriving on vessels owned 
and operated by the Department of Defense.
Tonnage Outbound--The number of long tons (2,240 lbs.) of foreign 
merchandise, including nongovernment shipments, shipments to U.S. 
civilian government agencies, and government-financed economic 
assistance shipments under the Foreign Assistance Act. Excluded from the 
figures are shipments of supplies and equipment to U.S. military forces 
for their own use, shipments of DOD controlled cargo under foreign aid 
programs, and all shipments of Special Category commodities (commodities 
for which detailed information may not be released for security 
reasons).
Inbound--A vessel movement to the United States from a foreign country.
Outbound--A vessel movement to a foreign country from the United States.
Liner--Type of Service offered on a definite, advertised schedule and 
giving relatively frequent sailings at regular intervals between 
specific United States ports or range and designated foreign ports or 
range.
Non-Liner--Type of service offered by vessels, other than liner or 
tanker vessels, that are chartered or otherwise hired for the carriage 
of goods on special voyages. Sailing schedules are not predetermined or 
fixed.
Tanker--Type of Service offered by vessels, primarily designed for the 
carriage of bulk liquid cargoes, which are chartered or otherwise hired 
for special voyages.
Foreign Country--A three digit numerical code classification as defined 
by the Bureau of the Census' Schedule C, ``Classification of Country 
Designations'', dated January 1, 1972.
Flag--A two digit numerical code signifying the country in which a 
vessel is registered.
Coastal District--A one digit numerical code depicting a specific United 
States coastal area as follows:

1. North Atlantic--Maine to Virginia/North Carolina state line.
2. South Atlantic--Virginia/North Carolina state line to Key West, 
Florida.
3. Gulf--Key West, Florida, to the border of Mexico.
4. California--California.
5. Pacific Northwest -- Washington and Oregon.
6. Great Lakes--All U.S. ports on the Great Lakes system.
7. Hawaii--All ports in the Hawaiian Islands.
8. Alaska--All ports in Alaska and the Aleutian Islands.
9. Puerto Rico--Puerto Rico and the Virgin Islands.

Bulk--Commodities customarily loaded and carried without wrappers or 
containers, and received and delivered without transportation mark or 
count whether such cargo is handled on berth terms, voyage charter, or 
any other basis.
General--Miscellaneous commodities packed in boxes, bags, bales, 
barrels, containers, crates, drums, unboxed or uncrated, accepted and 
delivered by mark and count.
Defense--Cargo transported for the U.S. Department of Defense, including 
the Military Sealift Command.
Commercial--Combination of general and bulk cargoes.
Containers--The number of containers represents the total of all 
containers transported regardless of size or TEU's.
Cubic Feet--The number of cubic feet represents the total cargo 
contained and transported within containers regardless of the interior 
cubic capacity of the containers.

                         explanation of numbers

    \1\ 19__ Census Trade Data--The data base for this report is the 
Census Annual Commodity Movements. The report was formerly known as 
Table 42A.
    \2\ Inbound Liner--this heading indicates the type of data contained 
in the report; other headings for the report are:

Outbound Liner
Inbound Non-Liner
Outbound Non-Liner
Inbound Tanker
Outbound Tanker

    \3\ Total Trade Route By Inbound Liner--At the end of the data for 
each trade route a total is provided for the category; other categories 
for the report are:

[[Page 42]]

Total Trade Route By Outbound Liner
Total Trade Route By Inbound Non-Liner
Total Trade Route By Outbound Non-Liner
Total Trade Route By Inbound Tanker
Total Trade Route By Outbound Tanker

    \4\ 19__ Census Trade Data--The data base for this report is the 
Census Annual Commodity Movements. The report was formerly known as 
Table 44B.
    \5\ Total Trade Route By Coastal District By Inbound Liner--At the 
end of the data for each coastal district a total is provided for the 
category; other categories for the report are:
Total Trade Route By Coastal District By Outbound Liner
Total Trade Route By Coastal District By Inbound Non-Liner
Total Trade Route By Coastal District By Outbound Non-Liner
Total Trade Route By Coastal District By Inbound Tanker
Total Trade Route By Coastal District By Outbound Tanker

    \6\ Total Trade Route By Coastal District By Foreign Country By 
Inbound Liner--At the end of the data for each foreign country a total 
is provided for the category; other categories for the report are:
Total Trade Route By Coastal District By Foreign Country By Outbound 
Liner
Total Trade Route By Coastal District By Foreign Country By Inbound Non-
Liner
Total Trade Route By Coastal District By Foreign Country By Outbound 
Non-Liner
Total Trade Route By coastal district By Foreign Country By Inbound 
Tanker
Total Trade Route By Coastal District By Foreign Country By Outbound 
Tanker

    \7\ 19__ MARAD Liner Foreign Trade Data--The data base for this 
report is the MARAD Foreign Trade System. This System contains liner 
information only and is collected from MA Forms 721/722.
    \8\ Total Trade Route By Coastal District By Foreign Country--A 
total is provided at the end of each foreign country.
    \9\ Total Trade Route By Coastal District--A total is provided at 
the end of each coastal district for all foreign contries.
    \10\ Total Trade Route--A total is provided at the end of each trade 
route for all coastal districts.
    \11\ 19__ MARAD Containerized Foreign Trade Data--The data base for 
this report is the MARAD Container System. This system contains 
information collected from MA Forms 578A for any vessel carrying ten or 
more containers.
    \12\ 19__ MARAD Sailings Foreign Trade Data--The data base for this 
report is the MARAD Foreign Trade System. This system contains liner 
information only and is collected from MA Forms 721/722.
    \13\ Sailings--The actual number of ``Outbound'' and ``Inbound'' 
sailings made by vessels of specific flags of registration on a specific 
trade route is provided. A sailing constitutes an initial entrance to or 
a final clearance from the United States of a vessel.
    \14\ Total Sailings By Trade Route--A total is provided at the end 
of each trade route.
    \15\ Total Sailings--A total is provided at the end for all trade 
routes.

    (b) Time frame of data and reports provided. The basic statistical 
data and reports provided by this part will be for the most recent three 
full calendar years for which such data is available in final form on 
the date the Board issues its referral order for a hearing on any ODS 
application. No preliminary data and no data for parts of a calendar 
year will be provided under this part. Any request for preliminary data 
or data for any part of a calendar year should be made under subpart A 
of part 206 of this subchapter. Data requested for any calendar year 
more recent than the three years described in this paragraph should also 
be made under subpart A of part 206 of this subchapter.
    (c) Confidentiality. The original sources of basic statistical data 
furnished under this part are ``business confidential'' and data shall 
not be supplied in such form as to permit competitors to extrapolate the 
data supplied by the original sources to the Maritime Administration 
and, thereby, determine the carryings of individual competitors. 
Appropriate written waivers of confidentiality from persons supplying 
data will be accepted and honored by the Maritime Administration to the 
extent practicable in the preparation of statistical data and reports 
under this part.



Sec. 207.3  Procedures.

    (a) Request. The procedures for production of basic statistical data 
and reports under this part may be initiated only by the written request 
of a party to a hearing under section 605(c) of the Act in connection 
with an ODS application. The term ``party'' includes the applicant, 
Public Counsel, and any other person whose petition to intervene has 
been granted. The request shall identify the specific format of data 
sought according to the report numbers listed in Sec. 207.2 of this part 
and shall state the trade routes or

[[Page 43]]

trade areas covered by the ODS application and identified by the Board 
in its section 605(c) notice as published in the Federal Register. The 
letter requesting data and reports should be addressed to the Chief, 
Division of Trade Studies and Statistics (Code M-522), Maritime 
Administration, U.S. Department of Transportation, Room 4075, 14th and E 
Streets NW., Washington, DC 20590. Concurrently, the requesting party 
shall furnish a copy of the request to the presiding Administrative Law 
Judge (for inclusion in the correspondence section of the official 
docket) and to each other party to the hearing.
    (b) Determination of data and reports. The Chief, division of Trade 
Studies and Statistics, shall review and define the basic statistical 
data and reports applicable to a party's request, with special attention 
to Sec. 207.2(c) of this part, and promptly take all necessary steps to 
effect production. He shall expeditiously notify the requesting party, 
with a copy to all other parties and to the presiding Administrative Law 
Judge (for inclusion in the correspondence section of the official 
docket), as follows: the basic statistical data and reports being 
produced; and the schedule for distribution thereof to the parties and 
to the presiding Administrative Law Judge.
    (c) Transmission of data package. Once the Chief, Division of Trade 
Studies and Statistics, has assembled the basic statistical data and 
reports, he shall promptly transmit them to:
    (1) The requesting party (one copy);
    (2) Public Counsel (one copy);
    (3) Each other party (one copy each); and
    (4) The presiding Administrative Law Judge (two copies: one copy of 
which shall be received into evidence in the hearing docket, pursuant to 
Sec. 201.132(g) of this subchapter, and the other copy of which shall be 
for the personal use of the presiding Administrative Law Judge).
    (d) Dispute as to scope of data and reports. If any party to the 
hearing disputes the scope of data and reports to be produced as defined 
in the notice issued by the Chief, Division of Trade Studies and 
Statistics, review by the Director, Office of Subsidy Administration, 
may be obtained by such party through filing of a written request for 
review with the Director, Office of Subsidy Administration. 
Concurrently, the requesting party shall furnish a copy of the request 
to the presiding Administrative Law Judge (for inclusion in the 
correspondence section of the official docket) and to each other party 
to the hearing. On the basis of the request for review, and such 
comments as any other party to the hearing may have filed within ten 
(10) days of the date on the request, the Director, Office of Subsidy 
Administration, shall determine the proper scope of the basic 
statistical data and reports to be produced. The determination shall be 
final. A copy of the determination shall be furnished to each party and 
to the presiding Administrative Law Judge (for inclusion in the 
correspondence section of the official docket).

[[Page 44]]



   SUBCHAPTER B--REGULATIONS AFFECTING MARITIME CARRIERS AND RELATED 
                               ACTIVITIES





PART 221--REGULATED TRANSACTIONS INVOLVING DOCUMENTED VESSELS AND OTHER MARITIME INTERESTS--Table of Contents




                         Subpart A--Introduction

Sec.
221.1  Purpose.
221.3  Definitions.
221.5  Citizenship declarations.
221.7  Applications and fees.

 Subpart B--Transfers to Noncitizens or to Registry or Operation Under 
                     Authority of a Foreign Country

221.11  Required approvals.
221.13  General approval.
221.15  Approval for transfer of registry or operation under authority 
          of a foreign country or for scrapping in a foreign country.
221.17  Sale of a documented vessel by order of a district court.
221.19  Possession or sale of vessels by mortgagees or trustees other 
          than pursuant to court order.

                          Subpart C  [Reserved]

 Subpart D--Transactions Involving Maritime Interests in Time of War or 
         National Emergency under 46 App. U.S.C. 835  [Reserved]

                       Subpart E--Civil Penalties

221.61  Purpose.
221.63  Investigation.
221.65  Criteria for determining penalty.
221.67  Stipulation procedure.
221.69  Hearing Officer.
221.71  Hearing Officer referral.
221.73  Initial Hearing Officer consideration.
221.75  Response by party.
221.77  Disclosure of evidence.
221.79  Request for confidential treatment.
221.81  Counsel.
221.83  Witnesses.
221.85  Hearing procedures.
221.87  Records.
221.89  Hearing Officer's decision.
221.91  Appeals.
221.93  Collection of civil penalties.

   Subpart F--Other Transfers Involving Documented Vessels  [Reserved]

                      Subpart G--Savings Provisions

221.111  Status of prior transactions--controlling dates.

    Authority: 46 App. U.S.C. 802, 803, 808, 835, 839, 841a, 1114(b), 
1195; 46 U.S.C. chs. 301 and 313; 49 U.S.C. 336; 49 CFR 1.66.

    Source: 57 FR 23478, June 3, 1992, unless otherwise noted.



                         Subpart A--Introduction



Sec. 221.1  Purpose.

    (a) This part implements statutory responsibilities of the Secretary 
of Transportation (the Secretary) with respect to:
    (1) The regulation pursuant to 46 App. U.S.C. 808 of transactions 
involving transfers of:
    (i) An interest in or control of Documented Vessels owned by 
Citizens of the United States (including the Transfer of a Controlling 
Interest in such owners) to Noncitizens or;
    (ii) A Documented Vessel to registry or Operation under Authority of 
a Foreign Country or for scrapping in a foreign country; and
    (2) Transactions involving maritime interests in time of war or 
national emergency under 46 App. U.S.C. 835.
    (b) The responsibilities in paragraph (a) (1) and (2) of this 
section have been delegated by the Secretary to the Maritime 
Administrator.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6880, Feb. 11, 1998]



Sec. 221.3  Definitions.

    For the purpose of this part, when used in capitalized form:
    (a) Bowaters Corporation means a Noncitizen corporation organized 
under the laws of the United States or of a State that has satisfied the 
requirements of 46 App. U.S.C. 883-1(a)-(e) and holds a valid 
Certificate of Compliance issued by the Coast Guard.
    (b) Charter means any agreement or commitment by which the 
possession

[[Page 45]]

or services of a vessel are secured for a period of time, or for one or 
more voyages, whether or not a demise of the vessel.
    (c) Citizen of the United States means a Person (including 
receivers, trustees and successors or assignees of such Persons as 
provided in 46 App. U.S.C. 803), including any Person (stockholder, 
partner or other entity) who has a Controlling Interest in such Person, 
any Person whose stock or equity is being relied upon to establish the 
requisite U.S. citizen ownership, and any parent corporation, 
partnership or other entity of such Person at all tiers of ownership, 
who, in both form and substance at each tier of ownership, satisfies the 
following requirements--
    (1) An individual who is a Citizen of the United States, by birth, 
naturalization or as otherwise authorized by law;
    (2) A corporation organized under the laws of the United States or 
of a State, the Controlling Interest of which is owned by and vested in 
Citizens of the United States and whose president or chief executive 
officer, chairman of the board of directors and all officers authorized 
to act in the absence or disability of such persons are Citizens of the 
United States, and no more of its directors than a minority of the 
number necessary to constitute a quorum are Noncitizens;
    (3) A partnership organized under the laws of the United States or 
of a State, if all general partners are Citizens of the United States 
and a Controlling Interest in the partnership is owned by Citizens of 
the United States;
    (4) An association organized under the laws of the United States or 
of a State, whose president or other chief executive officer, chairman 
of the board of directors (or equivalent committee or body) and all 
officers authorized to act in their absence or disability are Citizens 
of the United States, no more than a minority of the number of its 
directors, or equivalent, necessary to constitute a quorum are 
Noncitizens, and a Controlling Interest in which is vested in Citizens 
of the United States;
    (5) A joint venture, if it is not determined by the Maritime 
Administrator to be in effect an association or a partnership, which is 
organized under the laws of the United States or of a State, if each 
coventurer is a Citizen of the United States. If a joint venture is in 
effect an association, it will be treated as is an association under 
paragraph(c)(4) of this section, or, if it is in effect a partnership, 
will be treated as is a partnership under paragraph (c)(3) of this 
section; or
    (6) A Trust described in paragraph (t)(1) of this section.
    (d) Controlling interest owned by and vested in Citizens of the 
United States means that--
    (1) In the case of a corporation:
    (i) Title to a majority of the stock thereof is owned by and vested 
in Citizens of the United States, free from any trust or fiduciary 
obligation in favor of any Noncitizen;
    (ii) The majority of the voting power in such corporation is vested 
in Citizens of the United States;
    (iii) Through no contract or understanding is it so arranged that 
the majority of the voting power may be exercised, directly or 
indirectly, in behalf of any Noncitizen; and
    (iv) By no other means whatsoever control of the corporation is 
conferred upon or permitted to be exercised by any Noncitizen;
    (2) In the case of a partnership, all general partners are Citizens 
of the United States and ownership and control of a majority of the 
partnership interest, free and clear of any trust or fiduciary 
obligation in favor of any Noncitizen, is vested in a partner or 
partners each of whom is a Citizen of the United States;
    (3) In the case of an association, a majority of the voting power is 
vested in Citizens of the United States, free and clear of any trust or 
fiduciary obligation in favor of any Noncitizen; and
    (4) In the case of a joint venture, a majority of the equity is 
owned by and vested in Citizens of the United States free and clear of 
any trust or fiduciary obligation in favor of any Noncitizen; but
    (5) In the case of a corporation, partnership, association or joint 
venture owning a vessel which is operated in the coastwise trade, the 
amount of interest and voting power required to be owned by and vested 
in Citizens of the United States shall be not less than 75

[[Page 46]]

percent as required by 46 App. U.S.C. 802.
    (e) Documented vessel means a vessel documented under chapter 121, 
title 46, United States Code or a vessel for which an application for 
such documentation is pending.
    (f) Fishing vessel means a vessel that commercially engages in the 
planting, cultivating, catching, taking, or harvesting of fish, 
shellfish, marine animals, pearls, shells, or marine vegetation or an 
activity that can reasonably be expected to result in the planting, 
cultivating, catching, taking, or harvesting of fish, shellfish, marine 
animals, pearls, shells, or marine vegetation.
    (g) Fish processing vessel means a vessel that commercially prepares 
fish or fish products other than by gutting, decapitating, gilling, 
skinning, shucking, icing, freezing, or brine chilling.
    (h) Fish tender vessel means a vessel that commercially supplies, 
stores, refrigerates, or transports (except in foreign commerce) fish, 
fish products, or materials directly related to fishing or the 
preparation of fish to or from a Fishing Vessel, Fish Processing Vessel, 
or another Fish Tender Vessel or a fish processing facility.
    (i) Hearing Officer means an individual designated by the Maritime 
Administrator to conduct hearings under Subpart E of this part and 
assess civil penalties.
    (j) Noncitizen means a Person who is not a Citizen of the United 
States.
    (k) Operation under the authority of a foreign country means any 
agreement, undertaking or device by which a Documented Vessel is 
voluntarily subjected to any restriction or requirement, actual or 
contingent, under the laws or regulations of a foreign country or 
instrumentality thereof concerning use or operation of the vessel that 
is or may be in derogation of the rights and obligations of the owner, 
operator or master of the vessel under the laws of the United States, 
unless such restriction or requirement is of general applicability and 
uniformly imposed by such country or instrumentality in exercise of its 
sovereign prerogatives with respect to public health, safety or welfare, 
or in implementation of accepted principles of international law 
regarding cabotage or safety of navigation.
    (l) Party means the Person alleged to have violated the statute or 
regulations for which a civil penalty may be assessed.
    (m) Person includes individuals and corporations, partnerships, 
joint ventures, associations and Trusts existing under or authorized by 
the laws of the United States or of a State or, unless the context 
indicates otherwise, or any foreign country.
    (n) Pleasure vessel means a vessel that has been issued a 
Certificate of Documentation with a recreational endorsement and is 
operated only for pleasure pursuant to 46 U.S.C. 12109.
    (o) Settlement means the process whereby a civil penalty or other 
disposition of the alleged violation is agreed to by the Hearing Officer 
and the Party in accordance with Sec. 221.73 of this part.
    (p) State means a State of the United States, Guam, Puerto Rico, the 
Virgin Islands, American Samoa, the District of Columbia, the 
Commonwealth of the Northern Mariana Islands, and any other territory or 
possession of the United States.
    (q) Transfer means the passing of control of or an interest in a 
Documented Vessel and includes the involuntary conveyance by a foreign 
judicial or administrative tribunal of any interest in or control of a 
Documented Vessel owned by a Citizen of the United States to a 
Noncitizen that is not eligible to own a Documented Vessel.
    (r) Trust means:
    (1) In the case of ownership of a Documented Vessel, a Trust that is 
domiciled in and existing under the laws of the United States, or of a 
State, of which the trustee is a Citizen of the United States and a 
Controlling Interest in the Trust is held for the benefit of Citizens of 
the United States; or
    (s) United States, when used in the geographic sense, means the 
States of the United States, Guam, Puerto Rico, the Virgin Islands, 
American Samoa, the District of Columbia, the Commonwealth of the 
Northern Mariana Islands, and any other territory or possession of the 
United States; when used in other than the geographic sense, it means 
the United States Government.

[[Page 47]]

    (t) United States Government means the Federal Government acting by 
or through any of its departments or agencies.
    (u) Vessel Transfer Officer means the Maritime Administration's 
Vessel Transfer and Disposal Officer, whose address is MAR-745.1, 
Maritime Administration, United States Department of Transportation, 
Washington, DC 20590, or that person's delegate.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6880, Feb. 11, 1998]



Sec. 221.5  Citizenship declarations.

    (a) Pursuant to 46 U.S.C. 31306(a), when an instrument transferring 
an interest in a Documented Vessel owned by a Citizen of the United 
States is presented to the United States Government for filing or 
recording, the Person filing shall submit therewith Maritime 
Administration Form No. MA-899 so it may be determined if sections 9 or 
37 of the Shipping Act of 1916 (46 App. U.S.C. 808 and 837) apply to the 
transaction. Form No. MA-899 is available from the Coast Guard 
Documentation Office at the port of record of the vessel or from the 
Vessel Transfer Officer.
    (b) The filing required by paragraph (a) of this section is not 
required for transactions involving vessel types described in 
Sec. 221.11(b)(1)(i) through (iv) of this part.
    (c) The filing required by paragraph (a) of this section is waived 
for transactions which are given general approval in this part.
    (d) If the transfer of interest is one which requires written 
approval of the Maritime Administrator, the Person filing shall submit 
therewith evidence of that approval.
    (e) A declaration filed by any Person other than an individual shall 
be signed by an official authorized by that Person to execute the 
declaration.



Sec. 221.7  Applications and fees.

    (a) Applications. Whenever written approval of the Maritime 
Administrator is required for transfers to Noncitizens or to foreign 
registry or Operation Under Authority of a Foreign Country, or pursuant 
to a Maritime Administration contract or Order, an application on 
Maritime Administration Form MA-29 or MA-29B giving full particulars of 
the proposed transaction shall be filed with the Vessel Transfer 
Officer.
    (b) Fees. Applications for written approval of any of the following 
transactions shall be accompanied by the specified fee:
    (1) Transactions requiring approval for:

(i) Sale and delivery by a Citizen of the United States to a            
 Noncitizen, or Transfer to foreign registry or Operation Under         
 Authority of a Foreign Country, of a Documented Vessel, per            
 vessel--                                                               
  (A) Of 1,000 gross tons and over...............................   $325
  (B) Of less than 1,000 gross tons..............................    170
(ii) Transfer of any interest in, or control of, a Documented           
 Vessel owned by a Citizen of the United States to a Noncitizen,        
 per vessel......................................................    250
(iii) Charter of a Documented Vessel owned by a Citizen of the          
 United States to a Noncitizen, per vessel.......................    250
(iv) Sale or Transfer of an interest in or the control of an            
 interest in an entity that is a Citizen of the United States and       
 owns, or is the direct or indirect parent of an entity that            
 owns, any Documented Vessel, if by such sale or Transfer the           
 Controlling Interest in such entity is vested in, or held for          
 the benefit of, any Noncitizen..................................    325
                                                                        

    (2) Transactions requiring written approval pursuant to a Maritime 
Administration contract or Order:

(i) Transfer of ownership or registry, or, both, of the vessel,         
 per vessel......................................................   $260
(ii) Sale or Transfer of any interest in the owner of the vessel,       
 if by such sale or Transfer the Controlling Interest in the            
 owner is vested in, or held for the benefit of, a Noncitizen,          
 per vessel......................................................    235
(iii) Charter of the vessel to a Noncitizen, per vessel..........    240
                                                                        

    (c) Modification of applications or approvals. An application for 
modification of any pending application or prior approval, or of an 
outstanding Maritime Administration contract or Order, shall be 
accompanied by the fee established for the original application.
    (d) Reduction or waiver of fees. The Maritime Administrator, in 
appropriate circumstances, and upon a written finding, may reduce any 
fee imposed by paragraph (b) or (c) of this section, or may waive the 
fee entirely in extenuating circumstances where the interest of the 
United States Government would be served.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6880, Feb. 11, 1998]

[[Page 48]]



 Subpart B--Transfers to Noncitizens or to Registry or Operation Under 
                     Authority of a Foreign Country



Sec. 221.11  Required approvals.

    (a) Except as provided in section 12106(e) of title 46, United 
States Code, a Person may not, without the approval of the Maritime 
Administrator:
    (1) Sell, lease, charter, deliver, or in any manner Transfer to a 
Noncitizen, or agree (unless such agreement by its terms requires 
approval of the Maritime Administrator in order to effect such 
transfer), to sell, lease, charter, deliver, or in any manner Transfer 
to a Noncitizen, any interest in or control of a Documented Vessel owned 
by a Citizen of the United States or a vessel the last documentation of 
which was under the laws of the United States except as provided in this 
part; or
    (2) Place any Documented Vessel, or any vessel the last 
documentation of which was under the laws of the United States, under 
foreign registry or operate that vessel under the authority of a foreign 
country, except as provided in this part.
    (b)(1) The approvals required by paragraph (a)(1) of this section 
are not required for the following Documented Vessel types if the vessel 
has been operated exclusively and with bona fides for one or more of the 
following uses, under a Certificate of Documentation with an appropriate 
endorsement and no other, since initial documentation or renewal of its 
documentation following construction, conversion, or transfer from 
foreign registry, or, if it has not yet so operated, if the vessel has 
been designed and built and will be operated for one or more of the 
following uses:
    (i) A Fishing vessel;
    (ii) A Fish processing vessel;
    (iii) A Fish tender vessel; and
    (iv) A Pleasure vessel.
    (2) A vessel of a type specified in paragraphs (b)(1)(i) through 
(iii) of this section will not be ineligible for the approval granted by 
this paragraph by reason of also holding or having held a Certificate of 
Documentation with a coastwise or registry endorsement, so long as any 
trading under that authority has been only incidental to the vessel's 
principal employment in the fisheries and directly related thereto.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6880, Feb. 11, 1998]



Sec. 221.13  General approval.

    (a) Transactions other than transfer of registry or operation under 
authority of a foreign country. (1) The Maritime Administrator hereby 
grants the approval required by 46 App. U.S.C. 808(c)(1) for the sale, 
lease, Charter, delivery, or any other manner of Transfer to a 
Noncitizen of an interest in or control of a Documented Vessel owned by 
a Citizen of the United States or a vessel the last documentation of 
which was under the laws of the United States except:
    (i) As limited by paragraph (b) of this section for transfers to 
Bowaters Corporations;
    (ii) As limited by Sec. 221.15(d) of this part for sales for 
scrapping;
    (iii) Bareboat or demise Charters of vessels operating in the 
coastwise trade.

A Documented Vessel shall remain documented following any transaction 
approved by this paragraph (a)(1). Other approvals may be required by 
statutes other than 46 App. U.S.C. 808(c)(1)   and/or by contract for 
certain vessels.
    (2) The approvals granted by paragraph (a)(1) of this section shall 
not apply to any such Transfer proposed to be made during any period 
when the United States is at war or during any national emergency, the 
existence of which has invoked the provisions of section 37 of the 
Shipping Act, 1916, as amended (46 App. U.S.C. 835), or to any such 
Transfer proposed to be made to a citizen of any country when such 
transfer would be contrary to the foreign policy of the United States as 
declared by an executive department of the United States.
    (3) An information copy of any sales agreement, bareboat or demise 
Charter entered into pursuant to this approval shall be submitted to the 
Vessel Transfer Officer not later than thirty days following a request 
by that official.
    (4) Except for Charters to Noncitizens of documented bulk cargo 
vessels engaged in carrying bulk raw and processed agricultural 
commodities from the United States to ports in the geographic area 
formerly known as the

[[Page 49]]

Union of Soviet Socialist Republics, or to other permissible ports of 
discharge for transshipment to the geographic area formerly known as the 
Union of Soviet Socialist Republics, pursuant to an operating- 
differential subsidy agreement that is consistent with the requirements 
of 46 CFR parts 252 and 294, this approval excludes and does not apply 
to Transfers to a Person who is subject, directly or indirectly, to 
control of an entity within the geographic area formerly known as the 
Union of Soviet Socialist Republics, Latvia, Lithuania, Estonia, Libya, 
Iraq, Bulgaria, Albania, North Korea, Laos, Cambodia, Mongolian Peoples 
Republic, Vietnam, or Cuba, unless such transferee is an individual who 
has been lawfully admitted into, and resides in, the United States, or 
to Charters for the carriage of cargoes of any kind to or from, or for 
commercial operation while within the waters of (as distinct from 
passage through), any of these countries. This list of countries is 
subject to change from time to time. Information concerning current 
restrictions may be obtained from the Vessel Transfer Officer.
    (b) Bowaters corporations. (1) For documented Vessels other than 
those operating in the coastwise trade, the approvals granted in 
paragraph (a) of this section shall apply to Bowaters Corporations.
    (2) The Maritime Administrator hereby grants approval for the time 
charter of a Documented Vessel of any tonnage by a Citizen of the United 
States to a Bowaters Corporation for operation in the coastwise trade, 
subject to the following conditions:
    (i) If non-self-propelled or, if self-propelled and less than 500 
gross tons, no such vessel shall engage in the fisheries or in the 
transportation of merchandise or passengers for hire between points in 
the United States embraced within the coastwise laws except as a service 
for a parent or subsidiary corporation; and
    (ii) If non-self-propelled or, if self-propelled and less than 500 
gross tons, no such vessel may be subchartered or subleased from any 
such Bowaters Corporation except:
    (A) At prevailing rates;
    (B) For use otherwise than in the domestic noncontiguous trades;
    (C) To a common or contract carrier subject to part 3 of the 
Interstate Commerce Act, as amended, which otherwise qualifies as a 
Citizen of the United States and which is not connected, directly or 
indirectly, by way of ownership or control with such corporation.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6880, Feb. 11, 1998]



Sec. 221.15  Approval for transfer of registry or operation under authority of a foreign country or for scrapping in a foreign country.

    (a) Vessels of under 1,000 gross tons. (1) The Maritime 
Administrator hereby grants approval for the Transfer to foreign 
registry and flag or Operation Under the Authority of a Foreign Country 
or for scrapping in a foreign country of Documented Vessels or vessels 
the last documentation of which was under the laws of the United States 
and which are of under 1,000 gross tons if at the time of such Transfer 
there are no liens or encumbrances recorded against the vessel in the 
U.S. Coast Guard Documentation Office at its last U.S. port of record.
    (2) This approval shall not apply if the vessel is to be placed 
under the registry, or operated under the authority of, or scrapped in 
any country listed in Sec. 221.13(a)(4) of this part.
    (3) This approval shall not apply to any such Transfer proposed to 
be made during any period when the United States is at war or during any 
national emergency, the existence of which has invoked the provisions of 
section 37 of the Shipping Act, 1916, as amended (46 App. U.S.C. 835), 
or to any such Transfer proposed to be made to a citizen of any country 
when such transfer would be contrary to the foreign policy of the United 
States as declared by an executive department of the United States.
    (b) Vessels of 1,000 gross tons or more. (1) Applications for 
approval of Transfer to foreign registry and flag or Operation Under the 
Authority of a Foreign Country or for scrapping in a foreign country of 
Documented Vessels or vessels the last documentation of which was under 
the laws of the United States and which are of 1,000 gross tons or more 
will be evaluated in light of--

[[Page 50]]

    (i) The type, size speed, general condition, and age of the vessel;
    (ii) The acceptability of the owner, proposed transferee and the 
country of registry or the country under the authority of which the 
vessel is to be operated; and
    (iii) The need to retain the vessel under U.S. documentation, 
ownership or control for purposes of national defense, maintenance of an 
adequate merchant marine, foreign policy considerations or the national 
interest.
    (2) If the application is found to be acceptable under the criteria 
of this paragraph, approval will be granted. For vessels of under 3,000 
gross tons, in the absence of unusual circumstances, no conditions will 
be imposed on the transfer. For vessels of 3,000 gross tons and above, 
approval will be granted upon acceptance by the owner of the terms and 
conditions referred to in paragraph (c) or (d) of this section, as 
applicable. Additional terms deemed appropriate by the Maritime 
Administrator may be imposed. The terms and conditions shall be 
contained in an Approval Notice and Agreement (``Contract'') executed 
prior to issuance of the Transfer Order. Unless otherwise specified, the 
terms and conditions shall remain in effect for the period of the 
remaining economic life of the vessel or for the duration of a national 
emergency proclaimed by the President prior or subsequent to such 
Transfer, whichever period is longer. The economic life of a vessel for 
purposes of this regulation is deemed to be twenty (20) years for 
tankers and other liquid bulk carriers and twenty-five (25) years for 
other vessel types. This period is to be calculated from the date the 
vessel was originally accepted for delivery from the shipbuilder, but 
may be extended for such additional period of time as may be determined 
by the Maritime Administrator if the vessel has been substantially 
rebuilt or modified in a manner that warrants such extension.
    (c) Foreign transfer other than for scrapping. If the foreign 
Transfer of a vessel referred to in paragraph (b) of this section is 
other than for the purpose of scrapping the vessel and other than a 
Transfer to the government of an acceptable foreign country, and in the 
absence of unusual circumstances as determined by the Maritime 
Administrator (for example a Transfer to an entity controlled by the 
government of an acceptable foreign country), the following conditions 
will be imposed on the transferee:
    (1) Ownership. (i) Without the prior written approval of the 
Maritime Administrator, there shall be no further Transfer of ownership, 
change in the registry or Operation of such vessel Under the Authority 
of a Foreign Country; provided, however, that, if the Transfer of 
ownership is to a Citizen of the United States or other entity qualified 
under 46 U.S.C. 12102(a) to document a vessel and the vessel is 
thereafter documented under U.S. law, no prior written approval shall be 
required but the transferee shall notify the Vessel Transfer Officer in 
writing of such change in the ownership and the U.S. documentation 
within thirty (30) days after such change in ownership and 
documentation.
    (ii) The restrictions contained in paragraph (c)(1)(i) of this 
section shall not be applicable to a change in ownership resulting from 
the death of the vessel owner, so long as notification of any such 
Transfer of ownership occurring by reason of death shall be filed with 
the Vessel Transfer Officer within 60 days from the date of such 
Transfer identifying with particularity the name, legal capacity, 
citizenship, current domicile or address of, or other method of direct 
communication with, the transferee(s).
    (2) Requisition. The vessel shall, if requested by the United 
States, be sold or Chartered to the United States on the same terms and 
conditions upon which a vessel owned by a Citizen of the United States 
or documented under U.S. law could be requisitioned for purchase or 
Charter pursuant to section 902 of the Merchant Marine Act, 1936, as 
amended (46 App. U.S.C. 1242). If the vessel is under the flag of a 
country that is a member of the North Atlantic Treaty Organization 
(NATO), the Maritime Administrator will consider this condition 
satisfied if the owner furnishes satisfactory evidence that the vessel 
is already in noncommercial service under the direction of the 
government of a NATO country.

[[Page 51]]

    (3) Trade. Without the prior written approval of the Maritime 
Administrator, the vessel shall not carry cargoes of any kind to or 
from, or be operated commercially while within the waters of (as 
distinct from passage through), a country referred to in 
Sec. 221.13(a)(4) of this part, nor shall there be any Charter or other 
Transfer of an interest in the vessel, other than to a Citizen of the 
United States, for carriage of cargoes of any kind to or from, or for 
commercial operation while within the waters of (as distinct from 
passage through), any such country.
    (4) Default. In the event of default under any or all of the 
conditions set forth in paragraphs (c) (1), (2) or (3) of this section, 
the owner shall pay to the Maritime Administration, without prejudice to 
any other rights that the United States may have, as liquidated damages 
and not as a penalty, the sum of not less than $25,000 or more than 
$1,000,000, as specified in the contract, and the vessel shall be 
subject to the penalties imposed by 46 App. U.S.C. 808 and 839. Pursuant 
to 46 App. U.S.C. 836, the Maritime Administrator may remit forfeiture 
of the vessel upon such conditions as may be required under the 
circumstances of the particular case, including the payment of a sum in 
lieu of forfeiture, and execution of a new agreement containing 
substantially the same conditions set forth above and such others as the 
Maritime Administrator may deem appropriate and which will be applicable 
to the vessel for the remaining period of the original agreement. In 
order to secure the payment of any such sums of money as may be required 
as a result of default, the transferee shall contractually agree, in 
form and substance approved by the Chief Counsel of the Maritime 
Administration, to comply with the above conditions and to provide a 
United States commercial surety bond or other surety acceptable to the 
Maritime Administrator for an amount not less than $25,000 and not more 
than $1,000,000, depending upon the type, size and condition of the 
vessel. ``Other surety'' may be any one of the following:
    (i) An irrevocable letter of credit, which is acceptable to the 
Maritime Administrator, issued or guaranteed by a Citizen of the United 
States or by a federally insured depository institution;
    (ii) A pledge of United States Government securities;
    (iii) The written guarantee of a friendly government of which the 
transferee is a national;
    (iv) A written guarantee or bond by a United States corporation 
found by the Maritime Administrator to be financially qualified to 
service the undertaking to pay the stipulated amount;
    (v) If the transferee is controlled in any manner by one or more 
Citizens of the United States, a contractual agreement in form and 
substance acceptable to the Chief Counsel of the Maritime Administration 
by the transferee and the Citizens of the United States with authority 
to exercise such control, if found by the Maritime Administrator to be 
financially qualified, jointly and severally to pay the stipulated 
amount, such agreement to be secured by the written guarantee of the 
transferee and each of the Citizens of the United States or other form 
of guarantee as may be required by the Maritime Administrator; or
    (vi) Any other surety acceptable to the Maritime Administrator and 
approved as to form and substance by the Chief Counsel of the Maritime 
Administration.
    (d) Foreign transfer for scrapping. If the transfer of control, 
whether or not there is a transfer of registry, of a vessel referred to 
in paragraph (b) of this section is for the purpose of scrapping the 
vessel abroad, the following conditions will be imposed on the 
transferee:
    (1) The vessel or any interest therein shall not be subsequently 
sold to any Person without the prior written approval of the Maritime 
Administrator, nor shall it be used for the carriage of cargo or 
passengers of any kind whatsoever.
    (2) Within a period of 18 months from the date of approval of the 
sale, the hull of the vessel shall be completely scrapped, dismantled, 
dismembered, or destroyed in such manner and to such extent as to 
prevent the further use thereof, or any part thereof, as a ship, barge, 
or any other means of transportation.

[[Page 52]]

    (3) The scrap resulting from the demolition of the hull of the 
vessel, the engines, machinery, and major items of equipment shall not 
be sold to, or utilized by, any citizen or instrumentality of a country 
referred to in Sec. 221.13(a)(4) of the part, nor may such scrap be 
exported to these countries. The engines, machinery and major items of 
equipment shall not be exported to destinations within the United 
States.
    (4) In the event of default under any or all of the conditions set 
forth in paragraphs (d) (1), (2) or (3) of this section, the transferee 
shall pay to the Maritime Administration, without prejudice to any other 
rights that the United States may have, as liquidated damages and not as 
a penalty, the sum of not less than $25,000 or more than $1,000,000, as 
specified in the contract, depending upon the size, type and condition 
of the vessel. This payment shall be secured by a surety company bond or 
other surety satisfactory to the Maritime Administrator. ``Other 
surety'' may be one of those set out in paragraph (c)(4) (i) through 
(vi) of this section.
    (5) There shall be filed with the Vessel Transfer Officer a 
certificate or other evidence satisfactory to the Chief Counsel of the 
Maritime Administration, duly attested and authenticated by a United 
States Consul, that the scrapping of the vessel (hull only) and disposal 
or utilization of the resultant scrap and the engines, machinery and 
major items of equipment have been accomplished in accord with 
paragraphs (d) (2) and (3) of this section.
    (e) Resident agent for service. (1) Any proposed foreign transferee 
shall, prior to the issuance and delivery of the Transfer Order covering 
the vessel or vessels to be transferred, designate and appoint a 
resident agent in the United States to receive and accept service of 
process or other notice in any action or proceeding instituted by the 
United States relating to any claim arising out of the approved 
transaction.
    (2) The resident agent designated and appointed by the foreign 
transferee shall be subject to approval by the Maritime Administrator. 
To be acceptable, the resident agent must maintain a permanent place of 
business in the United States and shall be a banking or lending 
institution, a ship-owner or ship-operating corporation or other 
business entity that is satisfactory to the Maritime Administrator.
    (3) Appointment and designation of the resident agent shall not be 
terminated, revoked, amended or altered without the prior written 
approval of the Maritime Administrator.
    (4) The foreign transferee shall file with the Vessel Transfer 
Officer a written copy of the appointment of the resident agent, which 
copy shall be fully endorsed by the resident agent stating that it 
accepts the appointment, that it will act thereunder and that it will 
notify the Vessel Transfer Officer in writing in the event it becomes 
disqualified from so acting by reason of any legal restrictions. Service 
of process or notice upon any officer, agent or employee of the resident 
agent at its permanent place of business shall constitute effective 
service on, or notice to, the foreign transferee.
    (f) Administrative provisions. (1) The subsequent Transfer of 
ownership or registry of vessels that have been Transferred to foreign 
ownership or registry or both, or to Operation Under the Authority of a 
Foreign Country, that remain subject to Maritime Administration 
contractual control as set forth above, will be subject to substantially 
the same Maritime Administration policy considerations that governed the 
original Transfer, including such changes or modifications that have 
subsequently been made and continued in effect. Approval of these 
subsequent Transfers will be subject to the same terms and conditions 
governing the foreign Transfer at the time of the previous Transfer, as 
modified (if applicable).
    (2) The authorization for all approved transactions, either by 
virtue of 46 App. U.S.C. 808, 835 and 839 or the Maritime 
Administration's Contract with the vessel owner, will be by notification 
in the form of a Transfer Order upon receipt of the executed Contract, 
the required bond or other surety, and other supporting documentation 
required by the Contract.
    (3) In order that the Maritime Administration's records may be 
maintained on a current basis, the transferor and transferee of the 
vessel are

[[Page 53]]

required to notify the Vessel Transfer Officer of the date and place 
where the approved transaction was completed, and the name of the 
vessel, if changed. This information relating to the completion of the 
transaction and any change in name shall be furnished as soon as 
possible, but not later than 10 days after the same has occurred.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6881, Feb. 11, 1998]



Sec. 221.17  Sale of a documented vessel by order of a district court.

    (a) A Documented Vessel may be sold by order of a district court 
only to a Person eligible to own a Documented Vessel or to a mortgagee 
of the vessel. Unless waived by the Maritime Administrator, a Person 
purchasing the vessel pursuant to court order or from a mortgagee not 
eligible to document a vessel who purchased the vessel pursuant to a 
court order must document the vessel under chapter 121 of title 46, 
United States Code.
    (b) A Person purchasing the vessel, pursuant to court order or from 
a mortgagee not eligible to document a vessel who purchased the vessel 
pursuant to a court order, and wishing to obtain waiver of the 
documentation requirement must submit a request including the reason 
therefor to the Vessel Transfer Officer.
    (c)(1) A mortgagee not eligible to own a Documented Vessel shall not 
operate, or cause operation of, the vessel in commerce. Except as 
provided in paragraph (c)(2) of this section, the vessel may not be 
operated for any purpose without the prior written approval of the 
Maritime Administrator.
    (2) The Maritime Administrator hereby grants approval for a 
mortgagee not eligible to own a Documented Vessel to operate the vessel 
to the extent necessary for the immediate safety of the vessel or for 
repairs, drydocking or berthing changes, but only under the command of a 
Citizen of the United States.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6881, Feb. 11, 1998]



Sec. 221.19  Possession or sale of vessels by mortgagees or trustees other than pursuant to court order.

    (a) A mortgagee or a trustee of a preferred mortgage on a Documented 
Vessel that is not eligible to own a Documented Vessel does not require 
the express approval of the Maritime Administrator to take possession of 
the vessel in the event of default by the mortgagor other than by 
foreclosure pursuant to 46 U.S.C. 31329, if provided for in the mortgage 
or a related financing document, but in such event the vessel may not be 
operated, or caused to be operated, in commerce. The vessel may not, 
except as provided in paragraph (b) of this section, be operated for any 
other purpose unless approved in writing by the Maritime Administrator, 
nor may the vessel be sold to a Noncitizen without the approval of the 
Maritime Administrator.
    (b) The Maritime Administrator hereby grants approval for such 
mortgagee or trustee to operate the vessel to the extent necessary for 
the immediate safety of the vessel, for its direct return to the United 
States or for its movement within the United States, or for repairs, 
drydocking or berthing changes, but only under the command of a Citizen 
of the United States.
    (c) A Noncitizen mortgagee that has brought a civil action in rem 
for enforcement of a preferred mortgage lien on a citizen-owned 
Documented Vessel pursuant to 46 U.S.C. 31325(b)(1) may petition the 
court pursuant to 46 U.S.C. 31325(e)(1) for appointment of a receiver 
and, if the receiver is Person eligible to own a Documented Vessel, to 
authorize the receiver to operate the mortgaged vessel on such terms and 
conditions as the court deems appropriate. If the receiver is not a 
Citizen of the United States, the vessel may not be operated in 
coastwise trade without prior written approval of the Maritime 
Administrator.

[57 FR 23478, June 3, 1992, as amended at 63 FR 6881, Feb. 11, 1998]

[[Page 54]]



                          Subpart C  [Reserved]



 Subpart D--Transactions Involving Maritime Interests in Time of War or 
         National Emergency Under 46 App. U.S.C. 835  [Reserved]



                       Subpart E--Civil Penalties



Sec. 221.61  Purpose.

    This subpart describes procedures for the administration of civil 
penalties that the Maritime Administration may assess under 46 U.S.C. 
31309 and 31330, and section 9(d) of the Shipping Act, 1916, as emended 
(46 App. U.S.C. 808(d), pursuant to 49 U.S.C. 336.

    Note: Pursuant to 46 U.S.C. 31309, a general penalty of not more 
than $11,000 may be assessed for each violation of chapter 313 or 46 
U.S.C. subtitle III administered by the Maritime Administration, and the 
regulations in this part that are promulgated thereunder, except that a 
person violating 46 U.S.C. 31329 and the regulations promulgated 
thereunder is liable for a civil penalty of not more than $27,500 for 
each violation. A person that charters, sells, or transfers a vessel, or 
an interest therein, in violation of 46 App. U.S.C. 808 is liable for a 
civil penalty of not more than $11,000 for each violation. These penalty 
amounts are in accordance with Public Law 101-410, as amended by Public 
Law 104-134. Criminal penalties may also apply to violations of these 
statutes.


[61 FR 56901, Nov. 5, 1996, as amended at 63 FR 6881, Feb. 11, 1998]



Sec. 221.63  Investigation.

    (a) When the Vessel Transfer Office obtains information that a 
Person may have violated a statute or regulation for which a civil 
penalty may be assessed under this subpart, that Officer may investigate 
the matter and decide whether there is sufficient evidence to establish 
a prima facie case that a violation occurred.
    (b) If that Officer decides there is a prima facie case, then that 
Officer may enter into a stipulation with the Party in accordance with 
Sec. 221.67 of this subpart, or may refer the matter directly to a 
Hearing Officer for procedures in accordance with Sec. 221.73 to 221.89 
of this subpart.



Sec. 221.65  Criteria for determining penalty.

    In determining any penalties assessed, the Vessel Transfer Officer 
under Sec. 221.67 and the Hearing Officer under Secs. 221.73 to 221.89 
of this part shall take into account the nature, circumstances, extent 
and gravity of the violation committed and, with respect to the Party, 
the degree of culpability, any history of prior offenses, ability to pay 
and other matters that justice requires.



Sec. 221.67  Stipulation procedure.

    (a) When the Vessel Transfer Office decides to proceed under this 
section, that Office shall notify the Party in writing by registered or 
certified mail--
    (1) Of the alleged violation and the applicable statute and 
regulations;
    (2) Of the maximum penalty that may be assessed for each violation;
    (3) Of a summary of the evidence supporting the violation;
    (4) Of the penalty that the Vessel Transfer Officer will accept in 
settlement of the violation;
    (5) Of the right to examine all the material in the case file and 
have a copy of all written documents provided upon request;
    (6) That by accepting the penalty, the Party waives the right to 
have the matter considered by a Hearing Officer in accordance with 
Secs. 221.73 to 221.89 of this subpart, and that if the Party elects to 
have the matter considered by a Hearing Officer, the Hearing Officer may 
assess a penalty less than, equal to, or greater than that stipulated in 
settlement if the Hearing Officer finds that a violation occurred; and
    (7) That a violation will be kept on record and may be used by the 
Maritime Administration in aggravation of an assessment of a penalty for 
a subsequent violation by that Party.
    (b) Upon receipt of the notification specified in paragraph (a) of 
this section, a Party may within 30 days--
    (1) Agree to the stipulated penalty in the manner specified in the 
notification; or
    (2) Notify in writing the Vessel Transfer Officer that the Party 
elects to have the matter considered by a Hearing Officer in accordance 
with the

[[Page 55]]

procedure specified in Secs. 221.73 through 221.89 of this subpart.
    (c) If, within 30 days of receipt of the notification specified in 
paragraph (a) of this section, the Party neither agrees to the penalty 
nor elects the informal hearing procedure, the Party will be deemed to 
have waived its right to the informal hearing procedure and the penalty 
will be considered accepted. If a monetary penalty is assessed, it is 
due and payable to the United States, and the Maritime Administration 
may initiate appropriate action to collect the penalty.



Sec. 221.69  Hearing Officer.

    (a) The Hearing Officer shall have no responsibility, direct or 
supervisory, for the investigation of cases referred for the assessment 
of civil penalties.
    (b) The Hearing Officer shall decide each case on the basis of the 
evidence before him or her, and must have no prior connection with the 
case. The Hearing Officer is solely responsible for the decision in each 
case referred to him or her.
    (c) The Hearing Officer is authorized to administer oaths and issue 
subpoenas necessary to the conduct of a hearing, to the extent provided 
by law.



Sec. 221.71  Hearing Officer referral.

    If, pursuant to Sec. 221.67(b)(2) of this subpart, a Party elects to 
have the matter referred to a Hearing Officer, the Vessel Transfer 
Officer may--
    (a) Decide not to proceed with penalty action, close the case, and 
notify the Party in writing that the case has been closed; or
    (b) Refer the matter to a Hearing Officer with the case file and a 
record of any prior violations by the Party.



Sec. 221.73  Initial Hearing Officer consideration.

    (a) When a case is received for action, the Hearing Officer shall 
examine the material submitted. If the Hearing Officer determines that 
there is insufficient evidence to proceed, or that there is any other 
reason which would make penalty action inappropriate, the Hearing 
Officer shall return the case to the Vessel Transfer Officer with a 
written statement of the reason. The Vessel Transfer Officer may close 
the case or investigate the matter further. If additional evidence 
supporting a violation is discovered, the Vessel Transfer Officer may 
resubmit the matter to the Hearing Officer.
    (b) If the Hearing Officer determines that there is reason to 
believe that a violation has been committed, the Hearing Officer 
notifies the Party in writing by registered or certified mail of--
    (1) The alleged violation and the applicable statute and 
regulations;
    (2) The maximum penalty that may be assessed for each violation;
    (3) The general nature of the procedure for assessing and collecting 
the penalty;
    (4) The amount of the penalty that appears to be appropriate, based 
on the material then available to the Hearing Officer;
    (5) The right to examine all the material in the case file and have 
a copy of all written documents provided upon requests; and
    (6) The right to request a hearing.
    (c) If at any time it appears that the addition of another Party to 
the proceedings is necessary or desirable, the Hearing Officer will 
provide the additional Party and the Party alleged to be in violation 
with notice as described above.
    (d) At any time during a proceeding, before the Hearing Officer 
issues a decision under Sec. 221.89, the Hearing Officer and the Party 
may agree to a Settlement of the case.



Sec. 221.75  Response by party.

    (a) Within 30 days after receipt of notice from the Hearing Officer, 
the Party, or counsel for the Party, may--
    (1) Pay the amount specified in the notice as being appropriate;
    (2) In writing request a hearing, specifying the issues in dispute; 
or
    (3) Submit written evidence or arguments in lieu of a hearing.
    (b) The right to a hearing is waived if the Party does not submit a 
request to the Hearing Officer within 30 days after receipt of notice 
from the Hearing Officer, unless additional time has been granted by the 
Hearing Officer.
    (c) The Hearing Officer has discretion as to the venue and 
scheduling of a hearing. The hearing will normally be

[[Page 56]]

held at the office of the Hearing Officer. A request for a change of 
location of a hearing or transfer to another Hearing Officer must be in 
writing and state the reasons why the requested action is necessary or 
desirable. Action on the request is at the discretion of the Hearing 
Officer.
    (d) A Party who has requested a hearing may amend the specification 
of the issues in dispute at any time up to 10 days before the scheduled 
date of the hearing. Issues raised later than 10 days before the 
schedule hearing may be presented only at the discretion of the Hearing 
Officer.



Sec. 221.77  Disclosure of evidence.

    The Party shall, upon request, be provided a free copy of all the 
evidence in the case file, except material that would disclose or lead 
to the disclosure of the identity of a confidential informant and any 
other information properly exempt from disclosure.



Sec. 221.79  Request for confidential treatment.

    (a) In addition to information treated as confidential under 
Sec. 221.77 of this subpart, a request for confidential treatment of a 
document or portion thereof may be made by the Person supplying the 
information on the basis that the information is--
    (1) Confidential financial information, trade secrets, or other 
material exempt from disclosure by the Freedom of Information Act (5 
U.S.C. 552);
    (2) Required to be held in confidence by 18 U.S.C. 1905; or
    (3) Otherwise exempt by law from disclosure.
    (b) The Person desiring confidential treatment must submit the 
request to the Hearing Officer in writing and the reasons justifying 
nondisclosure. The Hearing Officer shall forward any request for 
confidential treatment to the appropriate official of the Maritime 
Administration for a determination hereon. Failure to make a timely 
request may result in a document being considered as nonconfidential and 
subject to release.
    (c) Confidential material shall not be considered by the Hearing 
Officer in reaching a decision unless--
    (1) It has been furnished by a Party; or
    (2) It has been furnished pursuant to a subpoena.



Sec. 221.81  Counsel.

    A Party has the right to be represented at all stages of the 
proceeding by counsel. After receiving notification that a Party is 
represented by counsel, the Hearing Officer will direct all further 
communications to that counsel.



Sec. 221.83  Witnesses.

    A Party may present the testimony of any witness either through a 
personal appearance or through a written statement. The Party may 
request the assistance of the Hearing Officer in obtaining the personal 
appearance of a witness. The request must be in writing and state the 
reasons why a written statement would be inadequate, the issue or issues 
to which the testimony would be relevant, and the substance of the 
expected testimony. If the Hearing Officer determines that the personal 
appearance of the witness may materially aid in the decision on the 
case, the Hearing Officer will seek to obtain the witness' appearance. 
The Hearing Officer may move the hearing to the witness' location, 
accept a written statement, or accept a stipulation in lieu of 
testimony.



Sec. 221.85  Hearing procedures.

    (a) The Hearing Officer shall conduct a fair and impartial 
proceeding in which the Party is given a full opportunity to be heard. 
At the opening of a hearing, the Hearing Officer shall advise the Party 
of the nature of the proceedings and of the alleged violation.
    (b) The material in the case file pertinent to the issues to be 
determined by the Hearing Officer shall first be presented. The Party 
may examine, respond to and rebut this material. The Party may offer any 
facts, statements, explanations, documents, sworn or unsworn testimony, 
or other exculpatory items that bear on the issues, or which may be 
relevant to the size of an appropriate penalty. The Hearing Officer may 
require the authentication of any written exhibit or statement.
    (c) At the close of the Party's presentation of evidence, the 
Hearing Officer

[[Page 57]]

may allow the introduction of rebuttal evidence. The Hearing Officer may 
allow the Party to respond to rebuttal evidence submitted.
    (d) In receiving evidence, the Hearing Officer shall not be bound by 
the strict rules of evidence. In evaluating the evidence presented, the 
Hearing Officer shall give due consideration to the reliability and 
relevance of each item of evidence.
    (e) After the evidence in the case has been presented, the Party may 
present argument on the issues in the case. The party may also request 
an opportunity to submit a written statement for consideration by the 
Hearing Officer. The Hearing Officer shall allow a reasonable time for 
submission of the statement and shall specify the date by which it must 
be received. If the statement is not received within the specified time, 
the Hearing Officer may render a decision in the case without 
consideration of the statement.



Sec. 221.87  Records.

    (a) A verbatim transcript of a hearing will not normally be 
prepared. The Hearing Officer will prepare notes on material and points 
raised by the Party in sufficient detail to permit a full and fair 
review of the case.
    (b) A Party may, at its own expense, cause a verbatim transcript to 
be made, in which event the Party shall submit, without charge, two 
copies to the Hearing Officer within 30 days of the close of the 
hearing.



Sec. 221.89  Hearing Officer's decision.

    (a) The Hearing Officer shall issue a written decision. Any decision 
to assess a penalty shall be based on substantial evidence in the 
record, and shall state the basis for the decision.
    (b) If the Hearing Officer finds that there is not substantial 
evidence in the record establishing the alleged violation, the Hearing 
Officer shall dismiss the case. A dismissal is without prejudice to the 
Vessel Transfer Officer's right to refile the case if additional 
evidence is obtained. A dismissal following a rehearing is final and 
with prejudice.
    (c) The Hearing Officer shall notify the Party in writing, by 
certified or registered mail, of the decision and, if adverse, shall 
advise the Party of the right to an administrative appeal to the 
Maritime Administrator or an individual designated by the Administrator 
from that decision.
    (d) If an appeal is not filed within the prescribed time, the 
decision of the Hearing Officer constitutes final agency action in the 
case.



Sec. 221.91  Appeals.

    (a) Any appeal from the decision of the Hearing Officer must be 
submitted in writing by the Party to the Hearing Officer within 30 days 
from the date of receipt of the Hearing Officer's decision.
    (b) The only issues that will be considered on appeal are those 
issues specified in the appeal which were raised before the Hearing 
Officer and jurisdictional questions.
    (c) There is no right to oral argument on an appeal.
    (d) The Maritime Administrator or an individual designated by the 
Administrator will issue a written decision on the appeal, and may 
affirm, reverse, or modify the decision, or remand the case for new or 
additional proceedings. In the absence of a remand, the decision on 
appeal is final agency action.
    (e) The Maritime Administrator or an individual designated by the 
Administrator shall notify the Party in writing, by certified or 
registered mail, of the decision on appeal and, if adverse, shall advise 
the Party of the right of appeal to the courts.



Sec. 221.93  Collection of civil penalties.

    Within 30 days after receipt of the Hearing Officer's decision, or a 
decision on appeal, the Party must submit payment of any assessed 
penalty in the manner specified in the decision letter. Failure to make 
timely payment will result in the institution of appropriate action to 
collect the penalty.

[[Page 58]]



   Subpart F--Other Transfers Involving Documented Vessels  [Reserved]



                      Subpart G--Savings Provisions



Sec. 221.111  Status of prior transactions--controlling dates.

    (a) The Maritime Administrator hereby grants approval for any 
transaction occurring on or after January 1, 1989 and prior to July 3, 
1991 that was lawful under 46 CFR part 221, revised as of October 1, 
1989.
    (b) The Maritime Administrator hereby grants approval for any 
transaction occurring on or after July 3, 1991 and prior to June 3, 1992 
that was lawful under 46 CFR part 221, revised as of October 1, 1991.
    (c) Any transaction approved by the Maritime Administrator prior to 
January 1, 1989, or any transaction that did not require such approval 
prior to that date, shall continue to be lawful.



PART 232--UNIFORM FINANCIAL REPORTING REQUIREMENTS--Table of Contents




Sec.
232.1  Purpose and applicability.
232.2  General instructions.
232.2  (a)  Use of Generally Accepted Accounting Principles
      (b)  Need to Conform Accounting Information
      (c)  Reconciliation of Financial Reports
      (d)  Submission of Questions
      (e)  Effective Date
232.3  Chart of accounts.

                              Balance Sheet

232.4  Balance sheet accounts.
    (A)  Asset Accounts
      100  Cash
      120  Marketable Securities
      140  Notes Receivable
      150  Accounts Receivable
      160  Allowance for Bad Debts
      170  Other Current Assets
      300  Restricted Funds
      310  Investments
      330  Property and Equipment
      360  Deferred Charges
      380  Other Assets
      390  Intangible Assets
    (B)  Liability Accounts
      400  Notes Payable and Current Portion of Long-Term Debt
      420  Accounts Payable
      440  Accrued Liabilities
      450  Other Current Liabilities
      470  Advance Payments and Deposits
      510  Long-Term Debt
      530  Other Liabilities
      560  Deferred Credits
    (C)  Equity Accounts
      570  Invested Capital
      580  Treasury Stock
      590  Retained Earnings

                            Income Statement

232.5  Income statement accounts.
    (D)  Revenue Accounts
      600  Vessel Revenue
      640  Operating-Differential Subsidy
      650  Other Shipping Operations Revenue
      670  Other Revenue
    (E)  Expense Accounts
      700  Vessel Operating Expense
      750  Vessel Port Call Expense
      760  Cargo Handling Expense
      800  Inactive Vessel Expense
      860  Other Shipping Operations Expense
      900  General and Administrative Expenses
      940  Depreciation and Amortization Expense
      950  Other Expense
      960  Interest Expense
      970  Income Taxes
      990  Cumulative Effect of Change in Accounting Policy
      995  Income or Loss from Extraordinary Items Net of Taxes
232.6  Financial report filing requirement.

    Authority: Section 204(b), Merchant Marine Act, 1936, as amended (46 
App. U.S.C. 1114(b)); 49 CFR 1.66.

    Source: 48 FR 30122, June 30, 1983, unless otherwise noted.



Sec. 232.1  Purpose and applicability.

    (a) Purpose. The purpose of this regulation is to establish uniform 
reporting requirements for the preparation of financial reports and 
submissions of information to the Maritime Administration. The Maritime 
Administration will, as necessary, issue clarifying instructions to 
those subject to these reporting requirements to assist in their 
interpretation and application. The uniform reporting requirements 
consist of:
    (1) A chart of accounts defined in this regulation.
    (2) Standard financial report formats, set forth in Form MA-172 
(Revised).
    (b) Applicability. This regulation is application to all 
participants in financial assistant programs administered by the 
Maritime Administration, U.S. Department of Transportation, that

[[Page 59]]

are required to file periodic financial reports with that agency.

[48 FR 30122, June 30, 1983, as amended at 58 FR 62043, Nov. 24, 1993]



Sec. 232.2  General instructions.

    (a) Use of generally accepted accounting principles. All contractors 
shall conform their accounting policies to generally accepted accounting 
principles (promulgated by the Financial Accounting Standards Board of 
the American Institute of Certified Public Accountants).
    (b) Need to conform accounting information. All contractors may 
continue to use their current accounting system, if the system provides 
a basis for the preparation of reports in the prescribed formats and is 
consistent with generally accepted accounting principles.
    (c) Reconciliation of financial reports. When a program participant 
issues certified financial statements following accounting policies 
different from those followed for the financial statement filed with the 
Maritime Administration (such as reports filed with the Securities and 
Exchange Commission, public service commissions or other regulatory 
agencies, or reports using other acceptable accounting methods differing 
from methods used for this regulation's purposes), the program 
participant shall clearly set forth the nature and amount of each 
adjustment necessary to reconcile the published statements with those 
filed with the Maritime Administration.
    (d) Submission of questions. (1) A contractor may submit in writing 
any question involving the interpretation of any provision of this part 
for consideration and decision to the Director, Office of Financial 
Approvals, Maritime Administration, Department of Transportation, 400 
Seventh Street, SW., Washington, DC 20590. Appeals from such 
interpretation will be in accordance with the interpretation letter.
    (2) A contractor who has a question of financial accounting or 
reporting procedure pending before the Maritime Administration at the 
time a financial report is due shall file the report in accordance with 
established scheduled dates. The contractor shall include in the report 
a footnote disclosure that adequately describes the question pending, 
the manner of presentation in the report, and the relative impact on the 
balance sheet and income statement, respectively.
    (e) Effective Date. This regulation is effective as of December 27, 
1993 and its requirements are mandatory for financial reports for 
accounting periods ending on or after December 31, 1993.

[48 FR 30122, June 30, 1983, as amended at 58 FR 62043, Nov. 24, 1993]



Sec. 232.3  Chart of accounts.

    (a) Purpose of accounts. A contractor shall use this chart of 
accounts as a guide for preparing the financial statements and for other 
required financial reports required to be submitted to the Maritime 
Administration. However, whenever there is a conflict between the 
meaning of any term used in the Chart of Accounts in this part 232 and 
that stated in any revision to generally accepted accounting principles, 
the meaning of the latter shall control and shall be followed.
    (b) Account numbers. Contractors are not required to use these 
account numbers or titles for their internal accounting.

(Approved by the Office of Management and Budget under control number 
2133-0005)

[48 FR 30122, June 30, 1983, as amended at 58 FR 62044, Nov. 24, 1993]

                              Balance Sheet



Sec. 232.4  Balance sheet accounts.

    (a) Accounts defined.   Each account is identified by an account 
number and an account title, followed by a text describing the 
accounting information to be included in that account. Where considered 
necessary, accounting procedures are also included to explain how the 
contractor shall disclose information for reporting purposes.
    (b) Purpose of balance sheet accounts. The balance sheet accounts 
are intended to disclose the financial condition of the contractor as of 
a given date.
    (A) Asset Accounts.
    (1) 100  Cash.
    (i) This account shall include the amount of current funds available 
on

[[Page 60]]

demand in the hands of financial officers or deposited in banks or trust 
companies, including cash in transit for which agents or others have 
received credit. Cash appropriated or otherwise restricted for any 
purpose shall be included in Account 300, ``Restricted Funds.''
    (ii) Compensating balances included in this account shall be 
disclosed by appropriate footnote.
    (2) 120  Marketable Securities.
    (i) This account shall include securities and other temporary 
investments which are available for general purposes of the business. In 
no case shall securities of the reporting contractor or of a related 
party be included in this account. Separate subaccounts may be used to 
account for discounts and premiums on marketable securities.
    (ii) For financial reporting, the lower of aggregate cost or market 
value at the balance sheet date shall be used to value securities 
included in this account.
    (3) 140  Notes Receivable.
    (i) This account shall include the amount of all obligations in the 
form of short-term notes receivable or other evidences (except interest 
coupons) of money receivable and due on demand or within one year from 
date of issue.
    (ii) Separate subaccounts shall be used to segregate notes 
receivable from related parties.
    (4) 150  Accounts Receivable.
    (i) This account shall include trade or traffic receivables and 
claims receivable from insurance underwriters and other miscellaneous 
receivables not otherwise provided for in other accounts. Accrued 
accounts receivable for interest, dividends, rents, royalties, charters 
and other unmatured receivables of a current nature shall be reported in 
this account, except those accrued amounts which are required to be 
deposited to a restricted fund.
    (ii) Separate subaccounts shall be used to segregate trade or 
traffic receivables, claims receivables and miscellaneous receivables. 
Receivables arising from transactions with related parties shall also be 
segregated.
    (iii) This account shall also be used to report construction-
differential subsidy (CDS) and operating-differential subsidy (ODS) 
estimated to have accrued to the contractor and which remain unpaid as 
of the balance sheet date.
    (iv) Separate subaccounts shall be maintained by contract number 
and, under each contract, identified by year of termination and by 
category of subsidy as applicable, e.g., for CDS categories may include 
design and inspection costs; and for ODS categories may include wages, 
maintenance and repair, and any other category for which the contractor 
receives an operating subsidy.
    (5) 160  Allowance for Bad Debts.
    This account shall be credited at the close of each accounting 
period for estimated uncollectible notes and accounts.
    (6) 170  Other Current Assets.
    (i) Inventories, prepaid expenses and other items that are expected 
to be used or consumed within 12 months of purchase or acquisition shall 
be reported in this account.
    (ii) Acquisition of similar items that will not be used or consumed 
within one year should be reported as part of account 360, Other Assets.
    (iii) For Financial Report purposes, this account shall be used to 
record the contra entries of accrued deposits in account 300 Restricted 
Funds.
    (7) 300  Restricted Funds.
    (i) This account shall include the amount of cash and securities (at 
cost) deposited to any restricted fund, including but not limited to 
Title XI Reserve or Restricted Fund, Capital Construction Fund, 
Construction Reserve Fund, Title XI Escrow Fund, Title XI Construction 
Fund, Drilling Rig Reserve Fund, Insurance Fund, Debt Retirement Fund, 
special and guarantee deposits.
    (ii) For each fund established, subsidiary accounts shall be used to 
separately account for cash or securities deposited to the fund. At the 
close of each accounting period accrual entries shall be made to account 
for earned but undeposited investment income.
    (iii) Compensating balances under an agreement which legally 
restricts the use of such funds and constitutes support for borrowing 
arrangements shall be included in this account.
    (iv) Deposits required to be made into any Restricted Fund are to be 
included

[[Page 61]]

in the column ``Accrued for Deposit''--appearing in Schedule 211. The 
contra entry for the accrual shall be credited to account 170 Other 
Current Assets.
    (8) 310  Investments.
    (i) This account shall include amounts of investment instruments 
intended to be held more than one year and includes securities of 
related parties, noncurrent notes receivable and noncurrent accounts 
receivable, both from related parties and others, cash value of life 
insurance policies and other investments. Noncurrent marketable 
securities shall be carried at the lower of aggregate cost or market 
value at the balance sheet date.
    (ii) Separate subaccounts shall be maintained for the various 
investments, including those resulting from related party transactions.
    (iii) For financial reporting purposes, the lower of cost or market 
value at the close of business on the balance sheet date will be used to 
value the securities included in the account except as noted below.
    (iv) Investments in related parties must be reported using the 
equity or consolidated basis of accounting as adopted by the Financial 
Accounting Standards Board.
    (9) 330  Property and Equipment.
    (i) This account shall include the cost of acquisition or 
construction and related capitalizable cost, including additions and 
betterments and all other associated cost necessary to place the 
respective property and equipment in acceptable condition for its 
intended use. This account shall also include the capitalized amount of 
financing leases, computed in accordance with generally accepted 
accounting principles, as prescribed by the Securities and Exchange 
Commission and the Financial Accounting Standard Board.
    (ii) Subaccounts shall be maintained by type and category of 
property and equipment such as, but not limited to, the following: (A) 
Floating equipment, including self-propelled vessels for transporting 
cargo or passengers in U.S. foreign or worldwide foreign commerce, tugs 
and barges, drilling platforms used in offshore operations, fishing and 
associated service vessels, service vessels used in conjunction with 
off-shore drilling platforms and deep-water mining operations, lighters 
primarily used to transport cargo within port areas and river systems or 
carried aboard mother vessels--i.e., LASH and SEABEE lighters and 
barges, other floating equipment ancillary to the operator's primary 
vessel operations; (B) containers and flat racks; (C) chassis and 
trailer equipment; (D) terminal property and cargo handling equipment; 
(E) other property and equipment; (F) leaseholds, leasehold improvements 
and Capital Leases; and (G) construction work-in-progress (to provide 
information by project or by type of capitalized asset cost category). 
For each asset account within account 330 a separate depreciation or 
amortization accumulation account must be established except for work-
in-progress accounts.
    (10) 360  Deferred Charges.
    (i) This account shall be used to report expenses, the payment for 
which the contractor has become liable currently, but which will not be 
charged to income within one year of the balance sheet date.
    (ii) Separate subaccounts shall be maintained to identify the 
different categories of expense included in this account. These 
subaccounts may include such items as prepaid insurance; the expense of 
issuing long-term debt and for absorption of discounts on the stated 
value of the debt instruments; organization expenses; deferred 
prepayments and other deferred charges.
    (iii) Separate subaccounts shall be maintained for amortization of 
the various deferred charges included in this account.
    (11) 380  Other Assets.
    All assets, not otherwise provided for above, shall be reported in 
this account. Separate subaccounts shall be maintained for the various 
types of assets, including notes and accounts receivable which are not 
due in the normal course of business within one year of the balance 
sheet date. Each type of asset shall be further segregated to disclose 
amounts due from officers and employees of the reporting contractor or 
operator, officers and employees of related parties, related parties 
themselves, allowance for the trade in of vessels to the Maritime 
Administration (where the allowance is to be applied

[[Page 62]]

by the agency on behalf of the contractor toward progress payments on 
new construction) and other assets not otherwise accounted for as 
miscellaneous assets.
    (12) 390  Intangible Assets.
    (i) This account shall be used to report the amount of goodwill 
attributed to the cost of acquiring a business or segment of a business 
from an unrelated party, as well as the cost of acquiring by purchase, 
development or other means such intangible assets as patents, 
copyrights, trade names, operating rights, and similar assets.
    (ii) The contractor shall maintain separate subaccounts for the 
identified intangible assets, including subaccounts to identify their 
respective amortization.
    (B) Liability Accounts.
    (1) 400  Notes Payable and Current Portion of Long-Term Debt.
    (i) The amount reported for this account shall include the face 
value of notes, drafts and other evidences of indebtedness issued by the 
contractor which are payable on demand or within one year of the balance 
sheet date.
    (ii) Separate subaccounts shall be used to identify different groups 
of creditors, e.g., banks, insurance companies, officers and employees, 
related parties and all other creditors.
    (iii) The amount of capitalized lease liability maturing during the 
twelve months following the balance sheet date shall also be reported in 
this account. A record shall be maintained for each lease agreement, 
with a description of the type of equipment under lease.
    (iv) This account shall not include obligations due within one year 
which the contractor intends to refinance on a long-term basis or which 
are payable from restricted funds. Long-term refinancing of short-term 
obligations means replacement with long-term obligations or equity 
securities or renewal, extension, or replacement with short-term 
obligations for an uninterrupted period extending beyond one year from 
the balance sheet date. Such short-term obligations are to be recorded 
in account 510, Long-term Debt.
    (2) 420  Accounts Payable.
    (i) The amount reported for this account shall include accounts 
payable--trade; accounts payable--traffic; pension and welfare funds; 
accounts payable--Maritime Administration; and other accounts payable.
    (ii) Sufficient information shall be maintained to identify 
individual creditors and the general categories or classification of the 
liabilities.
    (iii) Debts of individual creditors not incurred in the normal 
course of business shall be identified by group, e.g., officers and 
employees, affiliated companies, officers and employees of an affiliated 
company, and other appropriate groupings of creditors not otherwise 
affiliated in any way with the contractor.
    (3) 440  Accrued Liabilities.
    (i) This account shall be used to report the amount of accrued 
taxes, accrued operating expenses and other accrued liabilities arising 
in the regular course of business.
    (ii) Subaccounts shall be maintained for each category of liability.
    (4) 450  Other Current Liabilities.
    (i) This account shall include all current liabilities for which no 
other account has been provided.
    (ii) Subaccounts shall be maintained to account separately for each 
class of current liabilities that arise from transactions with officers 
or employees, affiliated companies and officers or employees of 
affiliated companies, and must be readily identifiable to facilitate 
financial reporting requirements.
    (5) 470  Advance Payments and Deposits.
    (i) This account shall be used to report the balance of collections 
from customers for services not yet provided by the contractor.
    (ii) Sufficient accounting information shall be maintained to 
readily disclose collections from related parties.
    (6) 510  Long-Term Debt.
    (i) This account shall be used to report the noncurrent portion of 
long-term debt, including mortgage notes payable to the Maritime 
Administration, U.S. Government insured or guaranteed debt obligations 
issued under Title XI of the Act, and the face amount of bonds, 
debentures and other long-term debt not provided for in other accounts.

[[Page 63]]

    (ii) Subaccounts shall be maintained to disclose unsecured and 
secured debt by creditor and by secured asset.
    (iii) This account shall also include the balance of the long-term 
portion of capitalized lease liabilities. Reporting shall be by lease 
agreement and type of asset leased.
    (iv) This account shall also include obligations due within one year 
which are expected to be refinanced on a long-term basis in accordance 
with the discussion of Account 400.
    (v) Separate subaccounts shall be maintained to record the premiums 
for each class of funded debt (which shall be amortized over the 
respective lives of the securities by credit to Account 670, Other 
Revenue).
    (7) 530  Other Liabilities.
    (i) This account shall be used to report the balance of all other 
liabilities maturing after one year from the balance sheet date and for 
which no other account has been specifically provided.
    (ii) Subsidiary accounts shall be maintained for each category or 
type of liability and accounted for by debtor.
    (iii) Reporting of balances outstanding shall show separately 
amounts due to officers and employees, affiliated companies and officers 
and employees of affiliated companies.
    (8) 560  Deferred Credits.
    This account shall be used to report the amount of accumulated 
deferred income taxes, income or credits for which no other account is 
specifically provided.
    (C) Equity Accounts.
    (1) 570  Invested Capital.
    This account shall be used to report the amount of capital 
contribution by an individual in a proprietary company, by partners of a 
partnership, and by stockholders of a corporation for the par or stated 
value of the capital stock outstanding and additional paid-in capital.
    (2) 580  Treasury Stock.
    This account shall be used to report the cost to the contractor of 
its stock that has been reacquired.
    (3) 590  Retained Earnings.
    (i) This account shall be used to report the balance of restricted 
and unrestricted retained earnings for an incorporated business entity. 
Subsidiary accounts shall be used for each class of restricted earnings.
    (ii) Partnerships should make appropriate changes of titles to 
account for partners accounts.
    (iii) For purposes of meeting the Maritime Administration's Dividend 
Policy for Operators Receiving ODS (46 CFR part 283), accounting 
information for unrestricted retained earnings shall be made available 
to show the income or loss taken into retained earnings, dividends and 
other distributions paid, and the current balance of unrestricted 
retained earnings available for distribution.

[48 FR 30122, June 30, 1983, as amended at 58 FR 62044, Nov. 24, 1993; 
58 FR 64798, Dec. 9, 1993]

                            Income Statement



Sec. 232.5  Income Statement Accounts.

    (a) Accounts Defined. Each account shall be identified by an account 
number and an account title followed by a text describing the accounting 
information to be included in that account.
    (b) Purpose of Income and Expense Accounts. The income and expense 
accounts shall show for each reporting period the amount of money the 
contractor is entitled to receive for services rendered; the income 
accrued from investments in securities and property; accrued expenses; 
and income and expense attributable to extraordinary items.
    (D) Revenue Accounts.
    (1) 600  Vessel Revenue.
    (i) This account shall be used to report revenue (including 
surcharges) from operations. As used here, vessel refers to any asset 
that qualifies for obligation guarantees pursuant to regulations issued 
under Title XI of the Act (46 CFR part 298).
    (ii) For contractors who operate vessels in the U.S. foreign 
commerce with a construction or operating-differential subsidy agreement 
(CDSA or ODSA), operating revenue attributed to such vessels shall be 
separately accounted for to report the following: Freight-foreign, 
freight-coastwise and intercoastal; passenger-foreign, passenger-
coastwide and intercoastal; charter revenue; and other voyage revenue.

[[Page 64]]

Contractors with an ODSA shall further describe freight and passenger 
revenue--foreign (including surcharges), U.S. foreign commerce revenue 
outbound and foreign commerce revenue (transportation between foreign 
ports). Revenue shall be accounted for to facilitate reporting the 
source of revenue by trade route or service area.
    (iii) All other contractors shall report vessel revenue by category 
or class, or by operating segment or division if different business 
segments or operating divisions produce vessel revenue.
    (iv) Except as otherwise provided in paragraph (D)(1)(i) of this 
section, vessel revenue shall be accounted for following generally 
accepted accounting principles for the segment of the maritime industry 
of which the contractor is a part and shall be applied consistently 
between reporting periods.
    (2) 640  Operating-Differential Subsidy.
    (i) This account shall be used to report the revenue accrued under 
provisions of the ODSA.
    (ii) Subsidiary accounts shall be used to account for the amount of 
subsidy accrued by expense classifications to include: Wages of officers 
and crew; subsistence of officers and crew; maintenance, repairs and 
upkeep not compensated by insurance; hull and machinery insurance 
premiums; protection and indemnity insurance premiums; protection and 
indemnity insurance; deductible expense attributed to illness or injury 
of crew members; and other expense categories as may be specified in the 
ODSA.
    (iii) Records shall be maintained by vessel for each trade route or 
service area in which a vessel subject to an ODSA operates.
    (iv) If ODS is accrued at substantially different rates developed by 
the contractor applicable to any year in which final rates have not been 
agreed to, the difference between the ODS accruals based on billing 
rates established by MARAD and the ODS accruals based on the 
contractor's rates shall be disclosed in appropriate footnotes to the 
balance sheet and to the income statement.
    (3) 650  Other Shipping Operations Revenue.
    This account shall be used to report revenue earned from shipping 
activities other than vessel operations. Examples are revenue from 
pooling agreements, terminal services provided to others, and cargo 
handling services performed for others; cargo equipment rentals, and 
repairs to cargo equipment belonging to others; agency fees, commissions 
and brokerage fees earned.
    (4) 670  Other Revenue.
    This account shall be used to report revenue from the following 
sources: Interest bearing securities, dividends from capital stock, 
gains from the sale of assets not accounted for under the provisions 
prescribed for account 995, amortization of premium on funded debt, 
income or loss from subsidiaries, and other revenue not otherwise 
provided for, including nonshipping operations revenue.
    (E) Expense Accounts.
    (1) 700  Vessel Operating Expense.
    (i) This account shall be used to report expenses of vessel 
operations of any kind. As used here, vessel has the same meaning as in 
paragraph (D)(1)(i) of this section.
    (ii) For contractors with an ODSA who operate vessels subject to 
such an agreement in the U.S.-foreign commerce or worldwide foreign 
commerce, vessel expense shall be recorded by category as follows: 
Salaries and wages of officers and unlicensed crew, including relief 
crews and others regularly employed aboard the vessel; fringe benefits, 
such as pension and welfare, vacation payments to unions on behalf of 
the officers, crew and others, accrued payroll taxes; consumable stores, 
supplies and equipment, sales taxes, delivery and inspection charges; 
vessel maintenance and repair expense, including laundry service, 
inspection services, cost of maintaining expendable equipment and other 
costs not recoverable from insurance which are integral parts of vessels 
(including the purchase of permanent equipment and spares required by 
the classification societies in the United States and its territories 
and possessions); hull and machinery insurance costs, including premium 
expense, deductibles which have been incurred or paid, protection and

[[Page 65]]

indemnity insurance, including premium expense, personal injury and 
illness deductibles which have been incurred or paid, and second 
seaman's insurance premiums; premiums for other marine risk insurance 
involving the vessel and not properly chargeable to hull and machinery 
insurance or to protection and indemnity insurance accounts; vessel fuel 
and incidental costs; charter hire expenses, including time, trip, 
short-term and long-term bareboat charter hire; and other vessel 
expenses not properly chargeable to other accounts described herein 
which are incidental to the operation of vessels.
    (iii) For contractors who own or operate vessels not subject to an 
ODSA, vessel expense shall include all expenses directly attributable to 
the operation of vessels. Such expense shall include such expense 
classifications as generally in use by the segment of the industry with 
which the contractor is identified. To the extent applicable, the 
expense classifications mentioned in the preceding paragraph (ii) shall 
be used.
    (iv) Contractors operating vessels to transport cargo or passengers 
shall maintain appropriate vessel expense records for the purpose of 
filing vessel operating reports with the Maritime Administration.
    (2) 750  Vessel Port Call Expense.
    (i) This account shall be used to report the expenses of a vessel at 
each port of call. Port call expenses may include: Charges for wharfage 
and dockage of the vessel, pilotage, entry dues and fees, port dues and 
taxes; anchor dues; canal tolls; launch hire, and tug hire; dispatch and 
husbanding fees of agents; and other port and terminal expenses.
    (ii) Port charges attributable to the vessel's cargo or passengers 
are not to be reported in this account. Such expenses shall be reported 
in Account 760, Cargo Handling Expense.
    (3) 760  Cargo Handling Expense.
    This account shall be used to report all expenses directly 
attributable to the handling of cargo or passengers for a fee. This 
account shall include: Cost of preparing a vessel to receive cargo; cost 
of loading and discharging of the vessel's cargo, including stevedoring 
and equipment and service charges of stevedoring contractors; cost of 
transporting cargo from the point of delivery into the possession of the 
contractor to the loading port and from the discharge port to the point 
of delivery stipulated by the freight agreement if different from the 
port of discharge; brokerage expense, including commissions paid 
brokers' agencies for the procurement of passengers or freight; cargo 
loading plans, demurrage, costs incidental to receiving, delivering and 
warehousing at freight station facilities; and other charges for cargo 
services performed by others.
    (4) 800  Inactive Vessel Expense.
    (i) This account shall be used to report all expenses incurred 
during and directly incident to inactive periods of vessels.
    (ii) Expenses in this account include: Wages of officers and crew; 
contributions to crew fringe benefit plans; accrued payroll taxes; 
subsistence cost of personnel assigned to inactive vessels; consumables 
other than subsistence items; vessel maintenance expense; vessel 
repairs; insurance expense; charter hire cost; wharfage and dockage; 
port expense; and miscellaneous expenses.
    (5) 860  Other Shipping Operations Expense.
    This account shall be used to report cost of container leasing, 
maintenance and repair cost and costs of shipping related activities in 
which the contractor engages to support vessels, such as terminal 
operations, cargo equipment, fleet operations, cargo pooling agreements, 
container loading and other activities that are not accounted for 
elsewhere and that are ancillary to the contractor's vessel operations.
    (6) 900  General and Administrative Expenses.
    (i) This account shall be used to report the administrative and 
general expenses incurred in the operation of the business.
    (ii) This account shall include: Compensation of corporate officers, 
directors, administrative and service employees; fringe benefits of 
general and administrative personnel; legal fees; accounting and 
auditing fees; other

[[Page 66]]

professional fees; office and storage expense; utilities; communications 
expense; data processing expense; dues; subscriptions; entertainment; 
travel expense; insurance expense; maintenance and repair expense for 
office facilities; fixtures and equipment; fees and commissions paid to 
managing agents; advertising expense; foreign currency conversion; and 
other expenses to enhance the operation of the business.
    (7) 940  Depreciation and Amortization Expense.
    (i) This account shall be maintained by class of assets as accounted 
for in the property and equipment accounts.
    (ii) Subaccounts shall be grouped by classifications such as: 
Vessels; terminals; cargo equipment; office furniture and fixtures; and 
nonshipping assets.
    (8) 950  Other Expense.
    This account is to be used to report expenses not chargeable to any 
other expense account. Such charges may include: Amortization of 
deferred charges; taxes other than income; debt discount and expense; 
nonshipping operations expense; organization and preoperating expense 
and other miscellaneous deferred charges; as well as doubtful notes and 
accounts receivable.
    (9) 960  Interest Expense.
    (i) This account shall be used to report all interest expense 
accrued and charged to income during the period.
    (ii) Subaccounts shall be maintained by debt source/contract to 
provide information needed to fulfill reporting disclosure requirements.
    (10) 970  Income Taxes.
    (i) This account shall be used to report accrued income tax 
liability for the current year's operation exclusive of extraordinary 
items, discontinued operations and the cumulative effect of a change in 
accounting policy.
    (ii) Sufficient accounting records shall be maintained to meet 
income and expense allocation requirements that may exist as a result of 
a Capital Construction Fund Agreement entered into under 46 CFR parts 
390 and 391, pursuant to provisions of Title VI of the Act.
    (11) 990  Cumulative Effect of Change in Accounting Policy.
    (i) This account shall be used to report the cumulative effect of a 
change in accounting policy or a change required under generally 
accepted accounting principles.
    (ii) A footnote shall be added to the income statement explaining 
the substance of the old and new accounting methods and the reason 
supporting the change in accounting policy.
    (iii) The amount reported in this account shall be net of all taxes.
    (12) 995  Income or Loss from Extraordinary Items Net of Taxes.
    (i) Amounts representing gain or loss from extraordinary items, as 
defined by generally accepted accounting principles customarily applied 
in the industry of which the contractor is a part, shall be reported in 
this account. Generally, these transactions would be attributed to 
insurance proceeds from the total loss of a vessel or catastrophic 
losses to shore-based facilities, as well as from sales of damaged 
assets scrapped because of a natural catastrophe, and disposal of assets 
used primarily in a business segment which is being discontinued.
    (ii) Sufficient records shall be maintained to fully describe and 
account for all aspects of each item reported in this account, and when 
a firm commitment is made to dispose of an operating business segment, a 
provision for anticipated gain or loss to be realized in the subsequent 
period from disposal of assets and winding down of operations of the 
discontinued segment shall be taken into income in the year the 
contractor makes the decision.
    (iii) Amounts in this account must be net of all taxes including 
Federal income taxes.

[48 FR 30122, June 30, 1983, as amended at 58 FR 62044, Nov. 24, 1993]



Sec. 232.6  Financial report filing requirement.

    (a) Reporting Frequency and Due Dates. The contractor shall file a 
semiannual financial report and an annual financial report, in the 
format referred to in Sec. 232.1(a)(2) of this part, which MARAD shall 
make available to the contractor. This Form MA-172 (Revised) shall be 
prepared in accordance with generally accepted accounting principles and 
modified to the extent necessary to comply with this regulation. The 
annual financial report shall

[[Page 67]]

be reconciled to the financial statements audited by independent 
certified public accountants (CPAs) licensed to practice by a state or 
other political subdivision of the United States, or licensed public 
accountants licensed to practice by regulatory authority or other 
political subdivision of the United States on or before December 31, 
1970. Both the annual and semiannual financial reports shall be due 
within 120 days after the close of the contractor's annual or semiannual 
accounting period. If certified (CPA) statements are not available when 
required, company certified statements are to be submitted within the 
due dates, and the CPA statements shall be submitted as soon as 
available. The respondent may, in place of any Schedule(s) contained in 
the Form MA-172, submit (1) a schedule or schedules from its audited 
financial statements, or, (2) a computer print-out or schedule, 
consistent with the instructions provided in the MARAD formats.
    (b) Certification. Annual and semiannual reports shall be certified 
as shown on the oath contained in the reporting formats prescribed as 
the MA-172 submission.
    (c) Presumption of confidentiality. MARAD will initially presume 
that each part of the financial reports or data submitted as prescribed 
by this Regulation, other than Schedule 101--Identity of Respondent and 
Schedules 102 and 103, only with respect to the names and titles of 
directors and principal officers and employees, is privileged or 
confidential within the meaning of 5 U.S.C. 552(b)(4). In the event of a 
subsequent request for any portion of the reports or data under 5 U.S.C. 
552, the submitter will be notified of such request and given the 
opportunity to comment. The contractor shall claim confidentiality at 
that time by memorandum or letter stating the basis, in detail, for such 
assertion of exemption, including but not limited to statutory and 
decisional authorities. Those parts not so claimed by the submitter to 
be confidential will be disclosed, and those parts so claimed will be 
subject to initial determination by the Freedom of Information Act 
Officer.

(Approved by the Office of Management and Budget under control number 
2133-0005)

[[Page 68]]



  SUBCHAPTER C--REGULATIONS AFFECTING SUBSIDIZED VESSELS AND OPERATORS





PART 249--APPROVAL OF UNDERWRITERS FOR MARINE HULL INSURANCE--Table of Contents




Sec.
249.1  Purpose.
249.2  Policy.
249.3  Amounts of insurance.
249.4  Eligibility.
249.5  Eligibility criteria.
249.6  Application procedures.
249.7  Approval.
249.8  Limitation on risk.
249.9  American market participation.
249.10  Non-discrimination policy.
249.11  Confidentiality.
249.12  Waivers.

    Authority: Sec. 204(b), 1109, Merchant Marine Act, 1936, as amended 
(46 App. U.S.C. 1114(b), 1279b); 49 CFR 1.66.

    Source: 53 FR 23119, June 20, 1988, unless otherwise noted.



Sec. 249.1  Purpose.

    This part prescribes certain regulations governing the placement of 
marine hull insurance on vessels built or operated with subsidy or 
covered by vessel obligation guarantees issued pursuant to Title XI of 
the Merchant Marine Act, 1936, as amended (Act). (46 U.S.C. 1271-1279)



Sec. 249.2  Policy.

    (a) It is the policy of the Maritime Administration (MARAD) that 
companies subject to requirements for the placement of marine hull 
insurance shall be afforded the widest possible opportunity to obtain 
the necessary coverage, with minimal regulatory constraints, with 
financially sound underwriters, and that such placement should not 
create any unnecessary impediments to competitive maritime operations.
    (b) It is also the policy of MARAD to require owners of vessels with 
ODS or Title XI obligation guarantees to allow the American marine 
insurance market the opportunity to compete for the marine hull 
insurance on their vessels before such insurance is placed. Consistent 
with sound business judgment, owners will be expected to place their 
insurance with the American market to the maximum extent possible when 
the rates, terms and conditions offered by American underwriters are 
competitive with those offered by foreign underwriters.



Sec. 249.3  Amounts of insurance.

    MARAD will inform the owner of each vessel that is subsidized or 
covered by vessel obligation guarantees, prior to initial placement and 
at least annually thereafter, of the minimum amount of insurance 
required to be placed on the vessel.



Sec. 249.4  Eligibility.

    In General. All required marine hull insurance must be placed with:
    (a) Underwriters licensed to do business in one or more of the 
United States;
    (b) Underwriters at Lloyds;
    (c) Member companies of the Institute of London Underwriters; or
    (d) Other underwriters specifically approved in advance by the 
Maritime Administration.



Sec. 249.5  Eligibility criteria.

    (a) U.S. Underwriters. Underwriters licensed to do business in a 
state are eligible to participate without further consideration, 
provided they have at least a B security rating, as published in the 
latest edition of A.M. Best's Insurance Reports, and the amount of 
insurance does not exceed the limitation on risk prescribed in 
Sec. 249.8.
    (b) Foreign Underwriters. (1) Underwriters at Lloyds are eligible to 
participate without further consideration.
    (2) Underwriters which are members of the Institute of London 
Underwriters (ILU) (i.e., member companies, not parents or affiliates of 
the member companies) are eligible to participate without further 
consideration, provided that the ILU member company actually 
underwriting the risk maintains a trust fund in the United States for 
the benefit of its U.S. policyholders in an amount at least equal to the 
minimum provided in Sec. 249.7(d), and the

[[Page 69]]

amount insured does not exceed the limitation on risk prescribed in 
Sec. 249.8. Parent companies or affiliates of the ILU member companies 
are treated as other foreign underwriters under subsection (c) of this 
section.
    MARAD reserves the right to review this eligibility at any time.
    (c) Other Foreign Underwriters. Foreign underwriters, other than 
those specified in paragraphs (b) (1) and (2) of this section, may also 
be eligible to participate in the writing of marine hull insurance on 
MARAD program vessels, if approved to do so in accordance with the 
procedures contained in Secs. 249.6 and 249.7.
    (d) Documentation of eligibility. It shall be the responsibility of 
the vessel owner and its broker to ensure that the requirements of this 
section are met, and they should be able to provide MARAD, upon request, 
with documentation to that effect.



Sec. 249.6  Application procedures.

    (a) MARAD may grant specific approval for underwriters described in 
Sec. 249.5(c) to participate in the writing of marine hull insurance on 
MARAD program vessels, only in advance of any actual placement.
    (b) Only those foreign underwriters who have obtained a high rating 
(A or comparable) from an accepted international rating service may 
apply, and if approved, such approval will be contingent upon continued 
maintenance of such rating. MARAD will make available to interested 
parties the names of any accepted international rating service.
    (c) To seek approval, an applicant shall submit to MARAD:
    (1) Certified financial data for the five previous years in 
sufficient detail to enable MARAD to assess the financial strength and 
solvency of the applicant. Normally, this would be the same data which 
the underwriter must submit to the regulatory agency in its country of 
domicile. However, MARAD may request additional data if the applicant's 
submissions are considered inadequate;
    (2) A comprehensive description and English language version of the 
insurance regulatory regime that is in place in the insurer's country of 
domicile. (After review, MARAD may contact the foreign national 
regulatory authorities, as appropriate);
    (3) An affidavit in writing, executed by an agent of the applicant 
who is a domiciliary of the United States, and supported by appropriate 
documentation, to demonstrate that there is nothing in either law or 
practice to preclude a U.S. insurer from obtaining the same access to 
the applicant's home market as the applicant is seeking to the U.S. 
market, and
    (4) The details of its reinsurance program, if it wishes to write 
any risks in excess of five percent of its policyholders' surplus. These 
details shall be accompanied by a statement that clearly demonstrates 
the special circumstances and good cause by which MARAD should be 
persuaded to modify its general policy on limitation of risk described 
in Sec. 249.8.



Sec. 249.7  Approval

    (a) Approval of the applicant will be based upon an assessment of 
the applicant's financial condition and solvency, its rating by an 
accepted international rating service, suitability of the regulatory 
regime under which the applicant must operate in its home country, and 
on the principle of reciprocal non-discrimination. MARAD will not 
approve access to the U.S. hull insurance market, if U.S. insurers are 
denied similar access to the hull insurance market in the applicant's 
home country.
    (b) MARAD will publish in the Federal Register each Notice of 
Application received from foreign underwriters described in 
Sec. 249.5(c), affording interested persons an opportunity to bring to 
MARAD's attention any discriminatory laws or practices relating to the 
placement of marine hull insurance which might exist in the applicant's 
country of domicile.
    (c) In granting approval, MARAD will consider all materials 
available to it, and may impose reasonable terms and conditions upon any 
such approvals granted.
    (d) Upon approval, applicant will be required to establish and 
maintain for the benefit of its U.S. policyholders a U.S. trust fund in 
the amount of at least $1.5 million, such amount to be

[[Page 70]]

reviewed periodically (but not more frequently than annually), and 
adjusted as appropriate. This requirement may be satisfied by means of 
an appropriate irrevocable letter of credit.
    (e) All policies, at the time of issuance, shall contain the latest 
American Institute of Marine Underwriters' forms, or equivalent, as 
approved by MARAD.
    (f) All policies issued by foreign underwriters shall include New 
York Suable Clause or Service of Suit (USA) Clause.
    (g)(1) To maintain approval, foreign underwriters, other than those 
specified in Sec. 249.5(b), shall, in addition to retaining the high 
rating from an accepted international rating service, file annual 
financial statements in the same level of detail as required for 
original approval. Such statements shall be due within 120 days after 
the close of the underwriter's annual accounting period.
    (2) In addition, a new affidavit concerning the lack of 
discriminatory laws or practices related to hull insurance in the 
underwriter's home market, as described in Sec. 249.6(c)(3), shall be 
filed annually at the same time as the financial statements.
    (h) Since there is no annual reapproval required, foreign 
underwriters which are approved shall agree to submit additional 
information, as requested by MARAD, if it has reason to believe there 
has been a change in the underwriter's financial status or business 
practices which could affect the quality of its security. Failure to 
provide such information on a timely basis could result in immediate 
withdrawal of the authorization to write hull insurance on MARAD program 
vessels.



Sec. 249.8  Limitation on risk.

    (a) Underwriters may take a line on any single risk in excess of 
five percent of its Policyholders' Surplus only with the prior approval 
of MARAD. MARAD will grant such approval to certain underwriters only in 
special circumstances, and for good cause shown. The standard to be 
applied in such cases shall be that the underwriter's net retention on 
any single risk may not exceed five percent of its Policyholders' 
Surplus, the gross amount of the risk may not exceed its surplus, and 
the reinsurers must have a high (A or comparable) rating from an 
accepted international rating service.
    (b) The vessel owner shall also provide MARAD with a mortgagee's 
interest policy in an amount equal to the difference between the net 
retention and the amount of the line taken by such underwriter.



Sec. 249.9  American market participation.

    (a) Owners of vessels receiving ODS or Title XI vessel obligation 
guarantees, or their brokers, shall offer to the American marine 
insurance market the opportunity to compete for the placement of marine 
hull insurance on each vessel. Consistent with sound business judgment, 
owners will be expected to place their insurance with the American 
market to the maximum extent possible when the rates, terms and 
conditions offered by American underwriters are competitive with those 
offered by foreign underwriters. MARAD will make available a list of 
approved American underwriters and their capacities.
    (b) In the event that less than 50 percent of the placement is made 
with the American marine insurance market, the owners, or their brokers, 
shall file an affidavit confirming that the risk has been offered to a 
substantial portion of the American market. The affidavit shall list the 
American underwriters to which the risk was offered, and such 
underwriters shall account for at least 50 percent of the approved 
American market capacity, or 75 percent in the event that more than 75 
percent of the risk was placed in foreign markets.
    (c) Failure to comply with (a) or (b), above, may result in MARAD 
requiring that the risk be reoffered and that the existing placement be 
modified, as deemed appropriate.



Sec. 249.10  Non-discrimination policy.

    To administer effectively the policy regarding non-discrimination 
against U.S. insurers in other countries, as described in 
Secs. 249.6(b)(3) and 249.7(a), MARAD seeks the assistance of the 
American marine insurance industry to

[[Page 71]]

provide information at the time of publication of Notice of Application 
described in Sec. 249.7(b) concerning the existence of any 
discriminatory laws or practices in the marine hull insurance market 
abroad. Upon receipt of such information, MARAD will take whatever 
action it deems appropriate.



Sec. 249.11  Confidentiality.

    (a) If the data submitted under this rule contain information that 
the submitter considers to be commercial or financial information and 
privileged or confidential, or otherwise exempt from disclosure under 
the Freedom of Information Act (FOIA) (5 U.S.C. 552), the submitter 
shall assert a claim of exemption at the time the data are submitted. 
The claim shall be made in a letter contained in a sealed enveloped 
marked ``Confidential Information,'' addressed to the Secretary, 
Maritime Administration. The submitter shall stamp or mark 
``confidential'' on the top of each page containing information claimed 
to be confidential.
    (b) In claiming an exemption under FOIA, the submitter must state 
the basis for such action, including supporting information showing: (1) 
That the information claimed to be confidential is a trade secret or 
commercial or financial information in accordance with statutory and 
decisional authority; and (2) that measures have been taken by the 
submitter of the information to ensure that the information has not been 
disclosed or otherwise made available to the public, or, if the 
information has been disclosed or otherwise becomes available to the 
public, why such disclosure or availability does not compromise the 
confidential nature of the information.
    (c) In the event of a subsequent request for any portion of the data 
under the FOIA, those submissions not so claimed by the submitter will 
be disclosed, and those so claimed will be subject to the initial 
determination by the Secretary, Maritime Administration.
    (d) If the Secretary makes a determination unfavorable to the 
submitter, the submitter will be advised that MARAD will not honor the 
request for confidentiality at the time of any request for production of 
information under the FOIA by third parties.



Sec. 249.12  Waivers.

    The provision of this part may be waived in writing, for special 
circumstances and good cause shown, provided the procedures adopted are 
consistent with the Act and with the intent of these regulations.



PART 251--APPLICATION FOR SUBSIDIES AND OTHER DIRECT FINANCIAL AID--Table of Contents




Sec.
251.1  Applications for construction-differential subsidy under Title V, 
          Merchant Marine Act, 1936, as amended.
251.11  Applications under Title VI, Merchant Marine Act, 1936, as 
          amended.
251.21  Applications under sections 803, 804, 805 (a) and (d), and 
          605(b), Merchant Marine Act, 1936.
251.31  Charges for processing applications for authorization to 
          transfer ownership of ships built with construction-
          differential subsidy.

    Authority: Sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114.



Sec. 251.1  Applications for construction-differential subsidy under Title V, Merchant Marine Act, 1936, as amended.

    (a) Applications under section 501 of the Act for subsidy to aid in 
the construction of new vessels or the reconstruction of existing 
vessels, to be operated in the foreign commerce of the United States, 
shall be filed on form FMB-8 in accordance with the instructions annexed 
thereto.\1\
---------------------------------------------------------------------------

    \1\ Copies of forms referred to may be obtained on request from the 
Secretary, Maritime Subsidy Board, Washington, D.C.
---------------------------------------------------------------------------

    (b) Applications for aid in the construction of new vessels to be 
operated in domestic trade shall be filed on Form VA-9 in accordance 
with the instructions annexed thereto.\1\

                         Appendix No. 1--Policy

    1. To the maximum practical extent as determined by the Maritime 
Subsidy Board applicants for construction-differential subsidy (CDS) 
under Title V of the Merchant Marine Act of 1936, as amended, shall 
duplicate designs of ships previously approved by the Board for 
Subsidized Ship Construction.

[[Page 72]]

Such duplication contemplates retention of: Hull form; major structure, 
i.e., shell, transverse bulkheads, decks, girder systems; etc.; 
machinery horsepower and arrangement; and arrangement of deck house. 
However the Board will permit modifications such as changes to reefer 
cargo capacity, deep tankage, and cargo gear in a manner so as not to 
disrupt the basic configuration of the ship and without sacrificing 
gains that can be made from group production. New ship designs will be 
considered from any operator who has already constructed sufficient 
ships of a given design to have optimized the economy of standardized 
ship construction, when the applicant feels that a new design is 
necessary in exceptional cases and justifies this need to the Board. 
Where the Board concludes contrary to an applicant that a previously 
developed design can be satisfactorily adapted to requirements of the 
intended service at a substantial saving compared with building to a new 
design, invitations to bid shall be issued for both the standard design 
and the custom design of the owner's preference. Construction-
differential subsidy will be based on whichever design requires the 
least subsidy.
    2. The Board may require such variations from designs of ships 
previously approved as are necessary to optimize the economic 
utilization of mechanization and labor saving equipment with the 
potential of reducing operating-differential subsidy (ODS). Other 
nonstandard equipment or shipbuilding components shall be eligible for 
CDS, only if (a) their effect is to decrease the total sum of such CDS 
and ODS projected over the life of a ship, or (b) when it can be 
demonstrated with reasonable certainty that the added investment will 
produce a return to the owner of at least 10 percent per annum after 
taxes over the life of the investment.
    3. Value engineering provisions will be included in all 
construction-differential subsidy contracts and construction contracts. 
Value engineering items considered mandatory by the Board prior to or 
during the development of the bidding plans and specifications and 
during the actual ship construction period shall be incorporated in the 
plans and specifications or incorporated in the ship. If the mandatory 
items are not acceptable to the owner the difference in cost, as 
determined by the Board, between the value engineered and the installed 
item will be borne by the owner. This paragraph shall not be construed 
(a) as revising the present appeal rights of the shipowner, or (b) as 
imposing upon the shipbuilding contractor any requirement for employment 
of a specific number of value engineering personnel.
    4. Subsidy for changes under the construction contract will be 
allowed only when the net effect of the change will with reasonable 
certainty (a) comply with the standard in 2 (a) or (b) above, (b) 
correct a deficiency in design which is clearly essential, or (c) comply 
with a change in the requirement of a regulatory body which becomes 
effective after 30 days preceding bid opening. Any changes desired by 
the owner which do not adversely affect the safe, efficient or 
economical operation of the ship will be permitted, but without the 
benefit of subsidy. Subsidy for changes under category 2(b) shall be 
based on an estimate as to what the work would have cost if it had been 
included in the bidding specifications.
    5. Post-contract engineering costs incurred by the owner for 
engineering review and plan approval will be subsidized within a 
ceiling. The owner's expenses for such engineering and plan approval 
shall be limited for subsidy purposes to a maximum of 2 percent of the 
low bid for each of one ship in each contract. This limitation shall 
apply to liner cargo vessels of the break bulk type with no more than 
twelve passengers, but including special features such as mechanization, 
container carrying devices, special cargo handling equipment, 
refrigeration spaces and special deep tanks, etc. This upper limit shall 
be adjusted downward to take into account features including, but not 
limited to, standardized design, successive flights of ships in the same 
yard, or successive flights of ships in different yards.
    6. Construction-differential subsidy on owner's engineering expenses 
for inspection when only one ship is being built shall be limited to an 
amount equal to 1.3 percent of the bid price. For multiple ship 
construction the amount subsidizable will be 1.3 percent of the contract 
price per ship plus an additional increment of 0.36 percent for each 
vessel beyond the first. For example, the subsidizable amount for 
inspection on a four ship contract would be 1.3 percent plus 1.08 
percent (0.36 x 3) or 2.38 percent times the cost of the each of four 
ship bid price.
    This limitation shall apply to liner type cargo vessels of the break 
bulk type with no more than 12 passengers but including special features 
such as mechanization, container carrying devices, special cargo 
handling equipment, refrigeration spaces and special deep tanks, etc. 
This upper limitation shall be adjusted downward to take into account 
features including, but not limited to, standardized design, or other 
vessels for the same owner and in the same shipyard.
    7. Interior decorators' fees will be limited to a maximum of $10,000 
per contract.
    8. Construction-differential subsidy will not apply to owner 
furnished equipment. All material or equipment to which construction-
differential subsidy shall apply must be included in the plans and 
specifications upon which the competitive ship construction bids are 
based or included in authorized changes under contract.

[[Page 73]]

    9. Notwithstanding any of the foregoing limitations on subsidy the 
Board will in exceptional cases authorize subsidy or research and 
development grants for new ship concepts or individual ship features 
whose economic justification lie in the possibility of future major 
advances in ship construction or operation and which in the Board's 
judgment may lead to greater efficiency and economy.

               Appendix No. 2--Statement of General Policy

    1. The appropriations available for the payment of construction-
differential subsidy by the Maritime Subsidy Board necessarily are 
limited. Present replacement program schedules for individual operators 
repeatedly have been revised and extended in recent years in accordance 
with the operating-differential subsidy contracts. It is possible that 
further delay will occur in the replacement of some of the vessels 
required to be replaced pursuant to the existing contractual obligations 
of those operators under operating-differential subsidy contracts with 
the Government. These standards are designed to provide better guidance 
for the operators and the Government in making the judgments necessary 
in selecting from among competing applications for limited funds. This 
policy will apply to requests for and allocations of appropriations for 
fiscal year 1967 and thereafter. It furthermore applies only to awards 
of financial assistance in the construction of vessels for liner 
service.
    2. (a) To provide for the optimum development of the American 
Merchant Marine in number of vessels and in shipping capability, the 
Board will allocate federal financial assistance for construction or 
reconstruction of vessels so as to give priority to those proposals 
which, having met all requirements of Title V, Merchant Marine Act, 
1936, will in the Board's opinion utilize such assistance to obtain the 
greatest shipping capability and productivity possible. In making its 
determinations under this policy, the Maritime Subsidy Board will take 
into consideration the following factors:
    (1) Number of vessels proposed for construction by the applicant.
    (2) Cubic and deadweight capacities and speed of the proposed 
vessels.
    (3) Proposed cargo handling equipment and techniques for transfer of 
cargo in and out of vessels and to and from inland points. In this 
connection, the applicant will be required to set forth the estimated 
rate of loading and of discharge of cargo, as well as the adaptability 
of the proposed vessel to integrated systems of transportation embracing 
both ocean and overland transportation.
    (4) Estimated domestic cost of construction.
    (5) Estimated revenues and cost of operation; and with respect to 
wage cost, the proposed manning schedule on the proposed vessels.
    (6) The applicant's intention to seek operating subsidy and if so, 
the duration and amount of such subsidy payments.
    The Board will weigh the above factors in such a fashion as will 
measure the productivity of the vessel (i.e., its carrying capacity, 
speed, and rate of cargo handling) against the Government's cost of 
construction and operating aid. The Board will award aid (so far as 
funds are available) for the construction of those vessels otherwise 
eligible, as will give the greatest productivity for each dollar of 
Government aid.
    (b) The Board reserves for determination at a later time standards 
to be applied in the allocation of federal financial assistance for the 
construction of vessels to be used in non-liner operations.

  Appendix No. 3--Construction-Differential Subsidy for Machinery and 
                       Electric Plant Spare Parts

    1. The total cost of machinery and electric plant spare parts 
(whether shore-based or carried aboard ship), which are in addition to 
those spare parts required by all cognizant regulatory bodies (including 
ABS, Coast Guard and the FCC), which shall be eligible for CDS, shall 
not exceed the amount determined by application of the percentages shown 
in the Table below:

       2. Table 2--Cost of additional spare parts eligible for CDS      
                       [Footnotes at end of table]                      
------------------------------------------------------------------------
                                                           Cost of spare
        Cost class         Type of equipment covered \2\     parts \1\  
------------------------------------------------------------------------
12.......................  Gallley, pantry, and utility              1.0
                            space equipment.                            
15.......................  Ventilation and heating......             2.0
17.......................  Air-conditioning machinery...             3.0
18.......................  Hull piping (engineering)....             2.0
19.......................  Cargo oil system.............             2.0
20.......................  Hull piping (domestic).......             2.0
21.......................  Deck machinery...............             8.0
22.......................  Electric generation and                   5.0
                            distribution.                               
23.......................  Electronics..................             5.0
25.......................  Main engine..................             3.0
26.......................  Shafting and propellers......             6.0
27.......................  Condensers...................             1.0
28.......................  Boilers......................             1.0
29.......................  Fuel oil service piping......             4.0
30.......................  Steam piping.................             4.0
31.......................  Feed, condensate,                         4.0
                            circulating, and drain                      
                            piping.                                     
32.......................  Lube oil piping..............             4.0
33.......................  Salt water evaporator system.             7.0
34.......................  Feed heaters and other heat               3.0
                            exchangers.                                 
35.......................  Pumps........................            13.0
36.......................  Miscellaneous auxiliaries....             7.0
39.......................  Instruments and gauges.......            15.0

[[Page 74]]

                                                                        
40.......................  Engineers workshop...........             1.0
------------------------------------------------------------------------
\1\ Expressed as percentage of base cost of the equipment in each cost  
  class.                                                                
\2\ Cost of spare anchor, propeller, or tailshaft is not included in    
  this allowance and is handled as a separate Maritime Subsidy Board    
  action.                                                               

    3. This regulation shall be implemented in accordance with the 
following procedures and guidelines:
    (a) The allowance is to be calculated by the Maritime Administration 
and will be included in the contract price for all new contracts for 
which CDS is awarded after this regulation becomes effective. For ships 
under contract on the effective date of this regulation, the regulation 
shall form the basis for permitting a change under contract for 
additional spare parts to be subsidized, provided that a request for CDS 
participation is submitted to the Maritime Administration prior to 
delivery of the applicable ship.
    (b) The allowance is to be fixed and will not be escalated under the 
escalation provisions (if any), of the contract. For changes to existing 
contracts, the allowance will be computed based on the original contract 
price.
    (c) An audit, as deemed appropriate by the Maritime Administration, 
will be made at the end of the contract to determine total spare parts 
expenditures and a change under contract will be issued if actual 
expenditures are less than the allowance. The audit will be based on 
Maritime Administration review of a priced list, by shipyard purchase 
orders, of spare parts furnished pursuant to this Sec. 251.1.
    (d) Shipping and shipyard handling costs are to be included in the 
allowance.
    (e) If the cost of material in a cost class is increased or 
decreased by reason of a change under contract, the total spare parts 
allowance will not be increased or decreased unless included as part of 
the change under contract.
    (f) The actual expenditure of funds for spare parts by the Owner 
need not correspond to the percentages shown in the table which are used 
to determine the total amount eligible for CDS.
    (g) An owner may exceed the limit set by this regulation, provided 
such excess is for his sole account
(Approved by the Office of Management and Budget under control number 
2133-0020)
(Reorganization Plans No. 21 of 1950 (64 Stat. 1273) and No. 7 of 1961 
(75 Stat. 840), as amended by Pub. L. 91-469 (84 Stat. 1036); and 
Department of Commerce Organization Order 10-8 (38 FR 19707, July 23, 
1973))

[G.O. 11, 2 FR 2205, Sept. 22, 1937, as amended by Amdt. 1, 24 FR 7832, 
Sept. 29, 1959; 30 FR 11756, Sept. 15, 1965; 30 FR 14598, Nov. 24, 1965; 
43 FR 1622, Jan. 11, 1978; 47 FR 25530, June 14, 1982]



Sec. 251.11  Applications under Title VI, Merchant Marine Act, 1936, as amended.

    (a) Applications under title VI of the Act for subsidy to aid in the 
operation of vessels in the foreign commerce of the United States shall 
be filed on Form MA-632 in accordance with the instructions annexed 
thereto.
    (b) Copies of Form MA-632 may be obtained on request from the 
Secretary, Maritime Subsidy Board, Washington, D.C., 20590.

(Approved by the Office of Management and Budget under control number 
2133-0017)

[G.O. 13, Rev., 36 FR 11033, June 8, 1971, as amended at 47 FR 25530, 
June 14, 1982]



Sec. 251.21  Applications under sections 803, 804, 805 (a) and (d), and 605 (b), Merchant Marine Act, 1936.

    Form VI-B of instructions is the required form for the preparation 
of applications under sections 803, 804, 805(a) (see procedure for 
805(a) applications covered in part 380 of this chapter (General Order 
86)) and (d), and 605(b), Merchant Marine Act, 1936 (49 Stat. 2012, 
2013, 2003; 46 U.S.C. Sup., 1221-1223 (a), (d), 1175(b)).\1\ All 
applicants for operating differential subsidies who file such 
applications are required to comply therewith.
---------------------------------------------------------------------------

    \1\ Copies of form referred to may be obtained from the Secretary, 
Maritime Subsidy Board, Washington, D.C.

[G.O. 14, 2 FR 2295, Sept. 28, 1937, as amended at 23 FR 7538, Sept. 27, 
1958]



Sec. 251.31  Charges for processing applications for authorization to transfer ownership of ships built with construction-differential subsidy.

    (a) Applications for an amendment or addendum to construction-
differential subsidy contracts to provide for the sale of a vessel built 
under Title V, Merchant Marine Act, 1936, as amended, to a buyer who 
assumes the obligations under said contracts, shall be

[[Page 75]]

filed with the Secretary, Maritime Subsidy Board, Washington, DC 20590.
    (b) Fee. Each such application shall be accompanied by the sum of 
$200, which sum will be retained to recover the cost of processing the 
application.

(Sec. 4; 5 U.S.C. 553)

[G.O. 106, 31 FR 3397, Mar. 4, 1966]



PART 252--OPERATING-DIFFERENTIAL SUBSIDY FOR BULK CARGO VESSELS ENGAGED IN WORLDWIDE SERVICES--Table of Contents




                         Subpart A--Introduction

Sec.
252.1  Purpose.
252.2  Policy.
252.3  Definitions.
252.4  Waivers.

                  Subpart B--Eligibility and Agreement

252.10  Eligibility.
252.11  Application forms.
252.12  Approval.
252.13  Contract.

                          Subpart C--Operation

252.20  Subsidized and nonsubsidized voyages.
252.21  Essential service requirement.
252.22  Substantiality and extent of foreign-flag competition.
252.23  Financial and other reporting requirements.
252.24  Continued eligibility for subsidy.

                 Subpart D--Calculation of Subsidy Rates

252.30  Amount of subsidy payable.
252.31  Wages of officers and crews.
252.32  Maintenance (upkeep) and repairs.
252.33  Hull and machinery insurance.
252.34  Protection and indemnity insurance.

            Subpart E--Subsidy Payment and Billing Procedures

252.40  Payment of subsidy.
252.41  Subsidy billing procedures.
252.42  Appeals procedures.

    Authority: 46 app. U.S.C. 1114(b), 1117, 1121, 1171, 1172, 1173, and 
1175; 49 CFR 1.66.

    Source: 40 FR 43490, Sept. 22, 1975, unless otherwise noted.



                         Subpart A--Introduction



Sec. 252.1  Purpose.

    This part prescribes regulations implementing provisions in Title VI 
of the Merchant Marine Act, 1936, as amended (46 App. U.S.C. 1171-1176 
and 1178-1181) governing operating-differential subsidy for bulk cargo 
vessels engaged in carrying bulk cargo in essential services in the 
foreign commerce of the United States.

[51 FR 40425, Nov. 7, 1986, as amended at 61 FR 32706, June 25, 1996]



Sec. 252.2  Policy.

    The policy of the Merchant Marine Act, 1936, as amended, is set 
forth in section 101 thereof, as follows:

    It is necessary for the national defense and development of its 
foreign and domestic commerce that the United States shall have a 
merchant marine (a) sufficient to carry its domestic water-borne 
commerce and a substantial portion of the water-borne export and import 
foreign commerce of the United States and to provide shipping service 
essential for maintaining the flow of such domestic and foreign water-
borne commerce at all times, (b) capable of serving as a naval and 
military auxiliary in time of war or national emergency, (c) owned and 
operated under the United States flag by citizens of the United States 
insofar as may be practicable, (d) composed of the best-equipped, 
safest, and most suitable types of vessels, constructed in the United 
States and manned with a trained and efficient citizen personnel, and 
(e) supplemented by efficient facilities for shipbuilding and ship 
repair. It is hereby declared to be the policy of the United States to 
foster the development and encourage the maintenance of such a merchant 
marine.



Sec. 252.3  Definitions.

    When used in this part:
    (a) Act means the Merchant Marine Act, 1936, as amended (46 U.S.C. 
1101-1294).
    (b) Maritime Administrator means the Maritime Administrator, 
Department of Transportation of the Department of Transportation.
    (c) Board means the Maritime Subsidy Board of the Maritime 
Administration.
    (d) Bulk cargo vessel means a vessel built to carry solid, liquid or 
gaseous commodities that in normal shipment

[[Page 76]]

are contained only by the vessel's structure.
    (e) Citizen of the United States includes a corporation, if all 
directors of the corporation are citizens of the United States, 
partnership or association but only if it is deemed a citizen of the 
United States under section 2 of the Shipping Act, 1916, as amended (46 
U.S.C. 802).
    (f) Contracting Officer means the Associate Administrator for 
Maritime Aids.
    (g) Fiscal year means any annual period beginning on July 1 and 
ending on June 30.
    (h) Foreign-flag competition means those foreign-flag vessels deemed 
by the Board to be competitive with the subsidized vessel.
    (i) Gross revenue means the operator's total gross receipts from 
cargoes or fixtures of a vessel or both.
    (j) Operating-differential subsidy agreement (ODSA) means the 
agreement entered into by the operator and the United States government 
for the payment of operating-differential subsidy.
    (k) Operating-differential subsidy (ODS) means, except as the 
operator and the United States government should agree upon a lesser 
amount, the excess of the cost of subsidizable items of expense incurred 
in the operation under United States registry of a vessel over the 
estimated fair and reasonable cost of the same items of expense 
(excluding any increase in the cost of such items necessitated by 
features incorporated for national defense), if such vessel were 
operated under the registry of a foreign country whose vessels are 
substantial competitors of the vessel, or such sums as the Board may 
determine to be necessary to make the cost of operating such vessel 
competitive with the cost of operating similar vessels under the 
registry of a foreign country.
    (l) Operator means any individual, partnership, corporation or 
association that contracts with the United States government under Title 
VI of the Act to receive ODS.
    (m) Reduced crew period means any period in port beginning on the 
day that a vessel's normal crew complement is reduced by 4 or more men 
and division of wages is not paid for the missing men and ending on the 
day prior to the day that the vessel's crew complement is restored to 
not more than 3 men less than the normal crew complement, or division of 
wages is paid for the missing men, or the vessel is temporarily or 
permanently withdrawn from subsidized service, whichever occurs first.
    (n) Region Director means the Region Director of the Maritime 
Administration within whose region the principal office of the operator 
is located.
    (o) Subsidized service means the operation of a vessel other than in 
the coastal or intercoastal trade in accordance with the terms and 
conditions of the ODSA.
    (p) Subsidy rate means the method adopted by the Board for 
determining the amount of ODS that is to be paid for an item of 
subsidizable expense.
    (q) Subsidized vessel means a vessel covered by an ODSA.
    (r) U.S. foreign commerce means the commerce or trade between the 
United States, its territories or possessions, or the District of 
Columbia and a foreign country.
    (s) Vessel means subsidized vessel unless otherwise specified.
    (t) Voyage day means any day or part of a day during which a 
subsidized vessel is operated in accordance with the terms and 
conditions of the ODSA.

[40 FR 43490, Sept. 22, 1975, as amended at 45 FR 30442, May 8, 1980; 51 
FR 40425, Nov. 7, 1986]



Sec. 252.4  Waivers.

    In special circumstances and for good cause shown, the procedures 
prescribed in this part may be waived, in writing, by mutual agreement 
of the parties, in keeping with the circumstances then present, provided 
that the procedures adopted are consistent with the Act and with the 
intent of these regulations.

[51 FR 40425, Nov. 7, 1986]



                  Subpart B--Eligibility and Agreement



Sec. 252.10  Eligibility.

    Any citizen of the United States may apply to the Board for the 
payment of ODS for the operation of a bulk cargo

[[Page 77]]

vessel in an essential service in the U.S. foreign commerce.



Sec. 252.11  Application forms.

    Application forms may be obtained from the Secretary, Maritime 
Administration, Department of Transportation, Washington, DC 20590.



Sec. 252.12  Approval.

    The Board may not approve an application for the payment of ODS 
until the Board has determined, in addition to other statutorily 
required determinations, that:
    (a) The operation of the vessel in an essential service is required 
to meet foreign-flag competition and to promote U.S. foreign commerce;
    (b) The vessel was built in the United States, or built foreign and 
determined to be eligible for ODS pursuant to the applicable law at the 
time it was built or acquired, and the vessel is documented under the 
laws of the United States.
    (c) The applicant owns or leases, or can and will build or purchase 
or lease, a vessel or vessels of the size, type, speed and number, and 
with the proper equipment required to enable him to operate in an 
essential service in such manner as may be necessary to meet competitive 
conditions and to promote U.S. foreign commerce;
    (d) The applicant possesses the ability, experience, financial 
resources and other qualifications necessary to enable him to conduct 
the proposed operation of the vessel to meet competitive conditions and 
promote U.S. foreign commerce;
    (e) The granting of the aid applied for is necessary to place the 
proposed operations of the vessel on a parity with the vessels of 
foreign competitors, and is reasonably calculated to carry out 
effectively the purposes and policy of the Act;
    (f) The vessel is of steel or other acceptable metal, is propelled 
by steam or motor, and is as nearly fireproof as practicable; and
    (g) The vessel is constructed in accordance with plans and 
specifications approved by the Board and Secretary of the Navy, with 
particular reference to economical conversion into an auxiliary naval 
vessel, or approved by the Board and Navy Department as otherwise useful 
to the United States in time of national emergency.

[40 FR 43490, Sept. 22, 1975, as amended at 51 FR 40425, Nov. 7, 1986]



Sec. 252.13  Contract.

    Upon approval by the Board of an application for ODS, the applicant 
and the United States may enter into an ODSA.



                          Subpart C--Operation



Sec. 252.20  Subsidized and nonsubsidized voyages.

    (a) Subsidized voyages--(1) Minimum operation. The operator shall 
operate each subsidized vessel for a minimum of 335 days each year in 
the worldwide carriage of bulk cargo in the U.S. foreign commerce and in 
the carriage of such cargo between foreign ports.
    (2) Commencement. The first voyage shall commence at the time 
provided in the ODSA. All subsequent voyages shall commence at 0001 
hours local time of the day following the day of termination of the 
previous voyage or, in the event that a reduced crew period follows such 
termination, at 0001 hours local time of the day following the day on 
which such reduced crew period terminates.
    (3) Termination. A voyage shall terminate at 2400 hours local time:
    (i) In a U.S. port, on the day of completion of (a) paying off the 
crew from foreign articles, (b) discharge of cargo at the last U.S. port 
of discharge, or (c) voyage repairs, whichever event occurs last;
    (ii) In a foreign port, on the day (a) of completion of the 
discharge of cargo if the vessel loads cargo in such port of discharge, 
(b) prior to the day of commencement of loading cargo if the vessel 
departed its last port of cargo discharge in ballast;
    (iii) In the case of special circumstances such as strike or lack of 
cargo activity, on the day approved by the Region Director upon request 
for a variance by the operator; or
    (iv) On the final voyage, on the day provided in the ODSA for 
termination of the final voyage.
    (4) Periods of reduced crew, idleness, delay or lay-up--(i) Report 
by operator.

[[Page 78]]

The operator shall report promptly to the Region Director any reduced 
crew period and any period of idleness, lay-up or delay occurring during 
or between voyages and the facts and circumstances relating to any such 
period.
    (ii) Region Director's finding. The Region Director shall make a 
finding as to whether the period reported by the operator could have 
been avoided through the efficient and economical operation of the 
vessel and whether operating costs were reduced to a minimum in 
accordance with sound commercial practice. The Region Director shall, by 
means of a written report, promptly advise the operator and Contracting 
Officer of his finding.
    (iii) Contracting Officer's determination. The Contracting Officer 
shall consider the Region Director's finding and shall determine what 
costs, if any, shall be subsidized during the period reported by the 
operator. The Contracting Officer shall promptly advise the operator of 
his determination in writing.
    (b) Nonsubsidized voyages in the U.S. foreign commerce. (1) For any 
period of nonsubsidized service in the U.S. foreign commerce with 
respect to which the Board has granted prior authorization, a vessel 
shall go off subsidy after 2400 hours local time of the day of final 
discharge of cargo on the last subsidized voyage, or in the event the 
nonsubsidized voyage follows a subsidized period of reduced crew, 
idleness or lay-up, the vessel shall be deemed to be off subsidy at 0001 
hours local time of the day following the day on which such period of 
reduced crew, idleness or lay-up terminates. The vessel shall continue 
in this nonsubsidized service until 2400 hours local time of the day of 
final discharge of the nonsubsidized cargo after which time the vessel 
will resume subsidized status. In the event the vessel makes consecutive 
nonsubsidized voyages during any such period of nonsubsidized service, 
it will remain in nonsubsidized status until completion of the final 
nonsubsidized voyage.
    (2) For the purposes of meeting the requirements set forth in 
Secs. 252.20(a) and 252.21, any such nonsubsidized voyage will be 
considered in the same manner as a subsidized voyage.
    (3) Voyage reports shall be submitted upon the completion of each 
nonsubsidized voyage in the same manner as specified in Sec. 252.23(a) 
and shall clearly indicate that the voyage is nonsubsidized.

[40 FR 43490, Sept. 22, 1975, as amended at 43 FR 4858, Feb. 6, 1978; 51 
FR 40426, Nov. 7, 1986]



Sec. 252.21  Essential service requirement.

    (a) Essential service. A vessel which is not subject to a charter, 
or a vessel subject to a charter which does not exceed 5 years duration 
and which may not be extended beyond 5 years duration by exercise of an 
option either within the charter or contained in a separate agreement, 
shall be deemed to be in an essential service, within the meaning of 
section 211(b) of the Act. The operator shall be entitled to the full 
amount of ODS payable under the operator's ODSA (less any reduction with 
respect to the carriage of cargo in the coastwise or intercoastal 
trades, as described in section 605(a) of the Act). A vessel subject to 
a charter which exceeds 5 years duration, or which may be extended 
beyond 5 years duration by exercise of an option (pursuant to provision 
of the charter or any separate agreement), shall not be deemed to be in 
an essential service unless such charter has been approved by the 
Maritime Administrator pursuant to paragraph (b) of this section.
    (b) Approval of charters. Charters of vessels that exceed 5 years 
duration or that may be extended beyond 5 years duration by exercise of 
an option (pursuant to provision of the charter or any separate 
agreement) shall be submitted to the Maritime Administrator for review 
and approval at least 30 days prior to execution of such charter. 
Charters exceeding 5 years shall be approved if the Maritime 
Administrator finds that the vessel will probably be employed during a 
substantial portion of its economic life in carrying a significant 
volume of cargo in the U.S. foreign commerce. The Maritime Administrator 
shall base this finding on all relevant considerations, including but 
not limited to, the terms of the charter, the

[[Page 79]]

business of the charterer and the normal tendency for bulk operators to 
participate substantially in U.S. foreign commerce. When the Maritime 
Administrator has made this finding with respect to a vessel, its 
operations during any period of subsidized service while subject to that 
charter shall be deemed to be operation in an essential service. The 
payment of ODS for such period shall not be reduced because of any 
amendment to this section or any other provision in this part 252 made 
prior to expiration of the charter. ODSA default provisions shall be 
applicable to noncompliance with this requirement. Charters that do not 
exceed 5 years and do not provide for extension beyond 5 years do not 
have to be submitted for approval by the Maritime Administrator, unless 
otherwise required by the ODSA. Charters previously approved by the 
Maritime Administration under existing procedures are deemed approved 
for purposes of this section.
    (c) Modification of requirement. The Board shall have the authority 
to modify prospectively the provisions of this section as future 
circumstances may dictate. However, any such modification made by the 
Board shall apply only to charters that are executed on or after the 
date of the Board action, and the Board shall have discretion in 
determining whether such modification shall have general or limited 
applicability.
    (d) Applicability. This is a general requirement applicable to the 
payment of ODS to operators of all types of bulk cargo vessels. The 
provisions of any ODS regulations pertaining specifically to dry bulk 
cargo vessels as may be finally adopted by the Maritime Administration 
and set forth in title 46, Code of Federal Regulations, shall govern as 
to dry bulk cargo vessels where such provisions are inconsistent with 
those contained in this section.

[45 FR 30442, May 8, 1980]



Sec. 252.22  Substantiality and extent of foreign-flag competition.

    (a) Type and tonnage groupings. Foreign-flag competition shall be 
determined, as of January 1 of the year preceding January 1 of the 
subsidized year, by surveying a data file known as ``Merchant Fleets of 
the World'' that is maintained by MARAD. All foreign-flag bulk cargo 
vessels included in this data file are divided by type and category, and 
further subdivided by class. Classes include, but are not limited to 
general tanker, chemical tanker, OBO, general dry bulk carrier and wood 
chip carrier. Each vessel class is further divided into deadweight 
tonnage ranges as follows:
    (1) Range A-vessels of less than 25,000 DWT;
    (2) Range B-vessels of 25,000 but less than 50,000 DWT;
    (3) Range C-vessels of 50,000 but less than 100,000 DWT; and
    (4) Range D-vessels of 100,000 or more DWT.
    (b) Competitive classes and range. The following classes of foreign-
flag vessels in the same tonnage range as the subsidized vessel shall be 
deemed to be competitive with the subsidized vessel:

                Subsidized Vessels and Foreign-flag Class

    (1) General tanker--general tanker
    (2) Chemical tanker--general and chemical tankers
    (3) OBO--general dry bulk carriers and tankers, OBO, bulk/oil, ore/
oil and ore carriers
    (4) General dry bulk carrier--general dry bulk carriers
    (c) Grouping and ranking competitive foreign-flags. The foreign-flag 
vessels deemed to be competitive with the subsidized vessel shall be 
grouped by nationality and ranked according to the total deadweight 
tonnage under each foreign-flag.
    (d) Competitive foreign flag. The competitive foreign flag shall be 
the flag with the greatest total tonnage in the range.
    (e) Largest foreign flag not competitor. In the event that the Board 
believes that the competitive foreign-flag so determined pursuant to 
this Sec. 252.22 is not a substantial competitor of any particular 
operator, the Board may determine the foreign-flag competition in a 
manner that more accurately reflects the true competition of the 
particular

[[Page 80]]

operator. In making this determination, the Board shall consider the 
written views of the operator and any other interested parties.

[40 FR 43490, Sept. 22, 1975, as amended at 45 FR 8024, Feb. 6, 1980; 51 
FR 40426, Nov. 7, 1986]



Sec. 252.23  Financial and other reporting requirements.

    (a) Voyage report. The operator shall submit a voyage report to the 
Director, Office of Subsidy Administration, Maritime Administration, 
Washington, DC 20590, upon the completion of each subsidized voyage. 
Each voyage report shall include the following:
    (1) Name of vessel and voyage number.
    (2) Subsidy contract number.
    (3) Vessel activity, including the following:
    (i) Ports of voyage commencement and termination, including dates 
and times.
    (ii) Loading ports, including dates of arrival and departure and 
long tons of cargo loaded (specify commodity).
    (iii) Discharge ports, including dates of arrival and departure and 
long tons of cargo discharged.
    (iv) Other ports, ports of bunkering, emergency calls, etc., 
including dates of arrival and departure (specify reason for call).
    (4) All reduced crew periods, all periods of idleness, lay-up and 
delay, and all related correspondence with the Region Director.
    (b) Condition of vessels, inspection and repairs. In order that the 
Maritime Administration may participate in the inspection of vessels, in 
compliance with part 272 of this subchapter, the operator shall give at 
least 24 hours notice to the Region Director as to the time and place of 
vessel inspections.
    (c) Vessel insurance--(1) Policies. Upon the binding of any 
insurance policy with respect to a subsidized vessel, the operator shall 
submit promptly to the Director, Office of Marine Insurance, Maritime 
Administration, Washington, DC 20590, for approval of the Maritime 
Administration, a signed copy of each cover note issued by the 
operator's brokers, which, to the extent applicable, shall set forth as 
to such vessel the amounts covered by hull, increased value and other 
forms of total loss protection, as well as protection and indemnity 
insurance. Such cover notes shall include the rates, the amounts placed 
in the different markets, the participating underwriters, the amount 
underwritten by each underwriter, and the amounts of the deductibles. 
Upon request, copies of the policy shall be submitted to the Maritime 
Administration for examination.
    (2) Cancellation and policy changes. The operator shall advise the 
Maritime Administration promptly of the cancellation of any policy of 
insurance, any changes in the terms or underwriters of any policy of 
insurance, any period of lay-up that permits the collection of return 
premiums, and the occurrence of any major casualty or total loss covered 
by a policy of insurance.
    (d) Financial statements. The operator shall submit, in triplicate, 
to the Director, Office of Financial Approvals, Maritime Administration, 
Washington, DC 20590, the following reports, including management 
footnotes where necessary to make a fair financial presentation:
    (1) Not later than 120 days after the close of the operator's 
semiannual accounting period, a Form MA-172 on a semiannual basis, in 
accordance with 46 CFR 232.6.
    (2) Not later than 120 days after the close of the operator's annual 
accounting period an audited annual financial statement, in accordance 
with 46 CFR 232.6.

(Reporting requirements for paragraph (a) were approved by the Office of 
Management and Budget under control number 2133-0024 and reporting 
requirements for paragraph (d) were approved by the Office of Management 
and Budget under control number 2133-005)

[40 FR 43490, Sept. 22, 1975, as amended at 45 FR 30443, May 8, 1980; 47 
FR 25530, June 14, 1982. Redesignated and amended at 51 FR 40426, Nov. 
7, 1986]



Sec. 252.24  Continued eligibility for subsidy.

    Operators shall remain eligible for ODS so long as they are engaged 
in service which would, under this part and sections 601(a), 602, and 
605(c) of the Act, qualify for approval of an ODSA. The payment of ODS 
will be made only for carriage of commercial cargoes for which U.S.-flag 
vessels are

[[Page 81]]

in direct competition with foreign-flag vessels. An example of cargo 
that is excluded is bulk cargo reported by a shipper as the U.S.-flag 
share of cargoes subject to an agreement (including a unilateral 
commitment by a foreign government which has the effect of reserving 
cargoes for U.S.-flag vessels), between the United States and a foreign 
government in connection with any U.S. cash transfer foreign assistance 
program. In such a circumstance, there is no foreign-flag competitions 
for such cargoes.

[54 FR 39182, Sept. 25, 1989]



                 Subpart D--Calculation of Subsidy Rates

    Source: 51 FR 40426, Nov. 7, 1986, unless otherwise noted.



Sec. 252.30  Amount of subsidy payable.

    (a) Daily rates. Daily ODS rates shall be used to quantify the 
amount of ODS payable except for the ODS rates applicable to maintenance 
and repair expenses, as described separately in Sec. 252.32. The daily 
ODS rate represents the cost differential between the subsidized vessel 
and its foreign-flag competition. A daily rate shall be calculated for 
each subsidized item of expense identified in the ODSA (with the 
exception of ODS rates applicable to maintenance and repair expenses), 
and the total of all items is the daily amount of ODS payable for 
approved vessel operating days, excluding reduced crew periods.
    (b) Reduced crew periods. For reduced crew periods, as defined in 
Sec. 252.3 of this part, a man-day reduction amount, calculated 
separately for officers and unlicensed crew members, shall be used to 
reduce the daily wage ODS rate to conform to the complement remaining on 
the vessel. The man-day reduction amounts shall be determined by 
dividing the daily wage ODS for officers and unlicensed crew members by 
the number of subsidizable crew members in each category. For each day 
of a reduced crew period, the man-day amount shall be multiplied by the 
number of crew members missing for that day, and the resulting product 
shall be deducted from the daily ODS rate. The difference shall be the 
ODS payable for such day. (See illustration in Schedule C at Sec. 252.41 
of this part.)
    (c) Review of rates. Daily subsidy rates shall be reviewed every six 
months. For the item, ``wages of officers and crews,'' the daily rate 
shall be calculated for fiscal periods July 1 through June 30, in 
accordance with provisions of the Act. During the period January through 
June, adjustments--paid as a lump sum or as a daily amount--shall be 
made to wage ODS so that the correct amount of ODS for the full fiscal 
period is received by the operator. For other subsidizable items of 
expense, the daily rate shall be calculated for calendar years.
    (d) Negative rates. When an ODS rate in any category is less than 
zero, indicating that the subsidized operator is at an advantage rather 
than a disadvantage in such category, the negative rate shall be 
deducted from positive rates in determining the daily ODS amount 
payable.
    (e) Operator Comments. The operator shall have the opportunity to 
comment on each subsidy rate as calculated by MARAD. The operator and 
contracting officer shall make every effort to resolve disagreements 
that arise. In the event of a disagreement that cannot be resolved, 
comments received from the operator and the contracting officer's 
recommendation shall be presented to the Board for its consideration in 
determining subsidy rates.

[51 FR 40426, Nov. 7, 1986, as amended at 58 FR 17349, Apr. 2, 1993]



Sec. 252.31  Wages of officers and crews.

    (a) Definitions. When used in this part:
    (1) Base period. The first base period under the wage index systems, 
as provided in section 603 of the Act, is the period beginning July 1, 
1970 and ending June 30, 1971. Thereafter, base period means any annual 
period beginning July 1 and ending June 30, with respect to which the 
Board establishes a base period cost. At intervals of not less than two 
years, nor more than four years, the Maritime Subsidy Board shall 
establish a new base period. Base periods shall be announced by the 
Board prior to the December 31 date

[[Page 82]]

that would be included in the new base period.
    (2) Base period cost--(i) Initial base period. For the initial base 
period of subsidized service, the term base period cost means the 
collective bargaining cost as of January 1 of that base period.
    (ii) Subsequent base periods. For base periods subsequent to the 
initial base period, the term base period cost means the average of the 
collective bargaining cost as of January 1 of such fiscal year, and the 
base period cost of the previous base period, indexed to January 1 of 
the new base period by an index compiled by the Bureau of Labor 
Statistics. This index shall consist of the average annual change in 
wages and benefits placed into effect for employees covered by 
collective bargaining agreements, with equal weight to be given to 
changes affecting employees in the transportation industry (excluding 
the off-shore maritime industry) and to changes affecting employees in 
private non-agricultural industries other than transportation. However, 
such base period cost shall not be less than a minimum, nor more than a 
maximum amount, determined as a percentage of the collective bargaining 
cost computed for January 1 of such base period in accordance wth the 
following schedule:

------------------------------------------------------------------------
                                                  Minimum      Maximum  
                                                   (pct)        (pct)   
------------------------------------------------------------------------
Base period following a:                                                
  2 year cycle................................      97\1/2\     102\1/2\
  3 year cycle................................      96\1/4\     103\3/4\
  4 year cycle................................           95          105
------------------------------------------------------------------------

    (3) Collective bargaining cost (CBC) means the annual cost, 
calculated on the basis of the per diem rate of expense, as of January 1 
of the annual fiscal periods July 1 through June 30, of all items of 
expense required by the operator through a collective bargaining or 
other agreement, covering the employment of the approved manning 
complement of the subsidized vessel, including payments required by law 
to assure old-age pensions, unemployment benefits or similar benefits, 
and taxes or other governmental assessments on crew payrolls.
    (4) Approved manning complement means the complement approved by the 
Board for subsidy.
    (5) U.S. wage cost (WC) means the annual cost, calculated on the 
basis of the per diem rate of expense as of January 1 of the annual 
fiscal periods July 1 through June 30, of all items of expense required 
of the operator through a collective bargaining or other agreement, 
covering the employment of the normal manning complement of the 
subsidized vessel, including payments required by law to assure old-age 
pensions, unemployment benefits or similar benefits, and taxes or other 
governmental assessments on crew payrolls.
    (6) Normal manning complement means the crew complement established 
by a collective bargaining or other agreement with the officers and 
unlicensed crew of the vessel. When ratings of different salaries are in 
the same job during the year, the base wages of the rating carried most 
of the time shall be used.
    (7) Subsidizable wage cost means, (i) with respect to a base period, 
the base period cost, and (ii) in any fiscal period other than a base 
period, the most recent base period cost, increased or decreased by the 
change from January 1 of the base period to January 1 of the non-base 
period. The subsidizable wage cost shall not be less than 90 percent nor 
greater than 110 percent of the collective bargaining cost as of January 
1 of such period.
    (8) Unpredictably timed costs are collective bargaining costs that 
are not regularly incurred. Examples of unpredictably timed costs are 
such costs as severance pay, shortfalls, special assessments, and war 
zone bonuses.
    (b) Method of calculating collective bargaining cost (CBC). CBC 
shall be determined by pricing out, for the approved crew complement, 
the per diem total of fixed costs specified in the collective bargaining 
agreement and adding a per diem total of variable costs obtained from 
the cost experience of the subsidized vessel during the first nine 
months of the preceding calendar year.
    (1) Fixed Costs. The per diem total of fixed costs shall include all 
costs that are stated in specific or determinable amounts per time 
period and, based on operating experience, do not vary. In

[[Page 83]]

cases where a monthly amount is specified in the agreement, the per diem 
amount shall be determined by dividing the monthly amount by 30. When a 
daily amount is specified it shall be used. Examples of fixed costs are:
    (i) Base wages:
    (ii) Non-watch pay;
    (iii) Vacation pay (including contributions to vacation funds);
    (iv) Tool allowance;
    (v) Clothing and uniform allowances; and
    (vi) Per diem contributions for pension, training, welfare, 
unemployment, including unallocated contributions placed in escrow.
    (2) Variable costs. Variable costs are regularly incurred employment 
costs which vary with ship operating experience. The per diem aggregate 
of variable costs as of January 1 shall be determined by applying a 
ratio to the per diem aggregate of base wage costs as of January 1, the 
numerator of which shall be the total of variable costs for the first 
nine months of the preceding calendar year and the denominator of which 
shall be the total of base wage costs for the first nine months of the 
preceding calendar year. Variable costs include but are not limited to:
    (i) Payroll taxes (including social security taxes);
    (ii) Overtime and penalty pay;
    (iii) Variable pension, training, welfare, unemployment, and 
vacation costs;
    (iv) Pay in lieu of time off;
    (v) Transportation and travel allowances;
    (vi) Payments to relief officers and crews;
    (vii) Wages and other expenses of USMMA cadets and extra messmen;
    (viii) Board and lodging allowances;
    (ix) Overlap in wages (a maximum of three days for officers and two 
days for unlicensed crew); and
    (x) Penalty cargo bonuses.
    (c) Method of calculating U.S. wage cost (WC). Two different 
calculations of WC are necessary--a per diem amount for every ship type 
on the service and a per month amount for the predominant ship type 
(most voyages) on the service. The purpose of the per month calculation 
is to make a comparison with the monthly foreign wage costs. The 
relationship of WC to foreign costs for the predominant ship is applied 
to the per diem WC for other ship types in the service to estimate 
comparable foreign costs for them.
    (1) Calculation of per diem WC. The per diem WC shall be calculated 
by the same method that applies to CBC, except that the normal manning 
complement shall be used.
    (2) Calculation of per month WC. The costs and manning level used in 
this calculation shall be the same as those used for the per diem WC.
    (d) Data submission requirements. For purposes of calculating CBC 
and WC the operator shall each year submit Form MA-790 and, as 
appropriate, current copies of all collective bargaining or other 
agreements, memoranda of understanding, and arbitration awards, which 
specify the fixed costs as of January 1. Schedule A of Form MA-790, 
which covers wage costs on voyages terminated during the first nine 
months of the previous calendar year, shall be submitted by December 31. 
Schedule B of Form MA-790--normal manning complement, rates of pay, and 
contributions in effect on January 1 of the current year--shall be 
submitted by January 31. Form MA-790, Schedules A and B, shall be 
submitted to the Director, Office of Ship Operating Costs, Maritime 
Administration, 400 Seventh Street, SW., Washington, DC 20590.
    (e) Example Calculation. The following is a sample calculation of 
CBC and WC:

                              ABC Bulk Co.                              
 Jan. 1, 1985, Collective Bargaining Costs (CBC) and U.S. Wage Cost (WC)
------------------------------------------------------------------------
                                                        Per diem        
                                               -------------------------
                                                     WC          CBC    
------------------------------------------------------------------------
Crew Complement...............................       \1\ 35       \2\ 31
Fixed Costs as of January 1, 1985:                                      
  Base Wages and non-watch pay................    $1,789.79    $1,571.60
  Allowances (radio, telephone, clothing,                               
   etc.)......................................        $5.75        $5.75
  Vacation Pay................................    $1,189.60    $1,109.65
  Pension, Welfare, Training, Unemployment                              
   Fund Contributions.........................     $,280.80    $1,171.75
                                               -------------------------
    Total Fixed...............................    $4,265.94    $3,858.75

[[Page 84]]

                                                                        
Variable Costs as of January 1, 1985:                                   
  Variable Cost Factor (based on 1984 cost                              
   experience) (pct)..........................       104.69       104.69
  Total Variable Costs (January 1, 1985 base                            
   wages  x  variable cost factor)............    $1,873.73    $1,645.31
                                               -------------------------
    Total wage costs as of January 1, 1985....    $6,139.67    $5,504.06
------------------------------------------------------------------------
\1\ Normal manning complement.                                          
\2\ Approved manning complement.                                        

    (f) Method of calculating foreign wage costs. The foreign wage cost 
(FC) of the principal foreign-flag competitor and the comparable WC of 
the subsidized vessel are matched as of January 1 of the last fiscal 
year preceding the subsidized fiscal year for purposes of determining 
the wage cost of the principal foreign flags. The following procedures 
are used:
    (1) Manning. The foreign manning complement in number and 
nationality for the principal foreign-flag competitor shall be 
constructed for the subsidized vessel type using the manning scales and 
practice of the competitor as developed through an examination of alien 
crew manifests, payrolls, and other reliable information. The commonly 
used crew complement of the competitor shall be adjusted to fit the 
predominant vessel type, in recognition of differences in physical 
characteristics that would affect manning scales. Where the manning 
complement cannot be estimated with reasonable substantiation, it will 
be deemed to be identical with that of the subsidized vessel.
    (2) Method. The method of calculating FC shall be the same as that 
used for WC, provided that it is possible to obtain foreign cost data on 
the same basis as wage cost data. Preference shall be given to pricing 
out for fixed costs and to cost experience for variable costs. Where 
applicable, foreign currencies shall be converted into U.S. currency 
equivalents by using the average of end-month exchange rates for the 
period July through June that includes the January 1 for which FC is 
calculated. The exchange rates shall be obtained from the publication, 
``International Financial Statistics'', published monthly by the 
International Monetary Fund. If exchange rates for particular foreign 
currencies are not available in this publication, they shall be obtained 
from the United States Department of the Treasury.
    (3) Foreign wage costs. The per diem composite foreign wage cost is 
determined by multiplying the per diem WC for the U.S. ship type, 
calculated as of January 1 of the subsidized fiscal year, by the ratio 
of FC to WC, calculated as of January 1 of the last fiscal year 
preceding the subsidized fiscal year. The following is a sample 
calculation of the foreign percentage.

                         ABC Bulk Company, Inc.                         
                 [Jan. 1, 1985--Foreign Wage Cost (FC)]                 
------------------------------------------------------------------------
                                                   United               
                                                   States      Liberia  
------------------------------------------------------------------------
Crew Complement...............................           26           26
Base Wages....................................  \1\ $53,687  \1\ $24,779
Allowances....................................       $1,074       $4,584
Vacation Pay (leave)..........................  \1\ $35,681  \1\ $13,009
Pension and Welfare...........................  \3\ $38,407   \1\ $2,065
Social Security...............................   \2\ $6,608   \2\ $7,227
Overtime and other variable costs (not                                  
 elsewhere included)..........................  \2\ $48,732  \2\ $10,944
Repatriation..................................                          
                                               -------------------------
    Total wage costs..........................     $184,189      $62,608
    Percentage FC to WC.......................                     33.99
------------------------------------------------------------------------
\1\ Based on Jan. 1 priced out cost.                                    
\2\ Based on cost experience.                                           
\3\ Excludes training costs--foreign data not available.                

    (g) Determination of daily wage rate. The foreign wage cost is 
deducted from subsidizable wage costs to determine the daily wage 
subsidy rate. Table 1 is an example calculation of a daily wage subsidy 
rate using the procedures described in this section.
    (h) Unpredictably timed costs (UTC) are subsidized by calculating 
costs incurred during the previous six months and converting them into a 
daily rate. A lump sum amount would be paid for special lump sum 
assessments or for per man-day increases to benefits plans which become 
effective during the six months following the establishment of the daily 
rate. In either case, the percentage subsidy rate--which is the 
differential percentage between the subsidizable wage cost and the 
foreign wage cost--is used to establish the

[[Page 85]]

amount of subsidy payable for UTC incurred.
    (1) UTC expenses such as severance pay and area bonuses shall be 
eligible for subsidy payment without obtaining prior approval and 
subsidy shall be paid as a lump sum amount.
    (2) Expenses such as shortfalls in benefit fund contributions, 
special assessments for benefits funds, and retroactive wage increases 
may be treated as UTC if the cost increase was not negotiated. Such 
costs must be approved as UTC by the Director, Office of Ship Operating 
Costs. To the extent such expenses qualify for UTC, the Director shall 
determine the appropriate method of paying subsidy--added to the per 
diem wage subsidy rate and/or as a lump sum amount treated separately.

                                         Table 1--ABC Bulk Company, Inc.                                        
                                     [Calculation of Wage Subsidy Rates \1\]                                    
----------------------------------------------------------------------------------------------------------------
                                                                                  Averaging in                  
                                            Collective      Application of BLS    base periods                  
Base period     Interim      U.S. wage      bargaining     index to base period     (4)+(5)        Appropriate  
                period          cost           cost                cost         ---------------      limits     
                                                                                       2                        
----------------------------------------------------------------------------------------------------------------
(1)                (2)             (3)             (4)                    (5)          (6)                 (7)  
1981.......                  $4,162.60       $3,850.29                                                          
                  1982       $4,578.24       $4,230.15    $3,850.29  x  1.0845                                  
                                                                  = $4,175.64                     .9  x  (4) =  
                                                                                                     $3,807.14  
                                                                                                 1.1  x  (4) =  
                                                                                                     $4,653.17  
                  1983       $4,578.24       $4,230.15    $3,850.29  x  1.1816                                  
                                                                  = $4,549.50                     .9  x  (4) =  
                                                                                                     $4,104.34  
                                                                                                 1.1  x  (4) =  
                                                                                                     $5,016.42  
                  1984       $5,539.40       $4,966.90    $3,850.29  x  1.2992                                  
                                                                  = $5,002.30                     .9  x  (4) =  
                                                                                                     $4,470.21  
                                                                                                 1.1  x  (4) =  
                                                                                                     $5,463.59  
1985.......                  $6,139.57       $5,504.06    $3,850.29  x  1.4044                                  
                                                                  = $5,407.35                    .95  x  (4) =  
                                                                                                     $5,228.86  
                                                                                                1.05  x  (4) =  
                                                                                                     $5,779.26  
----------------------------------------------------------------------------------------------------------------
\1\ This computation is based on a new vessel entering subsidized service in May 1981.                          


----------------------------------------------------------------------------------------------------------------
                                                                                                  Wage subsidy  
 Base period cost    Subsidizable wage    Foreign cost    Foreign wage cost     Wage subsidy     percentage rate
                           cost            percentage                            daily rate         (12)+(9)    
----------------------------------------------------------------------------------------------------------------
$3,850.9..........        $3,850.29             32.99          $1,373.24          $2,477.05             64.33   
                          $4,175.64             32.98          $1,509.90          $2,665.74             63.84   
                          $4,549.50             32.15          $1,812.49          $2,737.01             60.16   
                          $5,002.30             34.77          $1,926.05          $3,076.25             61.50   
$5,455.71.........        $5,455.71             33.99          $2,086.84          $3,368.87             61.75   
----------------------------------------------------------------------------------------------------------------


[51 FR 40426, Nov. 7, 1986, as amended at 54 FR 5086, Feb. 1, 1989]



Sec. 252.32  Maintenance (upkeep) and repairs.

    (a) Subsidy items. The fair and reasonable maintenance and repair 
costs not compensated by insurance, if eligible for subsidy under the 
ODSA and the regulations in 46 CFR part 272, incurred by the operator 
during the calendar year.
    (b) Subsidy rate. The subsidy rate for maintenance and repair shall 
be the U.S.-foreign cost differential determined from price estimates of 
representative items of maintenance and repair work and by using the 
repair practices of the foreign-flag competition. See paragraph (b)(4) 
of this section for an example calculation.
    (1) Cost survey. MARAD shall select a sample of jobs which are 
representative of the various types of maintenance and repair work--
drydocking and underwater repairs, machinery repairs, hull and deck 
repairs, electrical repairs, exterior painting and interior painting, 
etc. The jobs shall be described fully and combined into a standard set 
of specifications based on a particular type of vessel. The same 
specifications shall be used for obtaining all price estimates. MARAD 
shall request reliable and mutually acceptable ship repair cost experts 
to ascertain the U.S. and foreign M&R prices. MARAD shall survey foreign 
countries during a three-year cycle. The survey year prices shall be 
adjusted in the

[[Page 86]]

years between surveys by price adjustments estimated by the ship repair 
cost experts.
    (2) Country cost differential. A country cost differential shall be 
determined for each country where work was performed on the competitive 
vessels. The country cost differential shall be 100 percent minus the 
ratio of the estimated foreign price to the U.S. price estimate. The 
U.S. price estimate shall be representative of the coastal area included 
in the subsidized service (for example East Coast) or, if more than one 
coast is served, the coast where the company is home based. For example:

               Determination of Country Cost Differential               
   [Year--1985; U.S. Atlantic--Gulf Coast; Foreign Country--Singapore]  
------------------------------------------------------------------------
                                                  Foreign               
                Repair category                    price      U.S. price
------------------------------------------------------------------------
Drydocking and Underwater Repairs.............      $89,840     $300,245
Tank Cleaning and Coating.....................       70,160       77,080
Boiler Repairs................................       10,545       47,550
Machinery Repairs.............................       22,505      108,165
Hull and Deck Repairs.........................       33,500       99,370
Piping System.................................       71,905      215,830
Electrical Repairs............................       12,340       36,660
Exterior Painting.............................        5,035       30,640
Interior Painting.............................          390        1,470
                                               -------------------------
Estimate Totals...............................      316,220      917,010
------------------------------------------------------------------------
Foreign/U.S. Price Ratio--34%.                                          
Country Cost Differential (100-34)--66%.                                

    (3) Distribution of repairs. The distribution of repairs refers to 
the countries where M&R work was performed on the vessels of the 
foreign-flag competitor. When data on the repairing practices are 
obtained directly from the foreign competitor, they shall be used. If 
information about such practices is unavailable--or only partially 
available--data, published by the classification societies and Lloyd's 
Voyage Record, reporting the dates and localities of drydocking and 
completion of the various types of vessel surveys, shall be used for 
determining the geographical distribution of the unknown repairing 
practices. If such information is unavailable, repairing practices shall 
be determined on the basis of the industry as a whole.
    (4) M&R subsidy rate. The U.S.-foreign cost differential for the 
foreign-flag competitor shall be determined by multiplying the 
percentage distribution of repairs for each country where repair work 
was performed by the country cost differential for that country, and by 
adding the resulting weighted cost differential for all countries. For 
example:

                           ABC Bulk Company, Inc., Maintenance and Repair Subsidy Rate                          
----------------------------------------------------------------------------------------------------------------
                                        Distribution of repairs       Country cost   Weighted cost differentials
       Principal competitor       ----------------------------------- differential       ______   (1)  x  (2)   
                                          Country          Percent       percent              (percent)         
----------------------------------------------------------------------------------------------------------------
                                   (1).................  ...........           (2)                           (3)
Liberia..........................  U.K.................           15            19                           2.9
                                   Japan...............           20            36                           7.2
                                   Singapore...........           65            57                          37.1
                                                                                   -----------------------------
    Subsidy rate.................  ....................  ...........  ............                            47
----------------------------------------------------------------------------------------------------------------

    (c) Data submission requirement. The operator is required to submit 
a Subsidy Repair Summary (Form MA-140) quarterly, in accordance with 46 
CFR part 272.

[51 FR 40426, Nov. 7, 1986, as amended at 54 FR 5086, Feb. 1, 1989; 58 
FR 17349, Apr. 2, 1993; 61 FR 32706, June 25, 1996]



Sec. 252.33  Hull and machinery insurance.

    (a) Subsidy items. The fair and reasonable net premium costs 
(including stamp taxes) of hull and machinery, increased value, excess 
general average, salvage, and collision liability insurance against 
risks and liabilities covered under the terms and conditions of policies 
approved as to form and coverage by MARAD, less lay-up returns, shall be 
eligible for subsidy and used

[[Page 87]]

for determining the U.S.-foreign cost differential. Port risk premiums 
are eligible for subsidy but not for determining the U.S.-foreign cost 
differential.
    (b) U.S.-foreign cost differential. A U.S.-foreign cost differential 
shall be calculated for the service. Due to the difficulty of comparing 
forms and costs of hull and machinery insurance coverages, the following 
assumptions shall be used for estimating the composite premium cost of 
the foreign-flag competitor.
    (1) Coverage. The foreign competitive vessels have the same types 
and amounts of insurance coverages and deductible averages as the 
subsidized vessels.
    (2) Premium rate. The foreign competitive vessels are insured in the 
British market and the rate for such vessels is the same as the British 
market rate for the subsidized vessels. If the operator carries all of 
its insurance in the American market, the American market rate shall be 
assumed to be the same as the British market rate.
    (3) Repairs. Insurable repairs of the foreign competitive vessels 
are performed in the same countries and in the same distribution as non-
insurable repairs, and the cost differential for such repairs shall be 
the same as the maintenance and repair percentage differential.
    (4) Particular average. The percentage of particular average repair 
claims for the foreign competitive vessels is the same as the percentage 
of particular average repair claims for the subsidized vessels. The 
particular average portion of the premium cost for the subsidized 
vessels shall be determined as follows:
    (i) Percentage. The particular average portion of the premium cost 
shall be determined by applying a percentage to the hull and machinery 
premium cost after deducting the estimated total loss premium. The 
percentage is based on insured claims experience. The percentage shall 
be determined by dividing the total of underwriter's absorptions for 
particular average domestic repair claims paid and estimated by the 
total of underwriter's absorptions for all claims paid and estimated 
(excluding total loss and constructive total loss claims) under the hull 
and machinery portion of the insurance coverage, except that such 
percentage shall not exceed eighty-five (85) percent. The percentage is 
based on the claims experience of the subsidized vessels for the five 
(5) calendar year period preceding the subsidized year. For subsidized 
operators that do not have five years of claims experience, the average 
percentage of particular average domestic repair claims for all similar 
subsidized vessels shall be used unless the operator can submit data to 
substantiate its own claims cost experience on similar vessels.
    (ii) Data submission requirement. The operator shall submit the five 
year claims experience, invoices showing net premium costs and coverages 
for the subsidized year, and lay-up returns for the previous year to the 
Director, Office of Ship Operating Costs, not later than sixty (60) days 
after the close of each calendar year.
    (c) Calculation. In calculating the subsidized premium cost, the 
following steps shall be taken:
    (1) The particular average portion of the premium cost shall be 
adjusted in order to give effect to the repair cost differential for the 
foreign competitive vessels by applying the complement of the 
maintenance and repairs percentage cost differential (100 percent minus 
the differential) to the particular average portion of the premium cost. 
The adjusted particular average foreign premium cost shall be added to 
the net premium cost excluding the particular average portion to 
determine the composite foreign premium cost.
    (2) The foreign premium cost shall be subtracted from the operator's 
total premium cost to determine the difference in dollars. The 
percentage differential is determined by dividing the dollar difference 
by the operator's total premium cost. An example calculation is included 
in Table 2.
    (3) The net premium cost of the subsidized vessels shall be divided 
by the number of days in the calendar year and the resultant daily 
insurance cost shall be multiplied by the U.S.-foreign cost differential 
percentage applicable to the most recent year to determine the daily 
amount of subsidy for hull and machinery insurance.

[[Page 88]]



Table 2--ABC Bulk Company, Inc., U.S./Foreign Cost Differential for Hull
                      and Machinery Insurance--1985                     
                                                                        
                                                                        
1. Foreign Premium Cost:                                                
  A. Hull and Machinery, Total coverage.......  $92,741,996             
    Average Premium Rate in British Market....     1.00966%             
      Premium Cost in British Market..........  ...........     $936,379
    (Estimated Total Loss Premium $92,741,966@                          
     .46500% \1\..............................     431,250)             
  B. Increased Value, Total Coverage..........    1,083,325             
    Average Premium Rate in British Market....      .32550%             
      Premium Cost in British Market..........  ...........        3,526
  C. Excess Liability, Total Coverage.........  ...........         None
                                                            ------------
  D. Total Premium Cost if Insured 100% in                              
   British Market.............................  ...........      939,905
  E. Deduct Particular Average Portion:                                 
   $936,379 Less $431,250= $505,129  x  62%                             
   \2\........................................  ...........      313,180
  F. Net Premium Cost Exclusive of Particular                           
   Average....................................  ...........      626,725
                                                            ============
  G. Particular Average Adjustment............   Worldwide              
                                                  service               
    P/A Portion of Premium Cost...............     $313,180             
    M&R Subsidy Rate Complement \3\...........       84.48%             
                                               -------------            
    Adjusted P/A Foreign Premium Cost.........      264,574             
    Add: Net Premium Cost (Excluding P/A).....      626,725             
                                               -------------            
2. Foreign Premium Cost.......................      891,299             
3. Total Premium Cost to Subsidized Operators.    1,068,998             
                                               -------------            
4. Differential in Dollars \4\................      177,699             
                                               =============            
5. U.S.-Foreign Cost Differential \5\.........       16.62%             
------------------------------------------------------------------------
\1\ Estimated gross total loss rate adjusted for broker's discounts,    
  policy tax and other costs, as necessary.                             
\2\ Percentage of particular average.                                   
\3\ 100% minus M&R subsidy rate of the same calendar year.              
\4\ Line 3 less line 2.                                                 
\5\ Line 4 divided by line 3.                                           



Sec. 252.34  Protection and indemnity insurance.

    (a) Subsidy items. Items eligible for determination of subsidizable 
costs and the U.S.-foreign cost differential are:
    (1) Premiums. The fair and reasonable net premium costs (including 
stamp taxes) of protection and indemnity, excess insurance, second 
seamen's insurance, ``tovalop'' or other forms of pollution insurance, 
bumbershoot (only that portion identified as applicable to P&I 
insurance), cargo liability if excluded from the primary policy, 
supplemental calls against liabilities covered under the terms and 
conditions of policies approved as to form and coverage by MARAD, less 
lay-up return premiums, shall be eligible for subsidy and used for 
determining the U.S.-foreign cost differential.
    (2) Deductibles. The fair and reasonable cost of crew claims paid by 
and pending with the operator under the deductible provision of the 
protection and indemnity insurance policy approved as to form and 
coverage by MARAD, to the extent that such cost would have been paid by 
the insurance underwriter under the terms of the policy, except for the 
fact that it did not exceed the deductible provision of the policy, 
shall be eligible for subsidy. For subsidy purposes, the deductible 
absorption shall not exceed $50,000 for each accident or occurrence, 
provided however, that benefits paid on unearned wages, if excluded from 
coverage under the protection and indemnity insurance policy, shall be 
eligible, notwithstanding that the deductible provisions of the policy 
may be exceeded.
    (b) Assumptions made in calculation. For purposes of determining 
subsidy for protection and indemnity insurance, it shall be assumed that 
the cost differential between the subsidized vessels and the foreign 
competitive vessels is limited to those portions of premium costs and 
deductible absorptions which are related to crew liability and that the 
cost of all other liabilities is the same for both the subsidized 
vessels and the foreign competitive vessels.
    (c) Calculation. The following is the method of calculating the 
U.S.-foreign cost differential for premiums:
    (1) General. A differential shall be calculated for the service of 
the vessels. Since the premium cost for all other liabilities is assumed 
to be the same for both the U.S. and foreign competitive vessels, the 
calculation of the differential for protection and indemnity insurance 
premiums is in effect based on the difference between U.S. and foreign 
premium costs for crew liabilities. Premium costs are determined in 
costs per gross registered ton (GRT).

[[Page 89]]

    (2) Reporting requirement. The operator shall submit the total 
premium cost for the subsidized year, plus any supplemental calls and 
lay-up return premiums not previously reported, to the Director, Office 
of Ship Operating Costs, not later than 60 days after the beginning of 
such year. The data shall be supported by invoices from the insurance 
underwriter.
    (3) U.S. crew liability cost. the crew liability portion of the 
total premium cost shall be determined by applying a percentage to the 
total premium cost based on five (5) years of claims experience for the 
five years commencing six years prior to January 1 of the subsidized 
year. The percentage shall be determined by dividing the total of 
underwriter's absorptions for crew claims, paid and estimated, by the 
total of underwriter's absorptions for all claims, paid and estimated. 
The crew claims portion shall be limited to eighty-five (85) percent 
unless the operator can substantiate a higher percentage as a result of 
having crew liability and all other liabilities insured with different 
underwriters. The operator shall submit the five-year claims experience 
not later than 60 days following the close of each calendar year.
    (4) All other liabilities cost--U.S. and foreign. The all other 
liabilities portion of the U.S. premium cost shall be determined by 
subtracting the crew liability portion from the total premium cost. The 
same cost shall be used for the all other liabilities portion of the 
foreign-flag competitor's premium cost.
    (5) Foreign crew liability cost. The crew liability cost of each 
principal foreign-flag competitor shall be used, if reliable cost data 
can be obtained. If such data cannot be obtained for a principal 
competitor, and it is determined that such competitor has a non-national 
crew, the crew liability cost for similar vessels registered under the 
flag of the crew's nationality may be used, at the Board's discretion, 
provided reliable cost data are obtained. If no reliable cost data are 
obtained for a competitor, the crew liability cost for that competitor 
shall be estimated by multiplying the subsidized operator's crew 
liability portion of the total premium cost by the ratio of that 
competitor's wage costs (FC) to the subsidized operator's wage costs 
(WC), as determined in the calculation of the wage differential.
    (6) U.S.-Foreign cost differential. The U.S.-foreign cost 
differential shall be the excess of the operator's total premium cost 
over the principal foreign-flag competitor's estimated total premium 
cost, expressed as a percentage, calculated in the following manner.

  ABC Bulk Company, Inc., Protection and Indemnity Insurance Premiums,  
                                  1985                                  
------------------------------------------------------------------------
                                                   United               
            Premium cost (per GRT)                 States      Liberia  
------------------------------------------------------------------------
Crew liability................................    \1\ $3.98    \2\ $1.27
All other liability...........................        $1.06        $1.06
                                               -------------------------
    Total cost................................        $5.04        $2.33
Differential--Excess of U.S. cost over foreign                          
 cost.........................................  ...........        $2.71
U.S.-foreign cost differential (pct)..........  ...........        53.77
------------------------------------------------------------------------
\1\ Determined by applying 79.03% (based on 5-year claims experience) to
  total GRT premium rate of $5.04.                                      
\2\ Crew Liability data obtained by Maritime Administration.            
Note: The unweighted percentage of foreign to U.S. wage costs would be  
  used to estimate the foreign cost if the foreign crew liability data  
  were not available.                                                   

    (d) Daily subsidy rate. The daily subsidy rate shall be calculated 
in the following manner:
    (1) Premiums. The net premium costs per calendar day for the 
subsidized year shall be multiplied by the U.S.-foreign cost 
differential percentage determined for the most recent year. The product 
shall be the daily amount of subsidy for P&I premiums.
    (2) Deductibles. (i) The eligible illness and injury crew claims 
paid and pending for each calendar year of a three-year period 
commencing six years prior to January 1 of the subsidized year, shall be 
recalculated, if necessary, to reflect the operator's current deductible 
levels. These expenses, after audit, shall be multiplied by the 
percentage wage differential, and determined in the calculation of wage 
subsidy for the appropriate fiscal period. The resulting calendar period 
P&I deductible subsidy for the three-year period shall be divided by the 
voyage days for the period to arrive at an aggregate daily P&I 
deductible subsidy. The aggregate fiscal period wage subsidy accrued for 
the three-year period shall be divided by the voyage days for the period 
to arrive at an aggregate daily wage subsidy

[[Page 90]]

amount. The aggregate daily P&I deductible subsidy for the three-year 
calendar period shall be divided by the aggregate daily wage subsidy for 
the three-year period. The P&I deductible differential shall be divided 
by the fiscal period wage differential in the service for the three-year 
period, and the resulting percentage shall be applied to the wage per 
diem calculated for each ship type in the service to derive the daily 
amount of subsidy for P&I deductibles. As to pending claims previously 
recognized in the historical period, only the amount of changes in cost 
with respect to such claims shall be subsequently recognized. The 
following methodology shall determine subsidy for P&I deductibles.

                          Determination of Daily Amount of Subsidy for P&I Deductibles                          
----------------------------------------------------------------------------------------------------------------
                                                                  Calendar    Calendar    Calendar              
                              Item                                year 1979   year 1980   year 1981     Total   
----------------------------------------------------------------------------------------------------------------
P&I deductible C.Y. expenses...................................  $1,680,000  $1,220,000  $1,400,000  ...........
Diff. foreign/U.S. wage cost (pct).............................       26.00       23.00       20.00  ...........
Subsidy........................................................    $436,800    $280,600    $280,000     $997,400
Voyage days....................................................       1,140       1,100       1,225        3,465
----------------------------------------------------------------------------------------------------------------
Average subsidy per voyage day ($997,4003,465 days)=$287.85.                                            


----------------------------------------------------------------------------------------------------------------
                                                                   Fiscal      Fiscal      Fiscal               
                                                                  year 1979   year 1980   year 1981     Total   
----------------------------------------------------------------------------------------------------------------
Wages fiscal year per diem rate................................      $7,660      $7,700      $8,050  ...........
Voyage days....................................................       1,090       1,180       1,230        3,500
Subsidy........................................................  $8,349,400  $9,086,000  $9,901,500  $27,336,900
----------------------------------------------------------------------------------------------------------------
Average subsidy per voyage day ($27,336,9003,500 days)=$7,810.54.                                       
Ratio P&I deductible ODS to wage ODS $287.85$7,810.54=3.69%.                                            


------------------------------------------------------------------------
                                                     Ratio              
                                            Daily     P&I               
                                             wage   ded. to   Daily P&I 
            T.R. 98 ship type              ODS 1/1/   wage   ded. ODS 1/
                                              85      ODS        1/85   
                                                     (pct)              
------------------------------------------------------------------------
C4-A.....................................   $9,000   x 3.69      $332.10
C5-B.....................................    9,300   x 3.69       343.17
C6-C.....................................    9,600   x 3.69       354.34
------------------------------------------------------------------------

    (ii) In cases where national insurance schemes cover crew claims 
costs in their entirety, resulting in no cost to the foreign competitor 
for deductible absorptions, the composite percentage differential for 
wages shall be adjusted by substituting a zero cost for such foreign 
competitor in the calculation of the differential. The adjustment of the 
wage percentage differential shall not be used for Japan, where 
operators incur minimal costs for deductible absorptions, rather than no 
costs. For Japan, the insurance related costs which are normally 
included in the calculation of Japanese wage costs shall be excluded in 
adjusting the wage percentage differential for this purpose.
    (3) Data submission requirement. The operator is required to submit 
annually a certified statement of eligible and audited crew claims as 
identified in paragraph (d)(2) of this section for the historical period 
identified therein. The report shall be submitted to the Director, 
Office of Ship Operating Costs, no later than January 1 of the 
subsidized year.



            Subpart E--Subsidy Payment and Billing Procedures

    Source: 51 FR 40432, Nov. 7, 1986, unless otherwise noted.



Sec. 252.40  Payment of subsidy.

    (a) Submission of voucher. At the close of each calendar month, the 
subsidized operator may submit a voucher, and include for payment in 
such voucher the amount of ODS accrued for the voyages terminated during 
the period.
    (b) Maintenance and repair subsidy. In the case of payments for 
maintenance and repair subsidy only, the subsidized operator shall 
submit an initial voucher and include for payment in such voucher a 
percentage of the ODS payable for the period covered by the voucher, 
which percentage shall be negotiated between MARAD and the subsidized 
operator, but in no instance shall exceed 90 percent. Upon the 
completion of MARAD's determinations that the expenses are fair and 
reasonable, MARAD's computation of the

[[Page 91]]

ratio of subsidized vs. nonsubsidized days during the calendar year in 
which the last voyage terminated, and the Office of the Inspector 
General's audit of subsidizable expenses, the subsidized operator shall 
submit a final voucher for an adjustment of the amount of subsidy paid.

[51 FR 40432, Nov. 7, 1986, as amended at 58 FR 17349, Apr. 2, 1993]



Sec. 252.41  Subsidy billing procedures.

    (a) Subsidy voucher--(1) Form. Requests for payment of ODS shall be 
submitted on a public voucher, Standard Forms 1034 and 1034A, which can 
be obtained from the Superintendent of Documents, U.S. Government 
Printing Office, Washington, DC. 20402.
    (2) Copies. The operator shall submit the original and 3 copies of 
the voucher to the MARAD Region Director for payment. The original and 2 
copies must be supported by schedules and an affidavit. The third copy 
is the payee's copy and need not be supported.
    (b) Schedules and affidavit. (1) The following schedules shall be 
used for calculating the amount of ODS payable:

                               Schedule A

(Company)_______________________________________________________________
ODSA No.________________________________________________________________
ODS Accrued During Fiscal Year 19__
ODS Payable for the Month of ______

------------------------------------------------------------------------
                                          Current    Previous           
                                          voucher    voucher     Total  
------------------------------------------------------------------------
Total accrued ODS (sched. B)...........    $______  .........  .........
Les ODS reductions: reduced crew                                        
 (sched. C)............................     ______  .........  .........
Net ODS accrued........................     ______    $______    $______
                                        --------------------------------
Less previous payments.................  .........  .........     ______
ODS payable............................  .........  .........     ______
------------------------------------------------------------------------

                               Schedule B

(Company)_______________________________________________________________
ODS Accrued for the Month of ______

----------------------------------------------------------------------------------------------------------------
                                                                       Voyage dates                             
                         Vessel name                            Voy. ----------------  Voy.   Per diem   Accrued
                                                                No.    From     To     days     rates    subsidy
----------------------------------------------------------------------------------------------------------------
                                                               .....  ......  ......  ......   $______   $______
ODS payable for unpredictably timed expenses not included in                                                    
 daily amount (attach supporting supporting information).....  .....  ......  ......  ......  ........   $______
Total accured subsidy (enter on Schedule A)..................  .....  ......  ......  ......  ........   $______
----------------------------------------------------------------------------------------------------------------

                               Schedule C

(Company)_______________________________________________________________

                                              Reduced Crew Periods                                              
----------------------------------------------------------------------------------------------------------------
                                  Reduced crew    No. of                                                        
                                      dates       reduced       No. of        Man-        Man-day       Reduced 
             Vessel             ----------------   crew          crew         days        amount          crew  
                                  From     To    days (a)       reduced                                reduction
----------------------------------------------------------------------------------------------------------------
                                 ......  ......  ........   x                                                   
                                                               ........   =  ......   x                         
                                                                                          $______   =    $______
                                 ......  ......  ........   x                                                   
                                                               ........   =  ......   x                         
                                                                                           ______   =     ______
                                 ......  ......  ........   x                                                   
                                                               ........   =  ......   x                         
                                                                                           ______   =     ______
                                 ......  ......  ........   x                                                   
                                                               ........   =  ......   x                         
                                                                                           ______   =     ______
                                                                                                      ----------
    Total reduced crew                                                                                          
     reduction (enter on                                                                                        
     Schedule A)...............  ......  ......  ........  ..  ........  ..  ......  ..    ______               
----------------------------------------------------------------------------------------------------------------
(a) If licensed crew, indicate (a).                                                                             
(b) If unlicensed crew, indicate (b).                                                                           

    (2) A notorized affidavit as shown below shall be signed by an 
official of the subsidized operator who is familiar with the ODSA, these 
regulations, the operation of the subsidized vessel, and the accounts, 
books, records, and disbursements of the subsidized operator relating to 
such operation:

                                Affidavit

State of________________________________________________________________
City of_________________________________________________________________
County/Parish of________________________________________________________
    I, ______, being duly sworn, depose and say that I am ______ (title) 
of the ______ (herein referred to as the ``Operator''), and as such

[[Page 92]]

am familiar with (a) provisions of the Operating-Differential Subsidy 
Agreement, Contract No. ______, dated as of ______, as amended, to which 
the Operator is a party; and (b) the regulations governing the payment 
of operating-differential subsidy for bulk cargo vessels, PART 252, 
Title 46, CFR: and (c) the operation of the vessels covered by said 
Agreement and regulations; and (d) the accounts, books, records, and 
disbursements of the Operator relating to such operation.
    Referring to the public voucher dated ______, covering voyage days 
allowed for subsidy during the periods commencing ______, and ending 
______, and attached, submitted by said Operator concurrent herewith for 
a payment on account in the sum of ______, under said Agreement, I 
further depose and say that, to the best of my knowledge and belief, the 
Operator has fully complied with the terms and conditions of said 
Agreement and regulations, applicable orders, rulings and provisions of 
the Merchant Marine Act, 1936, as amended, and is entitled, under the 
provisions of said Agreement and regulations, orders and rulings 
applicable thereto, to the amount of the payment on account requested; 
and further depose and say that the vessels named in the attached 
schedules were in authorized service for the vessel operating days on 
which the payment is requested and has not included in the calculation 
of the amount of subsidy claimed in the attached voucher any costs of a 
character that the Maritime Administration, or Secretary of 
Transportation acting by and through the Maritime Subsidy Board or any 
predecessor or successor, had advised the Operator to be ineligible to 
be so included, or any costs collectible from insurance, or from any 
other source.
    Payment by the Maritime Administration of all or part of the amount 
claimed herein shall not be construed as approval of the correctness of 
the amount stated to have been due, nor a waiver of any right of remedy 
the Maritime Administration, or Secretary of Transportation, acting by 
and through the Maritime Subsidy Board, or any predecessor or successor, 
may have under the terms of said Agreement, or otherwise.
    I further depose and say that this affidavit is made for and on 
behalf and at the direction of the Operator for the purpose of inducing 
the Maritime Administration to make a payment pursuant to the provisions 
of the aforesaid Operating-Differential Subsidy Agreement, as amended.

_______________________________________________________________________

    Subscribed and sworn to before me, a Notary Public, in and for the 
aforesaid County and State, this ______ day of ______,

My commission expires___________________________________________________
Notary Public___________________________________________________________
    (3) The subsidized operator shall furnish its own supply of 
supporting schedules and affidavit.



Sec. 252.42  Appeals procedures.

    (a) Appeals of annual or special audits. An operator who disagrees 
with the findings, interpretations or decisions in connection with audit 
reports of the Office of the Inspector General and who cannot settle 
said differences by negotiation with the Contracting Officer may submit 
an appeal to the Maritime Administrator from such findings, 
interpretations or decisions in accordance with Part 205 of this 
chapter.
    (b) Appeals of administrative determinations--(1) Policy. An 
operator who disagrees with the findings, interpretations or decisions 
of the Contracting Officer with respect to the administration of this 
part may submit an appeal from such findings, interpretations or 
decisions as follows:
    (i) Appeals shall be made in writing to the Secretary, Maritime 
Subsidy Board, Maritime Administration, within 60 days following the 
date of the document notifying the operator of the administration 
determination of the Contracting Officer. In his appeal to the Secretary 
the operator shall indicate whether or not he desires a hearing.
    (ii) The appellant will be notified in writing if a hearing is to be 
held and whether he is required to submit additional facts for 
consideration in connection with the appeal.
    (iii) When a decision has been rendered by the Board, the appellant 
will be notified in writing.
    (2) Appeal to the Secretary of Transportation. An operator who 
disagrees with the Board may appeal such findings and determinations by 
filing a written petition for review of the Board's action with the 
Secretary of Transportation. The petition shall be filed in accordance 
with provisions of the Department of Transportation pertaining to 
Secretarial review.
    (3) Hearings, The Rules of Practice and Procedures, 46 CFR part 201, 
subpart M, shall be followed for all hearings granted under 46 U.S.C. 
1176 and 46 CFR 252.42.

[[Page 93]]



PART 272--REQUIREMENTS AND PROCEDURES FOR CONDUCTING CONDITION SURVEYS AND ADMINISTERING MAINTENANCE AND REPAIR SUBSIDY--Table of Contents




                           Subpart A--General

Sec.
272.1  Purpose.
272.2  Scope.
272.3  Definitions.
272.4  Effective date.
272.5  Prior instructions superseded.

Subpart B--Requirements and Procedures for Determining the Condition of 
                            Eligible Vessels.

272.11  Scope.
272.12  Determining the condition of eligible vessels.
272.13  Operator's responsibilities.
272.14  Survey procedures.
272.15  Execution of condition survey reports.
272.16  Non-compliance with survey requirements.

 Subpart C--Eligibility Criteria for M&R Subsidy; Substantiation of M&R 
                                Expenses

272.21  General eligibility criteria.
272.22  Improvements and other similar work.
272.23  Examples of ineligible expenses.
272.24  Subsidy repair summaries.
272.25  Requirements for subsidy repayment.

                          Subpart D--Penalties

272.31  Determination of penalty.
272.32  Mitigation of penalty.
272.33  Appeals.

       Subpart E--Examination, Audit, Review and Appeal Procedures

272.41  Requirements for examination and allocation of M&R expenses.
272.42  Audit requirements and procedures.
272.43  Review and appeal procedures.
272.44  Dates.

    Authority: 46 App. U.S.C. 1114(b), 1173, 1176; 49 CFR 1.66.

    Source: 55 FR 34919, Aug. 27, 1990, unless otherwise noted.



                           Subpart A--General



Sec. 272.1  Purpose.

    The purpose of this part is to prescribe the requirements and 
procedures for determining the condition of vessels receiving operating-
differential subsidy, to prescribe the requirements for reporting and 
substantiating maintenance and repair (M&R) expenses, and to establish 
the criteria and procedures for determining whether a M&R expense is 
subsidizable.



Sec. 272.2  Scope.

    Except as otherwise provided in subpart B, the provisions of this 
part apply only to vessels operating under an operating-differential 
subsidy agreement which provides for the payment of M&R subsidy, except 
that this part does not apply to any vessel operating under an 
operating-differential subsidy agreement for the carriage of bulk raw 
and processed agricultural commodities from the United States to the 
Union of Soviet Socialist Republics, pursuant to part 294 of this 
chapter.



Sec. 272.3  Definitions.

    For the purposes of this part:
    (a) Act means the Merchant Marine Act, 1936, as amended, 46 App. 
U.S.C. 1101 et seq.
    (b) MARAD means the Maritime Administration, a unit of the United 
States Department of Transportation, as distinguished from the Board 
(which is a unit of MARAD).
    (c) Board means the Maritime Subsidy Board of the Maritime 
Administration.
    (d) Domestic Origin:
    (1) Labor. With respect to labor, Domestic Origin means that the 
work shall be performed by a U.S. ship repair facility, a U.S. 
independent contractor, or by the Operator's own shore gang.
    (2) Materials. With respect to materials, Domestic Origin means that 
all articles, materials, and supplies shall be of the growth, production 
or manufacture of the United States.
    (e) Eligible Vessel means a vessel operated under an ODSA, other 
than an ODSA subject to part 294 of this chapter, which provides for the 
payment of M&R subsidy with respect to the operation of that vessel.
    (f) Equipment means that part of an Eligible Vessel that is not part 
of the vessel's hull or machinery.
    (g) Expendable equipment means those articles, outfittings and 
furnishings

[[Page 94]]

that are portable, semi-portable or detachable, that are used in 
equipping a ship for service and in its normal day-to-day maintenance 
and operation, and that are subject to casual or gradual deterioration 
and replacement. It does not include items classified as stores and 
supplies or Spare Parts.
    (h) Improvement means work to be performed on an Eligible Vessel 
which is a modification, alteration, addition or betterment, which may 
be accomplished separately from M&R, but may be eligible for M&R subsidy 
pursuant to Sec. 272.22 of this part.
    (i) M&R and M&R Subsidy mean, respectively, maintenance and repairs 
and maintenance and repair subsidy payable pursuant to section 603 of 
the Act.
    (j) ODS and ODSA refer, respectively, to operating-differential 
subsidy provided under an operating-differential subsidy agreement 
entered into pursuant to title VI of the Act.
    (k) Operator means any individual, partnership, corporation, or 
association that enters into an ODSA with the Board pursuant to title VI 
of the Act.
    (l) Permanent equipment means Equipment that is, or is intended to 
become when installed, an integral, permanent, built-in part of the 
vessel.
    (m) Region Office means any one of the four Maritime Administration 
Region Offices in New York, NY; New Orleans, LA; San Francisco, CA; and 
Chicago, IL; established pursuant to section 809 of the Act.
    (n) Spare parts means such items as spare propellers and tailshafts 
and self-contained operable units of machinery or equipment, as well as 
those items generally recognized within the maritime industry as Spare 
Parts.
    (o) United States means the states of the United States, the 
District of Columbia and Puerto Rico.



Sec. 272.4  Effective date.

    The provisions of this part apply to voyages of every Eligible 
Vessel which terminate on or after September 26, 1990.



Sec. 272.5  Prior instructions superseded.

    The provisions of this part supersede any provisions of MARAD 
Circular Letters and Accounting Instructions applicable to M&R and dated 
prior to the effective date of these regulations to the extent that the 
provisions of this part may be inconsistent with the provisions of such 
prior instructions.



Subpart B--Requirements and Procedures for Determining the Condition of 
                            Eligible Vessels



Sec. 272.11  Scope.

    This subpart applies to any Eligible Vessel, other than one 
operating under an ODSA subject to part 294 of this chapter.



Sec. 272.12  Determining the condition of eligible vessels.

    The Operator of an Eligible Vessel shall make the vessel available 
whenever MARAD may require, in any of the following instances:
    (a) At the commencement of the first subsidized voyage, except for a 
newly constructed vessel which enters subsidized service immediately 
upon delivery by the shipyard, and for which there is a prior condition 
survey report. If that subsidized service commences outside the 
continental limits of the United States, the vessel may be surveyed at 
the first United States port of call;
    (b) At the commencement of the first voyage following the effective 
date for M&R subsidy established by MARAD, if such M&R rate was not 
established at the commencement of the vessel's first voyage;
    (c) Upon the discontinuance of a M&R subsidy rate;
    (d) Upon resumption of subsidized voyages after temporary withdrawal 
from subsidized operation. The vessel shall not be considered as having 
been temporarily withdrawn from subsidized service if it performed 
unsubsidized voyages in a subsidized service of the Operator;
    (e) Upon withdrawal from subsidized service, either temporarily 
(subject to the provisions of paragraph (d) of Sec. 272.14), or 
permanently;
    (f) During the dry docking period incident to the vessel's American 
Bureau of Shipping Special Surveys;
    (g) Upon termination of the last voyage under the ODSA, or at the 
end of the contract period, with respect to

[[Page 95]]

subsidized vessels in idle status at that time; or
    (h) At any other time that MARAD considers to be appropriate.



Sec. 272.13  Operator's responsibilities.

    Whenever MARAD notifies an Operator that a survey of an Eligible 
Vessel is required under this section, the Operator shall:
    (a) Make the vessel immediately available for survey if the vessel 
is in a port of the United States at the time of notification, or make 
the vessel available for survey immediately upon arrival at the first 
port of call in the United States if the vessel is not in a port of the 
United States at the time of notification; and
    (b) Furnish to the Secretary of the Board the following:
    (1) A copy of each American Bureau of Shipping report and every 
other salvage association or damage survey report; and
    (2) Copies of certificates or other evidence of compliance with 
applicable laws, rules, and regulations as to vessel condition and 
operation, including, but not limited to, those administered by the 
United States Coast Guard, Environmental Protection Agency, Federal 
Communications Commission, Public Health Service, or their respective 
successors, and compliance with all applicable treaties and conventions 
to which the United States is a signatory.

(Approved by the Office of Management and Budget under control number 
2133-0007)



Sec. 272.14  Survey procedures.

    (a) Prior to survey. Unless otherwise directed by MARAD, the 
Operator of a vessel which is required to be surveyed under this subpart 
shall contact the ship operations unit of the Region Office in which the 
survey is to be conducted.
    (b) Operator's assistance to surveyor. The Operator shall assist the 
marine surveyor performing the survey for MARAD and shall permit access 
by that surveyor to all parts of the vessel, its log books, and other 
official records. The Operator may designate a representative to 
accompany the marine surveyor during the survey, but no Operator's 
representative is required to be present during the survey.
    (c) On-subsidy surveys. An on-subsidy survey consists of the 
following:
    (1) Vessel survey. This includes an inspection and the completion of 
reports by the surveyor, in sufficient detail to reveal a comprehensive 
picture of the conditions noted.
    (2) On-subsidy survey report. The on-subsidy survey report consists 
of:
    (i) Ship Survey Report, Form MA-58; and
    (ii) As appropriate for the circumstances of the survey and the 
respective vessel, Forms MA-55 (Turbines and Gears Report); MA-56 (Tooth 
Contact Report); MA-57 (Drydock Report); and MA-59 (Measurements of 
Piston Rings and Grooves).
    (d) Off-subsidy surveys. An off-subsidy survey consists of the 
following:
    (1) Repair specifications. The Operator shall prepare and furnish to 
the appropriate Region Office detailed repair specifications covering 
all repair work attributable to completed subsidized service.
    (2) Off-subsidy survey report. The survey report for an off-subsidy 
survey consists of the repair specifications required by paragraph 
(c)(1) of this section, and the findings of the Region Office on these 
specifications after the survey required by paragraph (c)(2) of this 
section.



Sec. 272.15  Execution of condition survey reports.

    Every survey report shall be signed by:
    (a) The Operator's representative, when designated pursuant to 
Sec. 272.13(a), but only if that representative was in attendance during 
the survey;
    (b) The Operator's superintendent engineer or eqivalent;
    (c) The marine surveyor who conducted the survey; and
    (d) The appropriate representative of the Region Office for the 
Region in which the survey was conducted.



Sec. 272.16  Non-compliance with survey requirements.

    MARAD may disallow any one or more M&R claims otherwise eligible for 
subsidy if an Operator fails to:
    (a) Contact the appropriate Region Office as required by 
Sec. 272.14(a);

[[Page 96]]

    (b) Comply with provisions of Sec. 272.14(c)(1) with respect to 
repair specifications, or to make the vessel reasonably available for 
inspection before its next sailing; or
    (c) Comply with any other requirement specified in this subpart B.



 Subpart C--Eligibility Criteria for M&R Subsidy; Substantiation of M&R 
                                Expenses



Sec. 272.21  General eligibility criteria.

    (a) Eligible maintenance and repairs. Costs of maintenance and 
repair are eligible for M&R subsidy participation if they are:
    (1) Performed on an Eligible Vessel;
    (2) Necessary, because of subsidized operation, for the M&R or 
replacement of damaged or worn parts of the vessel's hull, machinery, or 
Permanent Equipment;
    (3) Uncompensated by insurance;
    (4) Considered fair and reasonable by the Board;
    (5) Of Domestic Origin; and
    (6) Otherwise eligible in accordance with provisions of this part.
    (b) Off-subsidy survey items. Any M&R contained in an executed off-
subsidy survey report is eligible maintenance and repair if:
    (1) Paragraphs (a) (1) through (6) of this section are met;
    (2) The work is accomplished by the Operator before or during the 
next drydocking period (periodic or otherwise); and
    (3) The vessel is either owned by the same Operator who owned it at 
the time of the off-subsidy survey, or ownership was transferred to the 
Federal Government pursuant to section 510 of the Act (46 App. U.S.C. 
1160).
    (c) Operator furnished items. In addition to the general 
requirements of paragaph (a) of this section, the cost of the Operator's 
materials, supplies, or both, furnished by the Operator which are 
necessary to the performance of eligible M&R, is eligible for M&R 
subsidy if:
    (1) The items for which the cost was incurred are issued by the 
Operator from ship's inventory or the Operator's shoreside inventory, or 
are issued by direct purchase to the ship repair yard, other independent 
contractor, or shore gang labor; and
    (2) No subsidy, whether M&R or otherwise, has previously been paid 
for such material, supplies, or both; and
    (3) The items are of Domestic Origin.
    (d) Costs associated with shore gang labor. In addition to the 
general requirements of paragraph (a) of this section, the costs 
incurred with respect to the Operator's employment of U.S. shore gang 
labor necessary for the performance of eligible M&R are eligible for M&R 
subsidy participation only if such costs are:
    (1) For direct labor charges;
    (2) For eligible Spare Parts, as described in paragraph (e) of this 
section; or
    (3) Incidental to the payment of wages for the direct labor, to the 
extent that such costs are required by State or Federal law or by 
collective bargaining agreements.
    (e) Spare parts. Spare parts are eligible for M&R subsidy if they 
are:
    (1) Necessary for eligible M&R;
    (2) Issued by the Operator from the Operator's shoreside inventory 
or issued by direct purchase to a U.S. ship repair yard, U.S. 
independent contractor, or U.S. shore gang labor; and
    (3) Placed aboard an Eligible Vessel, and
    (4) Of Domestic Origin.



Sec. 272.22  Improvements and other similar work.

    (a) Eligible expenditures. Any expenditure not in excess of $200,000 
for work effected during any one or a series of repair periods, which 
the Operator and MARAD consider to be an Improvement, is eligible for 
M&R subsidy if otherwise eligible for such subsidy pursuant to 
provisions of this Part.
    (b) Capital expenditures. An expenditure in excess of $200,000 for 
work effected during any one or a series of repair periods, which is not 
necessary for maintenance or repair shall be considered to be a capital 
expenditure, ineligible for M&R subsidy, except that work on an Eligible 
Vessel which the operator considers to be an Improvement is eligible for 
M&R subsidy if, before awarding this work:
    (1) The Operator submits a written request to the Director, Office 
of Ship

[[Page 97]]

Operations, for consideration of the expenditures;
    (2) The Director determines that the work is an Improvement and is 
technically acceptable; and
    (3) The Associate Administrator for Maritime Aids approves M&R 
subsidy for the work, as appropriate, pursuant to the provisions of 
title VI of the Act.
    (c) Improvements performed in more than one repair period. Whenever 
an Operator desires to spread the work incident to any Improvement over 
more than one repair period, the operator shall give written notice to 
the Director, Office of Ship Operations, prior to commencement of the 
work, as to the scope of work involved, expected benefits, the number of 
voyages over which the work will be spread and the estimated total cost. 
The operator shall report in the Subsidy Repair Summary (Form MA-140) 
the actual total cost of such work, covering the repair period in which 
it is finally completed, and shall attach a copy of the acknowledgement 
of such notification to the Form MA-140.



Sec. 272.23  Examples of ineligible expenses.

    Expenses ineligible for M&R subsidy participation include, but are 
not limited to, the following examples:
    (a) Specialized improvements. Any expenditure or Improvement 
required to alter, outfit or otherwise equip a vessel for its intended 
subsidized service which MARAD determines should have been performed 
before the initial entry of the vessel into subsidized service;
    (b) Convenience items. Any expenditure for items that the Region 
Director determines to be aboard a ship only for the convenience of the 
Operator or crew members, and which are not considered integral parts of 
the vessel and are not required for seaworthiness, navigation or the 
health or well-being of the crew or passengers.
    (c) Unsupported expenses. Any expense item which the Operator fails 
to substantiate adequately with documentation, as required by 
Sec. 272.24.
    (d) Untimely requests for review. Any disallowed expense item for 
which the Operator fails to make a timely request for review, as 
required by Sec. 272.43.
    (e) Untimely appeals. Any expense item disallowed in the final 
determination by the Director, Office of Ship Operations, for which the 
Operator fails to make a timely appeal to the Board, pursuant to 
Sec. 272.43.
    (f) Absence of notice of multi-repair period Improvements. Any 
expenses for an Improvement extending over more than one repair period 
in which the Operator did not notify the Director, Office of Ship 
Operations, as required by Sec. 272.22(c).
    (g) Cargo expenses. Any expense of special cargo fittings of a 
temporary nature, dunnage, ceiling, battens, the cleaning of cargo holds 
and tanks for cargo, the reading and certification of temperatures for 
refrigerated cargoes, and similar expenses.
    (h) Stevedore damage. Any expense or any damage to the vessels or 
cargo gear directly attributable to a stevedore.
    (i) Rented equipment. Any expense for the rental of Permanent or 
Expendable Equipment, such as compressors, paint floats, and other 
similar items for use by shore gangs or ship's crew on repair or other 
work, radar, radio telephones, and other similar items for use by ship's 
crew in ship operations.
    (j) Special requirements for trade routes. Any expense for the 
initial installation of equipment necessary for the vessel's particular 
trade route, such as Suez Canal davits, which should have been installed 
before the entry of the vessel into the particular subsidized service.
    (k) General operating expenses. Any expense for the loading of 
stores, the landing and sorting of laundry, pilot service, tug charges, 
removing surplus equipment to warehouses, and other similar expenses 
which do not involve actual maintenance and repair.
    (l) Items attributable to unsubsidized operations. Any item of 
maintenance or repair that is clearly attributable to unsubsidized 
operation, including expenses noted in on-subsidy surveys for repairs 
which clearly should have been made before departure from the last 
United States port on the first voyage:
    (1) In subsidized service, or
    (2) Upon resumption of subsidized operation following temporary 
withdrawal.

[[Page 98]]

    (m) Overdue classification and inspection requirements. Any expenses 
for work required by a classification society or an agency of the 
Federal Government, which was due (irrespective of any grace period 
granted) and not completed before the first voyage:
    (1) In subsidized service, or
    (2) Upon resumption of subsidized operation following temporary 
withdrawal, except when such work is attributable to prior subsidized 
service.
    (n) Foreign maintenance and repairs. Any expense for any item of 
M&R, including insurance repairs, that is not of Domestic Origin.
    (o) Marine or other loss. Any part of an expense or a repair which 
is recovered or recoverable from an insurer or another party.
    (p) Consumables, expendables. Any procurement expense for 
consumables, expendables, and Expendable Equipment, when used or 
installed by ship's crew or furnished for inclusion in ship's inventory, 
and any expense for maintenance, repair, or replacement of Expendable 
Equipment.
    (q) Excessive costs. Costs for M&R which MARAD considers excessive, 
after allowing the Operator an opportunity to present all relevant facts 
pertinent to such costs.
    (r) Overhead costs. Any expense included in shore gang labor charges 
which is an overhead item, as prescribed by 46 CFR part 232--Uniform 
Financial Reporting Requirements.
    (s) Guarantee items. Any expense for an item adjudged or noted as 
being a guarantee item of a construction or repair contractor.

[55 FR 34919, Aug. 27, 1990, as amended at 57 FR 34690, Aug. 6, 1992]



Sec. 272.24  Subsidy repair summaries.

    (a) Filing requirements. The Operator of an Eligible Vessel shall 
submit to the appropriate MARAD regional Ship Operations Office a 
Subsidy Repair Summary (Form MA-140) for each quarter of a calendar year 
in which one or more of the Operator's Eligible Vessels (including any 
vessel which has been temporarily withdrawn from subsidized service) 
terminates a voyage. This quarterly report shall include supporting 
documents and information, as described in paragraph (c) of this 
section. This summary may be for either a single voyage or multiple 
voyages, and shall be filed not later than 120 days after:
    (1) The close of the calendar quarter in which a voyage is 
terminated, or
    (2) The date the reported vessel is temporarily or permanently 
withdrawn from subsidized service.
    (b) Form requirements. MARAD will make available one copy of Form 
MA-140 upon request. Each Operator shall furnish its own supply of the 
form and prepare each form for submission. Information on any Form MA-
140 shall pertain to only one vessel. The Operator's superintendent 
engineer or other responsible official shall certify every summary 
submitted by an Operator in the following manner:

This is to certify that, to the best of my knowledge and belief, and 
based on recorded entries through (Date), this is a true and correct 
statement of repair and maintenance expenditures for the period stated, 
and that the repair and maintenance items indicated as eligible for 
subsidy participation are reasonably attributable to service subsequent 
to commencement of the first voyage under the Operating-Differential 
Subsidy Agreement and were necessary, satisfactorily completed, and the 
price is fair and reasonable (exceptions are listed on separate page).

    (c) Categorization. The Operator shall exercise due diligence in 
identifying each item in the Form MA-140 within the following three 
separate categories:
    (1) Claimed for subsidy. This includes the following:
    (i) M&R
    (ii) Spare Parts
    (iii) Improvements
    (2) Marine loss. If any M&R expense is incurred because of marine 
loss, the Operator shall list such an M&R expense under this separate 
category, and shall exclude such expense from the totals for the 
``Claimed for Subsidy'' and ``Non-Subsidized Items'' categories provided 
for in this section.
    (3) Non-subsidized items. This category shall include builders' 
guarantee items, foreign repairs, and other items of M&R expense not 
claimed for subsidy.
    (d) Required supporting documents and information--(1) General. The 
Operator shall support every item in the Form MA-140 with documents or 
other information, in sufficient detail to permit

[[Page 99]]

MARAD to determine the fairness and reasonableness of the prices for the 
submitted work. With respect to any claims for M&R performed outside the 
United States, the Operator shall submit with the claim a certificate, 
signed either by the Operator (if it uses its own shore gang labor or 
materials from its own inventory) or by an official of the ship repair 
yard or the independent contractor performing the work, stating that the 
M&R were performed with materials, labor, or both, of Domestic Origin.
    (2) U.S. Independent contractors. If a U.S. independent contractor 
performed M&R work, the Operator shall support each such expense with 
one copy of the contractor's invoices covering the work performed. If an 
invoice is not itemized and fully descriptive of the work performed with 
item prices then the Operator shall attach to the contractor's invoice 
other supporting documentation, such as specifications, prepared in 
sufficient detail to permit a determination of the fairness and 
reasonableness of the prices for each segment of the work performed.
    (3) Operator's shore gang. If an Operator's own U.S. shore gang has 
performed any M&R work, the Operator shall submit with the Form MA-140 
specifications covering that work, prepared in sufficient detail 
(including the material and labor cost of each item) to permit a 
determination of the specific cost of each segment of work performed.
    (4) Operator furnished material. Whenever an Operator furnishes to a 
contractor material obtained either from the Operator's own ship stores 
or shoreside inventory, or by direct purchase for a specific job, the 
Operator shall include on the invoice, requisition form or other form of 
transfer memorandum the item number for which the material was used and 
the contract number covering the work performed.
    (5) Spare parts. The Operator shall ensure that the invoice covering 
any Spare Part for an Eligible Vessel which is to be used or installed 
as an integral, permanent part of the vessel, indicates the specific 
piece or part of the vessel's hull, machinery, or Equipment for which 
the Spare Part was obtained.
    (6) Foreign repairs. Operators receiving M&R subsidy shall submit 
copies of all U.S. Customs entry forms detailing foreign expenditures on 
behalf of Eligible Vessels. The copies shall include all expenditures 
made during the quarter.

(Approved by the Office of Management and Budget under control number 
2133-0007)



Sec. 272.25  Requirements for subsidy repayment.

    (a) Repayment of M&R subsidy for compensated marine or other loss. 
If an Operator eventually receives compensation from an insurer or any 
other person for a marine loss or any other loss for which M&R subsidy 
has been paid, the Operator shall repay to MARAD an amount equal to the 
amount of subsidy paid with respect to that loss.
    (b) Repayment of M&R subsidy for Improvements--three year service 
requirement. If, within three years after the completion of an 
Improvement for which M&R subsidy was paid, the Operator permanently 
withdraws the Eligible Vessel from the ODSA, the Operator shall repay to 
MARAD an amount equal to the amount of M&R subsidy paid with respect to 
that Improvement unless MARAD shall have determined that such action was 
beyond the control of the Operator.
    (c) Repayment of M&R subsidy due to allocation of costs. If the 
allocation of total M&R costs required by Sec. 272.41(e) of this part 
results in the allocation of a lesser amount of subsidizable M&R costs 
than were actually paid for during the calendar year, the Operator shall 
repay to MARAD the amount of ODS which was paid in excess of the 
allocated subsidizable costs.
    (d) Administrative action. If an Operator fails to repay an M&R 
subsidy required to be repaid by this section, MARAD may either reduce 
any ODS payable by the amount of M&R subsidy required to be repaid by 
this section, or take any other action necessary to secure repayment.



                          Subpart D--Penalties



Sec. 272.31  Determination of penalty.

    Operators whose Eligible Vessels have undergone foreign repairs, 
which MARAD determines are non-emergency in nature, may be subject to a 
penalty

[[Page 100]]

in an amount equal to the total cost (exclusive of applicable U.S. 
Customs duties) of such foreign repairs and purchases, such penalty to 
be effected by a deduction from the Operator's total ODS otherwise 
accrued. The Director, Office of Ship Operating Assistance, shall notify 
the Operator by letter with respect to:
    (a) MARAD's determination of a penalty and the reasons therefore; 
and
    (b) Whether the determination is final or subject to the submission 
of additional information.



Sec. 272.32  Mitigation of penalty.

    The Director, Office of Ship Operating Assistance, may decide, after 
a non-emergency foreign repair occurs, to mitigate the penalty. Any 
mitigation of penalty shall be based on a determination that special 
circumstances existed at the time of repair. The Director shall not 
consider the difference in the price of foreign and domestic repair work 
in making this determination, and shall not grant prior approval of 
foreign repairs. In determining whether special circumstances existed, 
the Director shall consider, among others, the following factors:
    (a) The trading area of the vessel both before and after the repair 
was performed;
    (b) Loss of revenue and effect on vessel utilization if the vessel 
had returned to the United States for repairs;
    (c) The additional operating expense which would have resulted from 
a return to the United States to repair the vessel; and
    (d) Whether the repairs could have been deferred until return to the 
United States, taking into consideration the Coast Guard requirements 
for dry docking and special surveys.



Sec. 272.33  Appeals.

    The Operator may appeal final penalty determinations of the 
Director, Office of Ship Operating Assistance, to the Board, as provided 
in Sec. 272.43(c) of this part.



       Subpart E--Examination, Audit, Review and Appeal Procedures



Sec. 272.41  Requirements for examination and allocation of M&R expenses.

    (a) Examination requirement. Pursuant to the specific limitations on 
M&R subsidy in section 603 of the Act, the Region Office shall examine 
the expenses submitted by an operator on Form MA-140 in order to 
determine eligibility to receive M&R subsidy and the reasonableness of 
such expenses.
    (b) Operator's responsibility. During the examination, the operator 
shall provide, at the request of the Director or other official of the 
Region Office, any further documentation or information necessary to 
support an M&R expense. If such documentation or information, including 
information required under paragraph (e) of this section, is not 
received at the Region Office on a timely basis, the Director or other 
official of the Region Office may disallow the M&R expense.
    (c) Notification of examination results. At the completion of the 
examination the Director or other appropriate official of the applicable 
Region Office shall notify the Operator by letter of the results of the 
examination, and shall state the reason for each disallowance of an item 
claimed for subsidy and/or each nonapproval of a marine loss item.
    (d) Record retention requirements. To facilitate an audit 
examination of M&R made pursuant to Sec. 272.42 of this part, the 
Operator shall maintain files arranged by vessel and voyage, which shall 
include, at a minimum, a copy of the Region Office notice letter, a copy 
of the Form MA-140 with all supporting documents submitted therewith, 
and the condition survey report. The Operator shall retain all the 
required materials in files for not less than 3 years after completion 
of the audit.
    (1) Limitation on approval. Any approval for payment of M&R subsidy 
for a marine loss item shall be subject to rescission or modification if 
the Operator subsequently receives insurance or other compensation for 
the item. The Region Finance Officer may at any

[[Page 101]]

time request verification that the Operator has not received such 
compensation.
    (2) Status report on approved marine loss items. The Operator shall 
advise the Region Finance Office by letter as to whether insurance or 
other compensation will be recovered for the marine loss item. The 
Operator is responsible for ensuring that the letter reaches the 
applicable Region Office within 120 days after:
    (i) The date on which all repairs for damage attributed to the 
``Policy Voyage'' (as defined in the Operator's insurance policy) are 
completed, when the amount for such repairs does not exceed the 
franchise or deductible of the policy, or
    (ii) The date of the underwriter's rejection of the Operator's 
marine loss insurance claim or claims.

(Reporting and recordkeeping requirements contained in paragraph (d) 
introductory text were approved by the Office of Management and Budget 
under control number 2133-0007)

[55 FR 34919, Aug. 27, 1990, as amended at 61 FR 32706, June 25, 1996]



Sec. 272.42  Audit requirements and procedures.

    (a) Required audit. In connection with the audit of the Operator's 
subsidizable expenses, the Office of the Inspector General, Department 
of Transportation, shall audit for MARAD the Operator's M&R costs, as 
necessary, for the determination of final subsidy rates. The Operator 
shall substantiate those costs recorded on the books of account which 
have been approved by the Administration.
    (b) Notification of audit results. Upon completion of the audit by 
the Office of Inspector General, the MARAD Office of Financial Approvals 
shall notify the Operator of the audit results, including any items 
disallowed and the reasons for such disallowance.

[57 FR 34690, Aug. 6, 1992]



Sec. 272.43  Review and appeal procedures.

    (a) Exclusive procedures. Notwithstanding the audit appeal 
procedures of part 205 of this chapter, the provisions of this section 
shall be the exclusive remedy available to an Operator for the review 
and appeal of any disallowance of subsidy for a M&R expense claimed or 
any penalty assessed pursuant to Sec. 272.31.
    (b) Request for review. An Operator may request review by:
    (1) The Director, Office of Ship Operations, with respect to any 
disallowance by the Region office of a claimed M&R expense, after 
receiving the notification required by Sec. 272.41(c); or
    (2) The Director, Office of Financial Approvals, with respect to any 
disallowance of a claimed M&R expense, after receiving the notification 
required by Sec. 272.42(b).
    (c) Timeliness of request. The Operator shall file all requests for 
review pursuant to paragraph (b) of this section within 60 days after 
the date of the audit notification. Any disallowance with respect to 
which the Operator fails to file a timely request for review shall be 
final and shall not be subject to appeal to the Board pursuant to 
paragraph (e) of this section.
    (d) Notification of review determination. The appropriate MARAD 
Office Director shall notify the Operator by letter, with respect to 
each timely filed review request, of the Director's determination and 
the reasons for each disallowance and whether the determination is final 
or subject to the submission of additional information.
    (e) Appeal to the Maritime Subsidy Board--(1) Right to appeal. An 
Operator may appeal a MARAD Office Director's final determination issued 
pursuant to Sec. 272.32 (penalties) or Sec. 272.43 (review of claims 
disallowance or of audit results) of this section to the Board in 
writing.
    (2) Contents and timeliness. The Operator shall set forth in any 
appeal the reasons for the Operator's objection to a penalty or 
disallowance of M&R subsidy and shall file such appeal with the 
Secretary of the Board within 60 days after the date of the notification 
sent to the operator by the appropriate Director pursuant to paragraph 
(d) of this section or Sec. 272.33.



Sec. 272.44  Dates.

    The dates noted on the letters or notifications sent to the Operator 
by officials of the Region Office, any Director or any other official or 
MARAD, pursuant to the provisions of this part, shall

[[Page 102]]

be conclusive for the purposes of determining the timeliness of any 
requests for review made under the provisions of this part.



PART 276--CONSTRUCTION-DIFFERENTIAL SUBSIDY REPAYMENT--Table of Contents




Sec.
276.1  Partial repayment--incidental domestic trading.
276.2  Reporting requirement--partial repayment.

    Authority: 46 App. U.S.C. 1114(b), 1117, 1156, and 1204; 49 CFR 
1.66.



Sec. 276.1  Partial repayment--incidental domestic trading.

    In every instance where a vessel, with respect to which a 
construction-differential subsidy has been paid or allowance therefor 
has been made in calculating the basic charter hire under section 714 of 
the Merchant Marine Act, 1936, as amended (49 Stat. 1995, 52 Stat. 995; 
46 U.S.C. 1151) is operated in other than exclusively foreign trade, the 
owner or charterer thereof shall pay to the Maritime Administration, not 
later than March 31 of the calendar year succeeding such operation, the 
proportion of the difference between the domestic and foreign cost of 
such vessel that is required to be paid to the Maritime Administration 
in such act, and particularly sections 506 and 714 thereof.

(Sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114)

[G.O. 50, 7 FR 588, Jan. 29, 1942, as amended at 45 FR 68394, Oct. 15, 
1980]



Sec. 276.2  Reporting requirement--partial repayment.

    Every owner of a vessel for which a construction-differential 
subsidy has been paid and every charterer of a vessel constructed under 
the provisions of the Merchant Marine Act, 1936, shall file with the 
Maritime Administration a General Financial Statement in the form and at 
the times prescribed by the Maritime Administration but not less 
frequently than annually; the amount of the payment due the Maritime 
Administration on account of the operation of such vessel in other than 
exclusively foreign trade must be shown in Balance Sheet Account No. 
430; and a schedule reflecting the details of the manner in which the 
amount of such payment was determined must be made a corporate part of 
the General Financial Statement.

(Sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114)

[G.O. 50, 7 FR 588, Jan. 29, 1942, as amended at 45 FR 68394, Oct. 15, 
1980]



PART 277--DOMESTIC AND FOREIGN TRADE; INTERPRETATIONS--Table of Contents






Sec. 277.1  Guam, Midway and Wake.

    Steamship service between ports of the United States mainland and 
ports in the islands of Guam, Midway and Wake is not ``domestic 
intercoastal or coastwise service'' within the meaning of section 805(a) 
of the Merchant Marine Act, 1936. This interpretation is limited to 
Guam, Midway and Wake and does not signify that a similar interpretation 
is or would be applicable to Hawaii, Puerto Rico or Alaska.

(Sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114. Interprets or 
applies sec. 805, 49 Stat. 2012, as amended; 46 U.S.C. 1223)

[G.O. 73, 15 FR 9065, Dec. 19, 1950]



PART 280--LIMITATIONS ON THE AWARD AND PAYMENT OF OPERATING-DIFFERENTIAL SUBSIDY FOR LINER OPERATORS--Table of Contents




Sec.
280.1  Purpose.
280.2  Definitions.
280.3  Standards governing award of an ODS agreement.
280.4  Standards governing payment of ODS.
280.5  Criteria for determining whether or not civilian preference cargo 
          is carried at a premium rate.
280.6  Calendar year accounting.
280.7  Reporting and recordkeeping requirements.
280.8  Certain ODS agreement provisions not affected.
280.9  Special rules for last year of ODS agreement.
280.10  Waiver.
280.11  Example of calculation and sample report.

    Authority: Sec. 204(b), Merchant Marine Act, 1936, as amended (46 
U.S.C. 1114) Reorganization Plans No. 21 of 1950 (64 Stat. 1273) and No. 
7 of 1961 (75 Stat. 840) as amended by Pub. L. 91-469 (84 Stat. 1036), 
Department of

[[Page 103]]

Commerce Organization Order 10-8 (38 FR 19707, July 23, 1973).

    Source: 42 FR 61460, Dec. 5, 1977, unless otherwise noted.



Sec. 280.1  Purpose.

    The purpose of this part is to prescribe regulations governing the 
award of operating-differential subsidy agreements and payment of 
operating-differential subsidy to liner operators under Title VI of the 
Merchant Marine Act, 1936, as amended, as interpreted by the Maritime 
Subsidy Board in Docket No. S-244.



Sec. 280.2  Defintions.

    For purposes of this part only:
    (a) Commercial cargo means cargo other than military cargo and 
civilian preference cargo.
    (b) Military cargo means that cargo required to be carried on a 
U.S.-flag vessel by 10 U.S.C. 2631.
    (c) Civilian preference cargo means any cargo other than military 
cargo required by law to be carried on a U.S.-flag vessel, including, 
but not limited to, cargo required to be carried on a U.S.-flag vessel 
by 15 U.S.C. 616a and 46 U.S.C. 1241(b).
    (d) Conference-rated civilian preference cargo means any civilian 
preference cargo moving at rates set by an international rate 
conference.
    (e) International rate conference means any formal organization of 
competing carriers established for the purpose of setting shipping 
rates.
    (f) Open-rated civilian preference cargo means any civilian 
preference cargo moving at a rate other than a set rate established by 
an international rate conference.
    (g) Open-rated civilian preference cargo carried at the world rate 
means any open-rated civilian preference cargo that is considered 
pursuant to Sec. 280.5 not to be carried at a premium rate.
    (h) Competitive cargo means commercial cargo, conference-rated 
civilian preference cargo, and open-rated civilian preference cargo 
carried at the world rate.
    (i) Secretary means the Secretary of the Maritime Administration, 
Department of Transportation.
    (j) Region Director means the Region Director of the Maritime 
Administration within whose region the principal office of the operator 
is located.
    (k) Operator means any individual, partnership, corporation or 
association that contracts with the United States Government under Title 
VI of the Act to receive ODS.
    (l) Board means the Maritime Subsidy Board of the Maritime 
Administration, Department of Transportation.
    (m) Act means the Merchant Marine Act, 1936, as amended.
    (n) Operating-differential subsidy (ODS) means, except as the 
operator and the United States Government shall agree upon a lesser 
amount, the excess of the cost of subsidizable items of expense incurred 
in the operation under United States registry of a vessel over the 
estimated fair and reasonable cost of the same items of expense 
(excluding any increase in the cost of such items necessitated by 
features incorporated for national defense), if such vessel were 
operated under the registry of a foreign country whose vessels are 
substantial competitors of the vessel.
    (o) Gross freight revenue means total gross receipts earned from the 
carriage of cargo (other than mail) in the U.S. foreign commerce.
    (p) Miscellaneous gross revenue means total gross receipts earned in 
the U.S. foreign commerce from the carriage of passengers and mail plus 
miscellaneous voyage revenues.
    (q) Inbound gross freight revenue means gross freight revenue earned 
from the carriage of cargo in foreign commerce inbound to the United 
States.
    (r) Outbound gross freight revenue means gross freight revenue 
earned from the carriage of cargo in foreign commerce outbound from the 
United States.
    (s) Wayport gross freight revenue means gross freight revenue earned 
from the carriage of cargo between foreign ports.
    (t) Total gross revenue means the sum of inbound gross freight 
revenue, outbound gross freight revenue, wayport gross freight revenue 
and miscellaneous gross revenue.
    (u) Service means any essential service in the foreign commerce of 
the United States under section 211(a) of the Act for which an ODS 
agreement

[[Page 104]]

has been entered into by the operator and the United States.
    (v) ODS payable on the inbound leg of a service means the inbound 
gross freight revenue of the service divided by the total gross revenue 
of the service times the ODS payable for the service.
    (w) ODS payable on the outbound leg of a service means the outbound 
gross freight revenue of the service divided by the total gross revenue 
of the service times the ODS payable for the service.
    (x) U.S. foreign commerce means the commerce or trade between the 
United States, its territories or possessions, or the District of 
Columbia and a foreign country.



Sec. 280.3  Standards governing award of an ODS agreement.

    No ODS agreement, including any amendments thereto concerning 
additional services or revised service area, shall be made under Title 
VI of the Act, unless the applicant establishes in its application to 
the satisfaction of the Board, that the vessel operations proposed to be 
subsidized will be conducted in a manner which will not preclude the 
applicant from earning at least 50 percent of its inbound gross freight 
revenue and at least 50 percent of its outbound gross freight revenue 
for each service covered by the application from the carriage of 
competitive cargo.



Sec. 280.4  Standards governing payment of ODS.

    (a) Full payment. Except to the extent otherwise provided in 
Sec. 280.8, ODS shall be paid in full to the operator for vessel 
operations on the inbound and outbound legs of each service if, during 
the calendar year, at least 50 percent of the inbound and 50 percent of 
the outbound gross freight revenues earned on voyages terminated during 
the calendar year, for each service, are earned from the carriage of 
competitive cargo.
    (b) Reduction in payment--(1) Inbound leg of service. The amount of 
ODS payable for the inbound leg of a service for the calendar year shall 
be reduced as provided in paragraph (b)(3) of this section if, during 
the calendar year, less than 50 percent of the inbound gross freight 
revenue earned in such service, on voyages terminated during the 
calendar year, is earned from the carriage of competitive cargo.
    (2) Outbound leg of service. The amount of ODS payable for the 
outbound leg of a service for the calendar year shall be reduced as 
provided in paragraph (b)(3) of this section if, during the calendar 
year, less than 50 percent of the outbound gross freight revenue earned 
in such service, on voyages terminated during the calendar year, is 
earned from the carriage of competitive cargo.
    (3) ODS reduction formula. The reduction in ODS payable required by 
paragraphs (b) (1) and (2) of this section for any calendar year shall 
be made by reducing the amount payable on one or more ODS vouchers for 
the subsequent calendar year by a cumulative amount equal to an amount 
determined in accordance with the following table:

------------------------------------------------------------------------
Percent of inbound or outbound gross freight revenue from  ODS reduction
              carriage of competitive cargo                     \1\     
------------------------------------------------------------------------
40 to 49.9...............................................          20   
30 to 39.9...............................................          40   
20 to 29.9...............................................          60   
10 to 19.9...............................................          80   
0 to 9.9.................................................         100   
------------------------------------------------------------------------
\1\ Expressed in percent of total ODS payable for cargo carriage on the 
  inbound or outbound leg of the service.                               

    (4) Last calendar year exception. The provisions of this paragraph 
do not apply to the last calendar year of an ODS agreement except to the 
extent that any reduction in ODS payable required by this section for 
the calendar year immediately preceding the last calendar year is to be 
made, pursuant to paragraph (b)(3) of this section, on ODS vouchers 
submitted in the last calendar year.



Sec. 280.5  Criteria for determining whether or not civilian preference cargo is carried at a premium rate.

    Civilian preference cargo shall be considered to be carried at a 
premium rate unless carried:
    (a) At the tariff commodity rate published in a conference tariff or 
at the stated minimum level or floor rate for an open-rated commodity 
published in a conference tariff, Provided, That the international rate 
conference issuing such tariff commodity rate, stated minimum level, or 
floor rate has at

[[Page 105]]

least one foreign-flag carrier as a voting member, or
    (b) At a rate or tariff agreement rate, or at the stated minimum 
level or floor rate for an open-rated commodity, established by a rate 
making group other than an international rate conference, Provided, That 
such rate making group has at least one foreign-flag carrier as a voting 
member, or
    (c) At a rate approximately the same as or less, or at a rate that 
the subsidized operator by use of indices or other mechanism can 
demonstrate is reasonably equated to or less, than a rate quoted or 
actually charged by a foreign-flag carrier for the same commodity with 
the same or a competitive origin and destination and within a reasonably 
similar time period. This paragraph is applicable to, but is not limited 
to, rates:
    (1) Established by a conference or other rate making group that has 
only U.S. flag carriers as voting members;
    (2) Quoted by an individual member of an international rate 
conference or other rate making group with permits an individual member 
to negotiate or otherwise establish its own rate; or
    (3) Quoted by a carrier and not published in any conference tariff.



Sec. 280.6  Calendar year accounting.

    Except as provided in Sec. 280.9 (relating to the final year of an 
ODS agreement), the calculations required under this part for years 
after 1973 shall be on the basis of voyages terminated during the 
calendar year. Calculations for the calendar year 1973 shall be made on 
the basis of voyages commenced and terminated in 1973.



Sec. 280.7  Reporting and recordkeeping requirements.

    (a) Reporting requirement. Except as provided in Sec. 280.9 of this 
part (relating to the final year of an ODS agreement), each operator 
shall submit to the Secretary (two copies) and to the Region Director 
(one copy), by March 31 of the succeeding year, a report for each 
calendar year setting forth for each service; the total gross revenue, 
the miscellaneous gross revenue, the inbound and outbound gross freight 
revenues, the wayport gross freight revenue, and the outbound and 
inbound gross freight revenues earned from the carriage of military 
cargo and from the carriage of civilian preference cargo carried at 
premium rates as determined pursuant to Sec. 280.5. See Sec. 280.10(b) 
for the form of the report required to be submitted by this paragraph.
    (b) Recordkeeping requirement. In support of each report submitted 
pursuant to this section or Sec. 280.9, each operator shall:
    (1) Maintain and make available for audit upon request, records for 
each service, outbound and inbound, which show for each item of civilian 
preference cargo carried during the calendar year, the name of the 
commodity carried according to the tariff desription, the rate at which 
it was carried, the world rate for the commodity for the same or a 
competitive origin and destination and within a reasonably similar time 
period, and whether or not the item was considered to have been carried 
at a premium rate, or
    (2) Establish upon request to the satisfaction of the Region 
Director, by demonstration of its accounting system or by other 
reasonable means, that the report filed under paragraph (a) of this 
section is substantially correct.
    (c) Certification of report. Each report submitted pursuant to this 
section or Sec. 280.9 must be accompanied by a certification by a 
responsible official of the operator in the following form:

    I hereby certify to the best of my knowledge and belief that this 
report is complete and accurate and conforms to the requirements of 46 
CFR part 280.

    (d) Requirements for requesting confidentiality. (1) Except as 
otherwise provided in this paragraph, the information contained in any 
report submitted pursuant to this section or Sec. 280.9 is not entitled 
to be considered confidential for purposes of the Freedom of Information 
Act (5 U.S.C. 552).
    (2) If an operator desires confidential treatment of any information 
contained in such a submitted report, the operator is required to file 
concurrently with each such report a written request for a determination 
of confidentiality.
    (3) The operator shall include in any confidentiality request filed 
under this paragraph:

[[Page 106]]

    (i) A precise, item-by-item specification of the information in the 
report that the operator asserts is within one of the exemptions from 
disclosure in 5 U.S.C. 552(b);
    (ii) A statement as to whether each identified item is treated as 
confidential by the operator and the steps taken by the operator to 
ensure that confidentiality; and
    (iii) An explanation of how release of each identified item would 
cause substantial competitive injury to the operator, and the exact 
nature of that injury.
    (4) An operator's general, unexplained assertions of exemption under 
section 552(b) are insufficient and the item or items concerned will not 
be considered for confidential treatment.
    (e) Determination. (1) If it is determined that an exemption is 
applicable to an item or items of information which have been properly 
specified and supported in a confidentiality request under paragraph (d) 
of this section, the operator will be so notified in writing.
    (2) If it is determined that no exemption is applicable to or that 
none will be asserted for an item of information included in a 
confidentiality request, the operator will be given a written statement 
of and reasons for that determination.



Sec. 280.8  Certain ODS agreement provisions not affected.

    The provisions of this part are not intended to supersede 
contractual or other requirements dealing with sailings, and the 
carriage of full loads of military or bulk cargoes.



Sec. 280.9  Special rules for last year of ODS agreement.

    (a) Reduction in payment of ODS. ODS payable during the last year of 
any ODS agreement shall be reduced, as provided in paragraph (b) of this 
section, if on a cumulative basis for each quarter of the calendar year:
    (1) Less than 50 percent of the inbound gross freight revenue earned 
on the inbound leg of a service, or
    (2) Less than 50 percent of the outbound gross freight revenue 
earned on the outbound leg of a service, is earned from the carriage of 
competitive cargo. Any reduction required by this paragraph is in 
addition to any reduction in ODS payable for the preceding calendar year 
as required by paragraph (b) (3) of Sec. 280.4.
    (b) Amount and method of required reduction--(1) Quarterly voucher. 
As required by paragraph (a) of this section, the amount payable on the 
ODS voucher for the last month of any quarter of the last calendar year 
is to be reduced by an amount determined by applying the table in 
paragraph (b)(3) of Sec. 280.4 to the cumulative ODS payable.
    (2) Insufficient ODS payable--(i) Vouchers for subsequent months. If 
the total amount of reduction required to be made pursuant to (b)(3) of 
Sec. 280.4 or paragraph (b)(1) of this section or both, is greater than 
the amount of ODS payable on the ODS vouchers for the last month of the 
1st, 2nd, or 3rd quarter of the last calendar year, the operator shall 
carry an amount equal to this excess forward to one or more of the 
months subsequent to such quarter of the last calendar year as a 
reduction in the ODS payable on the ODS voucher for any such subsequent 
months.
    (ii) Voucher in the final quarter. If the amount of reduction 
required by paragraph (b)(1) of this secton is greater than the amount 
of ODS payable on the ODS voucher for the last month of the final 
quarter of the last calendar year, the Maritime Administrator may apply 
an amount equal to this excess as a reduction of any outstanding ODS 
payable to the operator for the last calendar year or any preceding 
years.
    (c) Reporting requirements. During the last year of the ODS 
agreement, the operator shall submit a report to the Secretary (two 
copies) and to the Region Director (one copy) for each quarter of the 
calendar year, providing for each such quarter on a cumulative basis for 
the calendar year, the information required by paragraph (a) of 
Sec. 280.7. The reports required by this paragraph shall be submitted 
concurrently with the operator's vouchers for the 3rd, 6th, 9th and 12th 
months of the calendar year. Each report submitted pursuant to this 
paragraph is also subject to the other applicable requirements of 
Sec. 280.7.
    (d) Cumulative quarterly accounting. The calculations required under 
this section shall be made on the basis of

[[Page 107]]

the cumulative voyages terminated from the beginning of the calendar 
year through the reported quarterly period.
    (e) Special procedures. Whenever the Maritime Administrator, 
Department of Transportation determines that the provisions of this 
section may fail at any time to protect the interests of the Maritime 
Administration, the Maritime Administrator may take any measures 
necessary to ensure against an overpayment of ODS or to ensure the 
prompt repayment of any such overpayment.



Sec. 280.10  Waiver.

    The Board has the power to waive the requirements of any provision 
of this part for a specific period of time under special circumstances 
and for good cause shown.



Sec. 280.11  Example of calculation and sample report.

    (a) Example of calculation. The provisions of this part may be 
illustrated by the following example:

    Company A operates several vessels engaged in carrying cargo, 
passengers and mail from the west coast of the United States outbound to 
foreign ports in the Far East, cargo between the foreign ports in the 
Far East, and cargo from foreign ports in the Far East inbound to the 
west coast of the United States. Company A's operation on this service 
is subsidized under an ODS agreement made in accordance with Sec. 280.3. 
Total annual subsidy payable for Company A's service is $1 million. In 
1976 Company A's total gross revenue was $10 million, computed as 
follows:

Outbound gross freight revenue.............................   $4,000,000
Inbound gross freight revenue..............................    4,000,000
Wayport gross freight revenue..............................    1,000,000
Miscellaneous gross revenue................................    1,000,000
                                                            ------------
    Total gross revenue....................................   10,000,000
                                                                        

    Of the $4 million outbound gross freight revenue $1,600,000, or 40 
percent, was earned from carriage of competitive cargo. Of the $4 
million inbound gross freight revenue $1,200,000, or 30 percent, was 
earned from carriage of competitive cargo. Accordingly, total ODS 
payable to Company A for voyages terminated during the calendar year 
1976 is reduced by $240,000, from $1 million to $760,000, as follows:

                         outbound leg of service                        
                                                                        
------------------------------------------------------------------------
ODS payable................................................     $400,000
  (Outbound freight revenue, $4 million, divided by total               
   gross revenue, $10 million, times total ODS payable for              
   service, $1 million.)                                                
Percent reduction of ODS payable...........................          20%
  (40% carriage of competitive cargo requires 20% reduction             
   in ODS payable.)                                                     
Amount of reduction in ODS payable.........................      $80,000
  (20% of $400,000.)                                                    
                                                                        
------------------------------------------------------------------------
                                                                        
                         inbound leg of service                         
                                                                        
------------------------------------------------------------------------
ODS payable................................................     $400,000
  (Inbound freight revenue, $4 million, divided by total                
   gross revenue, $10 million, times total ODS payable for              
   service, $1 million.)                                                
Percent reduction of ODS payable...........................          40%
  (30% carriage of competitive cargo requires 40% reduction             
   in ODS payable.)                                                     
Amount of reduction in ODS payable.........................     $160,000
Total amount of reduction in ODS payable...................     $240,000
  ($80,000 plus $160,000.)                                              
Total ODS payable for service in 1976 (after reduction)....     $760,000
  ($1 million minus $240,000.)                                          
                                                                        
------------------------------------------------------------------------
------------------------------------------------------------------------


                                                MA--819 (company)                                               
                      Report of Revenues Earned for ______ \1\ Pursuant to 46 CFR Part 280                      
                                       Form Approval--OMB No. 41.R2954--15                                      
----------------------------------------------------------------------------------------------------------------
                                         Trade Route No.           Trade Route No.           Trade Route No.    
                                   -----------------------------------------------------------------------------
                                      Dollars      Percent      Dollars      Percent      Dollars      Percent  
----------------------------------------------------------------------------------------------------------------
Outbound freight revenue:                                                                                       
  Military and Premium Rated                                                                                    
   Civilian.......................  ...........  ...........  ...........  ...........  ...........  ...........
  Competitive.....................  ...........  ...........  ...........  ...........  ...........  ...........
                                   -----------------------------------------------------------------------------
    Total Outbound Freight Revenue  ...........          100  ...........          100  ...........          100
                                   =============================================================================

[[Page 108]]

                                                                                                                
Inbound freight revenue:                                                                                        
  Military and premium rated                                                                                    
   civilian.......................  ...........  ...........  ...........  ...........  ...........  ...........
    Competitive...................  ...........  ...........  ...........  ...........  ...........  ...........
                                   -----------------------------------------------------------------------------
    Total inbound freight revenue.  ...........          100  ...........          100  ...........          100
                                   =============================================================================
Wayport freight revenue...........  ...........  ...........  ...........  ...........  ...........  ...........
Miscellaneous revenue.............  ...........  ...........  ...........  ...........  ...........  ...........
                                   -----------------------------------------------------------------------------
    Total gross revenue...........  ...........  ...........  ...........  ...........  ...........  ...........
----------------------------------------------------------------------------------------------------------------
\1\ Enter Calendar Year __ or Cumulative Quarterly Period Ending ____ as applicable for the report being filed. 



PART 281--INFORMATION AND PROCEDURE REQUIRED UNDER LINER OPERATING-DIFFERENTIAL SUBSIDY AGREEMENTS--Table of Contents




Sec.
281.1  Information and procedure required under liner operating-
          differential subsidy agreements.
281.2  Definitions.
281.3  Method of commencing and terminating voyages and of determining 
          idle status.
281.4  Treatment of subsidy during idle status and off-hire period.
281.5  Right of Maritime Administrator to recover subsidy for any period 
          of idleness.
281.6  Interpretation.

    Authority: Sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114. 
Interpret or apply sec. 606, 49 Stat. 2004, as amended; 46 U.S.C. 1176.



Sec. 281.1  Information and procedure required under liner operating-differential subsidy agreements.

    In compliance with the terms of the operating-differential subsidy 
agreement, the following information shall be submitted to the Maritime 
Administration by each operator who is a party to any such agreement and 
operates liner type vessels pursuant to such agreement.
    (a) Sailing schedules, routes, etc. (1) One copy of a list of 
sailings is required to be submitted not later than the 5th day of each 
month, listing each outbound sailing during the preceding month. Such 
list shall show for each such sailing: (i) Vessel name; (ii) voyage 
number; (iii) last continental U.S. port; (iv) sailing date; and (v) the 
service on which the sailing took place.
    (2) A ``Final Report'' in five copies shall be submitted not later 
than 15 days after the end of the month in which the voyage is 
terminated and shall show: (i) The time and ports at which the voyage 
commenced and terminated; (ii) the arrival and sailing dates of the 
vessel at and from each United States and foreign port, including ports 
of call for bunkering and/or mail only; (iii) explanation of any delay 
in excess of 2 days at a United States or foreign port; (iv) appropriate 
notation of official authorization for any deviations from the service 
described in the applicable contract.
    (3) The procedures outlined in paragraphs (a) (1) and (2) of this 
section shall be effective on the first of the month following 
publication in the Federal Register.
    (4) The sailing schedules and lists of sailings specified in this 
paragraph shall be sent to the Division of Trade Studies, Office of 
Subsidy Administration, Maritime Administration, Washington, DC 20590.
    (b) Condition of vessels, inspection and repairs. (1) In order that 
the Maritime Administration may have an opportunity to participate in 
the inspection of the vessels, the operator is required to give at least 
twenty-four hours' notice to the Maritime Administration as to the time 
and place of making inspections. In the event the Maritime 
Administration's representative is not available, the operator shall 
employ an

[[Page 109]]

independent surveyor, who shall be satisfactory to the Maritime 
Administration, and proceed with inspection, and a report thereof shall 
be made to the Maritime Administration on forms MA-55, MA-56, MA-57, and 
MA-58, sworn to by persons making the inspection.
    (2) The operator shall give due notice to the local office of the 
Division of Maintenance and Repair, at the port at which the vessel is 
to be available, of the port, date and time for the making of repairs or 
replacements in the United States.
    (3) In connection with further requirements, reference is made to 
General Order 20 (Part 271 of this chapter) and supplements thereto for 
more detailed instruction.
    (4) Vessel repairs are to be performed within the continental limits 
of the United States, except in emergency cases the necessity for which 
the operator should be prepared to justify upon audit.
    (c) Insurance. (1) Immediately upon the binding of any insurance 
with respect to any vessel covered by the operator's subsidy agreement, 
there shall be submitted to the Division of Insurance Office of the 
Comptroller, Maritime Administration, Washington, DC 20590, for the 
Maritime Administration's approval, a signed copy of each cover note 
issued by the operator's brokers, which, to the extent applicable, shall 
set forth as to such vessel the amounts covered by hull, disbursements 
and other forms of total loss protection, as well as P and I insurance. 
Such cover notes shall include the rates, the amounts placed in the 
different markets, the companies interested, the policy numbers and the 
amount underwritten by each policy; also, there shall be shown the 
amount of the deductible average, if any. Upon request, policies shall 
be submitted to the Maritime Administration for examination and return.
    (2) The Maritime Administration shall be advised promptly of any 
cancellation, changes in terms, or companies interested, and of any lay-
up periods which will permit of the collection of return premiums, and 
of any major casualty or total loss which may occur.
    (3) Insurance arranged in conformity with the requirements of 
applicable mortgages held by the United States will be deemed sufficient 
to comply with the requirements of the operator's operating-differential 
subsidy agreement.
    (4) The Maritime Administration furthermore, wishes to emphasize its 
desire that as much of the American Merchant Marine insurance coverage 
as is practicable be placed in the American insurance market. Therefore, 
when a renewal of policies or new insurance is under negotiation by an 
operator subject to the provisions of this order, it is urgently 
requested that particular attention be given to the Maritime 
Administration's desire as herein expressed with regard to markets in 
which such insurance may be placed, and that the Maritime Administration 
be notified in ample time to give consideration to the pertinent facts 
and circumstances of each case, so that prior to the attachment of such 
insurance, approval thereof or suggested changes may be indicated.
    (d) Inventories. Twenty-four hours' notice shall be given to the 
Maritime Administration as to the time and place of inventorying 
classification-required spare parts, ship's spare equipment, fuel and 
stores as are customarily inventoried and the cost of which is charged 
to the voyage accounts. If, upon giving the above-required notice, the 
Maritime Administration's representatives are not present, the operator 
is to proceed with his inventory in the normal way. The operator may use 
his own inventory forms, one copy of which shall be sworn to by the 
persons taking the inventory and included in the voyage accounting.
    (e) Partial payments on account. When partial payments are desired 
on account of operating-differential subsidy accruals, the operator 
should communicate with the Comptroller, Maritime Administration, 
Washington, DC 20590, who shall forward necessary instructions and forms 
to be used.
    (f) Current financial reports. Each operator shall prepare current 
financial reports as specified in this paragraph and shall submit one 
copy each to the appropriate Region Director of the Maritime 
Administration and three

[[Page 110]]

copies each to the Director, Office of Financial Analysis, Maritime 
Administration, Washington, DC 20590, as follows:
    (1) Internal management reports. Each month the operator shall 
submit copies of such portions of its internal management reports that 
provide an estimate of its current operating results.
    (2) Quarterly balance sheets. The operator shall prepare balance 
sheets as of March 31, June 30, and September 30 of each calendar year 
in conformity with section 282.6(A) of the Uniform System of Accounts 
(Part 282 of this chapter) and shall submit each as soon as practicable 
but not later than 45 days after the end of the respective quarter.
    (3) Quarterly and cumulative income statements. The operator shall 
prepare income statements for the quarterly periods January 1, to March 
31, April 1 to June 30, and July 1 to September 30, and for cumulative 
periods from January 1 to the end of the second and third quarters of 
each calendar year in conformity with section 282.6(B) of the Uniform 
System of Accounts (Part 282 of this chapter) and shall submit each 
statement as soon as practicable but not later than 45 days after the 
end of the respective quarter.
    (4) Annual financial report. The operator shall submit Maritime 
Administration Form 172 for each calendar year by March 31 of the 
succeeding year. If the operator is unable to submit Form 172 by March 
31 of the succeeding year he shall, prior to such March 31, request an 
extension for the filing of Form 172 from the Director, Office of 
Financial Analysis and shall submit by such March 31:
    (i) A balance sheet for the year ending on December 31, in 
conformity with section 282.6(A) of the Uniform Systems of Accounts; and
    (ii) An income statement for the quarterly period October 1 to 
December 31 and an income statement for the year ending on December 31, 
in conformity with section 282.6(B) of the Uniform System of Accounts.
    (5) Vessel performance reports. Vessel performance reports shall be 
prepared for the period January 1 to March 31 of each calendar year, and 
from January 1 to the end of each succeeding quarter of the calendar 
year, in the form provided in Exhibit A of paragraph (f)(7) of this 
section and consistent with the allocation bases provided in paragraph 
(f)(6) of this section and shall include:
    (i) A grand summary of all terminated voyage results for the 
reporting period including any idle status period occurring during the 
reporting period and any additional charges or credits from prior 
terminated periods;
    (ii) Summaries of each service by vessel type, as indicated in 
Exhibit (D) of paragraph (7) of this section, as of December 31 of each 
year;
    (iii) Individual reports by vessel for each idle status period 
occurring during any reporting period.

Vessel performance reports shall be submitted with the quarterly balance 
sheets and income statements required under paragraphs (f) (2) and (3) 
of this section and must be reconciled with voyage revenue and expense 
from all operations as reported in the income statement. ``Depreciation 
Vessels'' is an example of a reconciling item. Vessel performance 
reports which are properly prepared and filed will satisfy the reporting 
requirements for sub-schedules 3002 of the Maritime Administration Form 
172.
    (6) Allocation bases. The allocation bases to be applied in 
preparation of vessel performance reports required by paragraph (f)(5) 
of this section are as follows:
    (i) Terminal expenses. Terminal expenses defined by accounts 855 
through 866 of the Uniform System of Accounts (section 282.3(E) of this 
chapter), including depreciation accounts, for each terminal shall be 
allocated between terminated and unterminated voyages on the basis of 
freight payable tons loaded and discharged on each vessel and voyage 
during the reporting period, except that in the case of terminals 
handling only one cargo carriage technology type (CCTT), which can be 
expressed in common units such as twenty-foot equivalent container units 
(TEU's) or the number of individual barges, such common unit may be used 
for allocating terminal expenses by vessel and voyage for each terminal, 
as shown in Exhibit B of paragraph (f)(7) of this section.

[[Page 111]]

    (ii) Container/barge expense--(A) Allocation of expense. Container/
barge expense defined by accounts 867 through 899 of the Uniform System 
of Accounts (section 282.3(F) of this chapter), including depreciation 
accounts, shall be segregated between container and barge cost pools. 
Accounts 879, 880, and 894 shall be allocated between container and 
barge cost pools on an allocation basis developed by the operator.
    (B) Allocation of cost pools. Container and barge cost pools shall 
be allocated among vessels by voyage and idle status for each vessel in 
the same ratio that the total container or barge capacity of each vessel 
multiplied by vessel days bears to the total container or barge capacity 
of the operator's entire fleet multiplied by vessel days. Total 
container or barge capacity of a vessel means the total container or 
barge capacity of the vessel, expressed in TEU's for containers and 
single units for barges, multiplied by the total number of containers or 
barges acquired for each available container or barge slot on the 
vessel. Vessel days means the number of days in the period for which an 
allocation of cost pools is being made. Containers and barges purchased 
by an operator for utilization in a particular trade route shall be 
allocated by vessel capacity among the vessels in the trade route for 
which they were purchased. See Exhibit C of paragraph (f)(7) of this 
section.
    (iii) Administrative and general expenses. Administrative and 
general expenses defined by accounts 901 through 979 of the Uniform 
System of Accounts (section 282.3(G) of this chapter) shall be allocated 
to terminated voyages for each vessel type by service or for each vessel 
by voyage, as required by paragraph (f)(5) of this section, based on the 
ratio that total terminated voyage operating expenses (accounts 701-773 
of the Uniform System of Accounts) plus total terminated voyage 
operating revenue (accounts 601-624 of the Uniform System of Accounts) 
for each bears to the total terminated voyage operating expense plus 
total terminated voyage operating revenue for the period, except that 
account 945 (advertising passengers) will be allocated directly to 
passenger vessels based on passengers carried, account 955 
(contributions to pools) may be allocated as an administrative and 
general expense or directly to vessel and voyage based on pool 
statements, and that portion of accounts 960 and 961 (interest expense) 
representing interest on vessels shall be allocated to vessels and 
voyages in the same ratio that depreciation is distributed among all 
vessels in the fleet. In addition to the above exceptions, significant 
interest expenses related to purchases of containers and barges should 
be charged directly to container and barge pools prior to allocation of 
the container and barge pools.
    (7) Exhibits.

    A. Vessel performance report.\1\
---------------------------------------------------------------------------

    \1\ Exhibit A filed as part of the original document.

    B. Sample allocation of terminal expenses by vessel and voyage.
    C. Sample allocation of container/barge expenses by vessel and 
voyage.
    D. Examples of vessel types currently operated.

    (g) General. All reports and other communications called for by the 
foregoing should be addressed to the Secretary, Maritime Administration, 
Washington, DC 20590.

[[Page 112]]



                                       Exhibit B--Sample Allocation of Terminal Expenses by Vessel and Voyage \1\                                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Total units loaded and    Voyage status end of the     Ratio         Terminal cost by vessel/voyage    
                                                       discharged                   period             vessel/   ---------------------------------------
       Type of facility             Vessel     -----------------------------------------------------  voyage to                                         
                                                             Total units                                Total        Totals     Terminated  Unterminated
                                                   Voyage        \2\       Terminated  Unterminated   (percent)                                         
--------------------------------------------------------------------------------------------------------------------------------------------------------
Container yard...............  Cont-1.........            1          500          500  ............         31.7      $326.51      $326.51  ............
                               LASH-2.........            1          359  ...........           359         22.7       233.81  ...........       $233.81
                               LASH-2.........            2          260          260  ............         16.5       169.95       169.95  ............
                               B/B-4..........            1          110          110  ............          6.9        71.07        71.07  ............
                               Cont-6.........            1          200          200  ............         12.7       130.81       130.81  ............
                               Cont-6.........            2          150  ...........           150          9.5        97.85  ...........         97.85
                              ==========================================================================================================================
                                                               (a) 1,579        1,070           509        100.0     1,030.00                           
                              --------------------------------------------------------------------------------------------------------------------------
Container freight station/     LASH-2.........            1       17,002       17,002  ............         22.8       175.56       175.56  ............
 break bulk.                                                                                                                                            
                               LASH-2.........            2       11,002  ...........        11,002         14.8       113.96  ...........        113.96
                               RO/RO-3........            1       30,525       30,525  ............         41.0       315.70       315.70  ............
                               B/B-4..........            1        1,000        1,000  ............          1.3        10.01  ...........  ............
                               Bulk-5.........            1       15,000       15,000  ............         20.1       154.77       154.77  ............
                              --------------------------------------------------------------------------------------------------------------------------
                                                              (b) 74,529       63,527        11,002        100.0       770.00                           
Barge terminal...............  LASH-2.........            1           37           37  ............         68.5       445.25       445.25  ............
                               LASH-2.........            2           17  ...........            17         31.5       204.75  ...........        204.75
                              --------------------------------------------------------------------------------------------------------------------------
                                                                  (c) 54           37            17        100.0       650.00                           
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ This allocation procedure shall be applied for each terminal maintained by an operator.                                                             
\2\ (a) Units for container yard=twenty foot equivalent units (TEU's)                                                                                   
(b) Units for container freight station and break bulk operation=freight payable tons (FPT's).                                                          
(c) Units for barge terminal=number of barges unless barges differ in size. Barges of different capacity must be reduced to equivalent units.           
(d) Other terminal facilities (not illustrated) handling many or all cargo carriage technology types will allocate period costs on freight payable tons 
  load and discharged during the period.                                                                                                                


                                      Exhibit C--Sample Allocation of Container/Barge Expenses by Vessel and Voyage                                     
                                                                         example                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
    (A)               (B)               (C)                 (D)                 (E)          (F)          (G)          (H)          (I)          (J)    
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Vessel days in period                                 Total                                          
                                                ---------------------------    Actual     Containers   container    Allocation                Allocation
  Service            Vessel            Voyage                                container     acquired     capacity    base col.    Allocation       of    
                                                  Terminated  Unterminated  capacity of    for each    col. (E) x   (D) x (G)   percentages   container 
                                                                               vessel        slot         (F)                                    pool   
--------------------------------------------------------------------------------------------------------------------------------------------------------
             Calculations:........                                                                                                                      
A              Container-1........            1           90  ............        1,050            2        2,100      189,000         39.3     $162,967
B              LASH-2.............            1           60  ............          450            4        1,800      108,000         22.4       92,887
C              LASH-2.............            2  ...........            30          450            4        1,800       54,000         11.2       46,444
               RO/RO-3............            1           70  ............          350            3        1,050       73,500         15.3       63,445
               RO/RO-3............         I.S.           20  ............          350            3        1,050       21,000          4.3       17,831
               Break-Bulk-4.......            1  ...........            90          100            4          400       36,000          7.5       31,101
                                   ---------------------------------------------------------------------------------------------------------------------

[[Page 113]]

                                                                                                                                                        
                 Totals...........  ...........          240           120  ...........  ...........  ...........      481,500        100.0      414,675
--------------------------------------------------------------------------------------------------------------------------------------------------------
Assumptions:                                                                                                                                            
  Service A--One (1) Container vessel with an actual capacity of 1,050 containers with two (2) containers acquired for each container slot.             
  Service B--One (1) LASH vessel with an actual capacity of 450 containers with four (4) containers purchased for each container slot.                  
  Service C--One (1) Roll on-roll off vessel with an actual capacity of 350 containers with three (3) containers acquired for each container slot.      
  W--One (1) Break-bulk vessel with an actual capacity of 100 containers with four (4) containers acquired for each container slot.                     
  Total container pool costs for a ninety (90) day period equals $414,675.                                                                              


[[Page 114]]


         Exhibit D--Examples of Vessel Types Currently Operated         
C3-S-33a                   C4-S-49a                  C6-S-1gc           
C3-S-38a                   C4-S1-49a                 C6-S-1w            
C3-S-43a                   C4-S-57a                  C6-S-1x            
C3-S-46a                   C4-S-58a                  C6-S-1xa           
C3-S-46b                   C4-S-60a                  C6-S-6gc           
C3-S-73b                   C4-S-64a                  C6-S-85a           
C3-S-76a                   C4-S-64b                  C6-S-85b           
C4-S-1a                    C4-S-65a                  C7-S-68c, d, and e 
C4-S-1l                    C5-S-37e                                     
C4-S-1g                    C5-S-37f                  C8-S-81b           
C4-S-1sa                   C5-S-73b                  C8-S-82d           
C4-S-1t                    C5-S-75a                  C9-S-81d           
C4-S-1u                    C5-S-78a                                     
C4-S-19a                   C6-S-1ga                                     
                                                                        


(Approved by the Office of Management and Budget under control number 
2133-0009)


[G.O. 12, Rev., 14 FR 4785, Aug. 6, 1949, as amended by Supp. 2, Amdt. 
1. 21 FR 328, Jan. 17, 1956; 33 FR 2944, Feb. 14, 1968; Supp. 3, Amdt. 
3, 34 FR 13369, Aug. 19, 1969; 40 FR 7430, Feb. 20, 1975; 47 FR 25530, 
June 14, 1982]



Sec. 281.2  Definitions.

    As used in Secs. 281.2 through 281.6 of these regulations, except as 
otherwise indicated by the context;
    (a) The word operator means an operator receiving operating-
differential subsidy under title VI of the Merchant Marine Act, 1936, as 
amended (Act), for a voyage on an essential service as described in 
section 211(a) of the Act;
    (b) The term Maritime Administrator means Maritime Administrator, 
Department of Transportation;
    (c) The term Region Director means the Region Director of the 
Maritime Administration having jurisdiction over the port or ports 
involved;
    (d) The term idle status means any period in port between or during 
voyages for which the vessel's normal crew complement is reduced by 10 
percent or more and division of wages is not paid for the missing men. 
The idle status period shall continue up to, but not including, the day 
that the vessel is remanned to the extent that the vessel's normal crew 
complement is restored to more than 90 percent or division of wages is 
paid for the missing men, or the vessel is temporarily or permanently 
withdrawn from subsidized service;
    (e) Normal crew complement means the basic crew complement which has 
been approved for operating-differential subsidy under the provisions of 
section 603 of the Act, or as established by collective bargaining or 
other agreement for the voyage involved, whichever is less.


[G.O. 27, Rev. 2, 37 FR 18466, Sept. 12, 1972]



Sec. 281.3  Method of commencing and terminating voyages and of determining idle status.

    (a) Voyage commencements. Voyages shall commence as of 12:01 a.m. of 
the day that loading of cargo, stores, or fuel begins, or as of 12:01 
a.m. of the day following the termination of the prior voyage or, in the 
event that an idle status period follows a voyage termination, as of 
12:01 a.m. of the day following the day on which such idle status period 
ends.
    (b) Voyage termination. Voyages shall terminate at a U.S. port of 
call at midnight of the day of completion of paying off the crew from 
foreign articles, or the completion of final discharge of cargo or 
ballast at the last U.S. port of discharge, or the completion of voyage 
repairs, whichever event occurs last: Provided, however, That if a 
vessel sails outward on a new voyage prior to midnight of the same day, 
the inward voyage shall terminate as of midnight of that day, and the 
outward voyage shall commence as of 12:01 a.m. of the succeeding day; 
and that where a portion of any particular voyage overlaps a portion of 
the next succeeding voyage and the quantity of inward cargo remaining 
aboard at the port at which major cargo activities for the outward 
voyage are begun does not, in the opinion of the operator, justify 
extension of the inward voyage beyond that port, the operator shall 
immediately request the Region Director for permission to treat the 
inward voyage as having terminated at midnight of the day specified in 
such request and shall advise the Region Director what cargo has been 
and is still to be discharged and loaded at each port of the inward 
voyage; and that where, in the opinion of the operator, voyages as a 
general practice should terminate at the home or terminal port rather 
than at the last port of discharge, or a voyage should terminate on the 
day prior to commencement of an idle status period, or on the day that 
the voyage would have terminated had strikes not interfered with normal 
operations, application for

[[Page 115]]

such terminations may be made to the Region Director, and in such cases 
the voyage termination date shall be as approved by the Region Director. 
The Region Director shall promptly advise the operator of his 
determination approving or disapproving any request filed under this 
paragraph (b), and the Region Director's decision as to such termination 
shall prevail, provided that all terminations shall be as of midnight of 
the day specified.
    (c) Idle status periods. Idle status periods shall be identified 
separately, whether occurring during or between voyages, and, if 
occurring during a voyage shall be identified with the applicable voyage 
number. A separate accounting period shall be created to cover each idle 
status period, and all such periods shall be reported to the Region 
Director.
    (d) Excessive delays. Whenever a vessel is delayed in port for a 
period of 10 days or more in excess of its normal period of operations 
in said port, the operator immediately shall report said circumstances, 
together with all pertinent facts, to the Region Director. The Region 
Director shall determine whether or not said delay was justified and if 
operating costs for said period were reduced to a minimum in accordance 
with sound commercial practice.


[G.O. 27, Rev. 2, 37 FR 18466, Sept. 12, 1972]



Sec. 281.4  Treatment of subsidy during idle status and off-hire period.

    During an idle status period, subsidy shall be payable only for such 
subsidizable items of expenses as are determined by the Maritime 
Administrator, after presentation by the operator of the facts relating 
to such idle status period, to be necessary for the maintenance, 
preservation, repair, or husbanding of the vessel during and under the 
circumstances involved; however, the Maritime Subsidy Board reserves the 
right to suspend at any time the payment of subsidy on idle vessels 
when, after consideration of the facts and circumstances regarding such 
period, it determines that an unreasonable period has elapsed or such 
idle period was not warranted: Provided, That as to a chartered ship 
operated under a ``Use Agreement'', operating-differential subsidy shall 
cease to accrue to the ship simultaneously with the time it goes ``off 
hire'' and subsidy shall not again accrue to said ship until it is 
reemployed in the subsidized service as determined in accordance with 
Sec. 281.3. Nothing herein shall limit any other rights of the United 
States with respect to the payment or nonpayment of subsidy.


[G.O. 27, Rev. 2, 37 FR 18466, Sept. 12, 1972]



Sec. 281.5  Right of Maritime Administrator to recover subsidy for any period of idleness.

    The Maritime Administrator may, prior to payment of subsidy for any 
voucher period which includes a period of idleness, require the operator 
to establish to the satisfaction of the Maritime Administrator that such 
period of idleness could not have been prevented in whole or in part 
through efficient and economical operation. The Maritime Administrator 
may recover any payment of subsidy for any item of expense allocable to 
such period of idleness which in the opinion of the Maritime 
Administrator could have been avoided by efficient and economical 
operation.


[G.O. 27, Rev. 2, 37 FR 18466, Sept. 12, 1972]



Sec. 281.6  Interpretation.

    All questions of interpretation arising under the sections of this 
part shall be submitted to the Maritime Administrator for determination, 
whose decision thereon shall be final.


[G.O. 27, Rev. 2, 37 FR 18466, Sept. 12, 1972]



PART 282--OPERATING-DIFFERENTIAL SUBSIDY FOR LINER VESSELS ENGAGED IN ESSENTIAL SERVICES IN THE FOREIGN COMMERCE OF THE UNITED STATES--Table of Contents




                         Subpart A--Introduction

Sec.
282.1  Purpose.
282.2  Definitions.
282.3  Waivers.

[[Page 116]]

                   Subpart B--Foreign-Flag Competition

282.10  Basis for determining foreign-flag competition.
282.11  Ranking of flags.

                 Subpart C--Calculation of Subsidy Rates

282.20  Amount of subsidy payable.
282.21  Wages of officers and crew.
282.22  Maintenance (upkeep) and repairs.
282.23  Hull and machinery insurance.
282.24  Protection and indemnity insurance.

            Subpart D--Subsidy Payment and Billing Procedures

282.30  Payment of subsidy.
282.31  Subsidy billing procedures.
282.32  Appeal procedures.

    Authority: Secs. 204(b), 603, 606 Merchant Marine Act, 1936, as 
amended (46 App. U.S.C. 1114(b), 1173, 1176); 49 CFR 1.66.

    Source: 51 FR 34609, Sept. 30, 1986, unless otherwise noted.



                         Subpart A--Introduction



Sec. 282.1  Purpose.

    This part prescribes regulations implementing Title VI of the 
Merchant Marine Act, 1936, as amended (46 U.S.C. 1171-1176 and 1178-
1181) governing operating-differential subsidy for liner vessels engaged 
in essential services in the foreign commerce of the United States.



Sec. 282.2  Definitions.

    When used in this part:
    (a) Act means the Merchant Marine Act, 1936, as amended (46 U.S.C. 
1101-1294).
    (b) Board means the Maritime Subsidy Board of the Maritime 
Administration (MARAD).
    (c) Contracting Officer means the Associate Administrator for 
Maritime Aids.
    (d) Fiscal Period means any annual period beginning on July 1 and 
ending on June 30.
    (e) Foreign-flag competition means those foreign-flag vessels deemed 
by the Maritime Administrator to be competitive with the subsidized 
vessel.
    (f) Maritime Administrator means the Maritime Administrator, 
Maritime Administration of the Department of Transportation.
    (g) Operating day means any day or part of a day during which a 
subsidized vessel is operated in accordance with the terms and 
conditions of an operating-differential subsidy agreement.
    (h) Operating-differential subsidy (ODS) means, except as the 
operator and the United States Government should agree upon a lesser 
amount, the excess of cost of subsidizable items of expense incurred in 
the operation under United States registry of a vessel over the 
estimated fair and reasonable cost of the same items of expense 
(excluding any increase in the cost of such items necessitated by 
features incorporated for national defense), if such vessel were 
operated under the registry of a foreign country whose vessels are 
substantial competitors of the vessel.
    (i) Operating-differential subsidy agreement (ODSA) means the 
Agreement entered into by the operator and the United States Government 
for the payment of operating-differential subsidy.
    (j) ODS rate means the method adopted by the Maritime Administrator 
for determining the amount of ODS that is to be paid for an item of 
subsidizable expense.
    (k) Operator means any individual, partnership, corporation or 
association that contracts with the United States Government under Title 
VI of the Act to receive ODS.
    (l) Reduced crew period means a period in port between or during 
voyages when the subsidized vessel's approved crew complement is reduced 
by 10 percent or more and division of wages (wages of an absent seaman 
are divided among the seamen who provide the absent seaman's work) is 
not paid for the missing men.
    (m) Region Director means the Region Director of the Maritime 
Administration within whose region the principal office of the operator 
is located.
    (n) Subsidized service means the operation of a vessel, other than 
in the coastal or intercoastal trade, in accordance with the terms and 
conditions of the ODSA.
    (o) Subsidized vessel means a vessel covered by an ODSA.
    (p) U.S. foreign commerce means the commerce or trade between the 
United States, its territories or possessions, or the District of 
Columbia, and a foreign country.

[[Page 117]]

    (q) Vessel means subsidized vessel, unless otherwise specified.



Sec. 282.3  Waivers.

    In special circumstances and for good cause shown, the procedures 
prescribed in this part may be waived in writing, by mutual agreement of 
the parties, in keeping with the circumstances then present, so long as 
the procedures adopted are consistent with the Act and with the intent 
of these regulations.



                   Subpart B--Foreign-Flag Competition



Sec. 282.10  Basis for determining foreign-flag competition.

    The foreign-flag competition shall form the basis for determining 
the cost disadvantage of operating the subsidized vessels in the 
essential service. The Maritime Administrator shall determine the 
foreign-flag competition from those countries that have carried a 
significant amount of cargo in the service by using the following 
procedures:
    (a) The primary source of information shall be commodity import/
export data compiled by the Bureau of the Census. Cargo data shall be 
compiled in long tons. Trade publications which show advertised sailings 
shall be used to verify the liner services offered by foreign-flag 
operators.
    (b) The U.S. import/export data shall be compiled by reference to 
countries actually served by the subsidized operator, using the 
subsidized operator's own competition data for each country to eliminate 
the flags which are not substantial competitors with the subsidized 
vessels. An example of the weighting procedure follows:

                                                     Example                                                    
----------------------------------------------------------------------------------------------------------------
                                                                             Country  Country                   
                                                                  Country A     B        C           Total      
----------------------------------------------------------------------------------------------------------------
I. Determination of U.S.-Flag Weights:                                                                          
  U.S. Subsidized Carrier......................................         300      500      200              1,000
  Percent......................................................          30       50       20                100
II. Actual Foreign-Flag Carryings:                                                                              
  Flag 1.......................................................       1,500      500    1,000              3,000
  Flag 2.......................................................       4,000    6,000        0             10,000
  Flag 3.......................................................       5,000    2,000    5,000             12,000
III. Adjusted Foreign-Flag Carrying (Actual Foreign  x  U.S.                                                    
 wts):                                                                                                          
  Flag 1.......................................................         450      250      200                900
  Flag 2.......................................................       1,200    3,000        0              4,200
  Flag 3.......................................................       1,500    1,000    1,000              3,500
                                                                                     ---------------------------
                                                                                                           8,600
IV. Competition Computation:                                                  Actual                            
                                                                             percent               Re-weight    
                                                                                                   (percent)    
  Flag 2.......................................................   4200/8600     49.0                        55.0
  Flag 3.......................................................   3500/8600     41.0                        45.0
                                                                            ---------         ------------------
                                                                                90.0                       100.0
----------------------------------------------------------------------------------------------------------------

    (c) The principal foreign flags shall be those countries whose cargo 
carrying would rank the flag among those carriers that aggregate at 
least 50 percent of the total foreign-flag carryings.
    (d) The total cargo carryings of each principal foreign flag shall 
be expressed as a percentage of total cargo carryings of all principal 
flags on the service. The resultant ratio shall be applied to the costs 
of that principal flag for determining its portion of the composite 
foreign cost, which shall be used for establishing the cost disadvantage 
of U.S. vessles in the service.
    (e) The determination of the principal competitors and competition 
weight factors shall be based upon the import/export data for the twelve 
months of the penultimate calendar year preceding January 1 of the 
subsidized year to allow several months to collect foreign cost data.

[[Page 118]]



Sec. 282.11  Ranking of flags.

    The operators under each principal foreign flag shall be ranked as 
predominant, secondary, etc., for the purpose of establishing the 
priority of costs which are representative of the flag. For liner cargo 
vessels, the ranking of operators shall be based on the long tons of 
cargo carried.
    (a) If the predominant operator is an agent, charterer or a joint 
venture in which the vessels are owned by two or more lines, under the 
name of such agent, charterer or joint venture, the predominant operator 
shall be the owner whose vessels carried the most cargo.
    (b) If cost experience cannot be obtained for the foreign-flag 
operators in the subsidized service, MARAD may use the costs of another 
service, following the same ranking of operators, if possible.



                 Subpart C--Calculation of Subsidy Rates



Sec. 282.20  Amount of subsidy payable.

    (a) Daily Rates. Daily ODS rates shall be used to quantify the 
amount of ODS payable. The daily ODS rate represents the cost 
differential between the subsidized vessel and its foreign-flag 
competition. A daily rate shall be calculated for each subsidized item 
of expense identified in the ODSA, and the total of all items is the 
daily amount of ODS payable for approved vessel operating days, 
excluding reduced crew periods.
    (b) Reduced Crew Periods. For reduced crew periods, as defined in 
Sec. 282.3 of this part, a man-day reduction amount, calculated 
separately for officers and unlicensed crew members, shall be used to 
reduce the daily wage ODS rate to conform to the complement remaining on 
the vessel. The man-day reduction amounts shall be determined by 
dividing the daily wage ODS for officers and unlicensed crew members by 
the number of subsidizable crew members in each category. For each day 
of a reduced crew period, the man-day amount shall be multiplied by the 
number of crew members missing for that day, and the resulting product 
shall be deducted from the daily ODS rate. The difference shall be the 
ODS payable for such day. (See illustration in Schedule D at Sec. 282.31 
of this part.)
    (c) Review of Rates. Daily subsidy rates shall be reviewed every six 
months. For the item ``wages of officers and crews,'' the daily rate 
shall be calculated for fiscal periods July 1 through June 30, in 
accordance with provisions of the Act. During the period January through 
June, adjustments--paid as a lump sum or as a daily amount--shall be 
made to wage ODS so that the correct amount of ODS for the full fiscal 
period is received by the operator. For other subsidizable items of 
expense, the daily rate shall be calculated for calendar years.
    (d) Negative Rates. When an ODS rate in any category is less than 
zero, indicating that the subsidized operator is at an advantage rather 
than a disadvantage in such category, the negative rate shall be 
deducted from positive rates in determining the daily ODS amount 
payable.
    (e) Operator Comments. The operator shall have the opportunity to 
comment on each subsidy rate as calculated by the Maritime 
Administration. The operator and contracting officer shall make every 
effort to resolve disagreements that arise. In the event of a 
disagreement that cannot be resolved, comments received from the 
operator and the contracting officer's recommendation shall be presented 
to the Maritime Administrator for consideration in determining subsidy 
rates.



Sec. 282.21  Wages of officers and crew.

    (a) Definitions. When used in this part.
    (1) Base period. The first base period under the wage index system, 
as provided in section 603 of the Act, is the period beginning July 1, 
1970 and ending June 30, 1971. Thereafter, base period means any annual 
period beginning July 1 and ending June 30, with respect to which the 
Maritime Administrator establishes a base period cost. At intervals of 
not less than two years, nor more than four years, the Maritime 
Administrator shall establish a new base period. Base periods shall be 
announced by the Maritime Administrator prior to the December 31 date

[[Page 119]]

that would be included in the new base period.
    (2) Base period cost--(i) Initial base period. For the initial base 
period of subsidized service, the term base period cost means the 
collective bargaining cost as of January 1 of that base period.
    (ii) Subsequent base periods. For base periods subsequent to the 
initial base period, the term base period cost means the averaged of the 
collective bargaining cost as of January 1 of such fiscal year, and the 
base period cost of the previous base period, indexed to January 1 of 
the new base period by an index compiled by the Bureau of Labor 
Statistics. This index shall consist of the average annual change in 
wages and benefits placed into effect for employees covered by 
collective bargaining agreements, with equal weight to be given to 
changes affecting employees in the transportation industry (excluding 
the off-shore maritime industry) and to changes affecting employees in 
private non-agricultural industries other than transportation. However, 
such base period cost shall not be less than a minimum, nor more than a 
maximum amount, determined as a percentage of the collective bargaining 
cost computed for January 1 of such base period in accordance with the 
following schedule:

------------------------------------------------------------------------
                                                     Minimum    Maximum 
                                                    (percent)  (percent)
------------------------------------------------------------------------
Base period following a:                                                
    2-year cycle..................................    97\1/2\   102\1/2\
    3-year cycle..................................    96\1/4\   103\3/4\
    4-year cycle..................................         95        105
------------------------------------------------------------------------

    (3) Collective bargaining cost (CBC) means the annual cost, 
calculated on the basis of the per diem rate of expense, as of January 1 
of the annual fiscal periods July 1 through June 30, of all items of 
expense required by the operator through a collective bargaining or 
other agreement, covering the employment of the approved manning 
complement of the subsidized vessel, including payments required by law 
to assure old-age pensions, unemployment benefits or similar benefits, 
and taxes or other governmental assessments on crew payrolls.
    (4) Approved manning complement means the complement approved by the 
Board for subsidy.
    (5) U.S. wage cost (WC) means the annual cost, calculated on the 
basis of the per diem rate of expense as of January 1 of the annual 
fiscal periods July 1 through June 30, of all items of expense required 
of the operator through a collective bargaining or other agreement, 
covering the employment of the normal manning complement of the 
subsidized vessel, including payments required by law to assure old-age 
pensions, unemployment benefits or similar benefits, and taxes or other 
governmental assessments on crew payrolls.
    (6) Normal manning complement means the crew complement established 
by a collective bargaining or other agreement with the officers and 
unlicensed crew of the vessel. In cases where the complement may vary in 
number, the lowest number shall be the normal manning complement. When 
ratings of different salaries are in the same job during the year, the 
base wages of the rating carried most of the time shall be used.
    (7) Subsidizable wage cost means, (i) with respect to a base period, 
the base period cost, and (ii) in any fiscal period other than a base 
period, the most recent base period cost, increased or decreased by the 
change from January 1 of the base period to January 1 of the non-base 
period in the index described above. The subsidizable wage cost shall 
not be less than 90 percent nor greater than 110 percent of the 
collective bargaining cost as of January 1 of such period.
    (8) Unpredictably timed costs are collective bargaining costs that 
are not regularly incurred. Examples of unpredictably timed costs are 
such costs as severance pay, shortfalls, special assessments, and war 
zone bonuses.
    (b) Method of calculating collective bargaining cost (CBC). CBC 
shall be determined by pricing out, for the approved crew complement, 
the per diem total of fixed costs specified in the collective bargaining 
agreement and adding a per diem total of variable costs obtained from 
the cost experience of the subsidized vessel during the first nine 
months of the preceding calendar year.

[[Page 120]]

    (1) Fixed Costs. The per diem total of fixed costs shall include all 
costs that are stated in specific or determinable amounts per time 
period and, based on operating experience, do not vary. In cases where a 
monthly amount is specified in the agreement, the per diem amount shall 
be determined by dividing the monthly amount by 30. When a daily amount 
is specified it shall be used. Example of fixed costs are:
    (i) Base wages;
    (ii) Non-watch pay;
    (iii) Vacation pay (including contributions to vacation funds);
    (iv) Tool allowance;
    (v) Clothing and uniform allowances; and
    (vi) Per diem contributions for pension, training, welfare, 
unemployment, including unallocated contributions placed in escrow.
    (2) Variable costs. Variable costs are regularly incurred employment 
costs which vary with ship operating experience. The per diem aggregate 
of variable costs as of January 1 shall be determined by applying a 
ratio to the per diem aggregate of base wage costs as of January 1, the 
numerator of which shall be the total of variable costs for the first 
nine months of the preceding calendar year and the denominator of which 
shall be the total of base wage costs for the first nine months of the 
preceding calendar year. Variable costs include but are not limited to:
    (i) Payroll taxes (including social security taxes);
    (ii) Overtime and penalty pay;
    (iii) Variable pension, training, welfare, unemployment, and 
vacation costs;
    (iv) Pay in lieu of time off;
    (v) Transportation and travel allowances;
    (vi) Payments to relief officers and crews;
    (vii) Wages and other expenses of USMMA cadets and extra messmen;
    (viii) Board and lodging allowances;
    (ix) Overlap in wages (a maximum of two days); and
    (x) Penalty cargo bonuses.
    (c) Method of calculating U.S. wage cost (WC) Two different 
calculations of WC are necessary--a per diem amount for every ship type 
on the service and a per month amount for the predominant ship type 
(most voyages) on the service. The purpose of the per month calculation 
is to make a comparison with the monthly foreign wage costs. The 
relationship of WC to foreign costs for the predominant ship is applied 
to the per diem WC for other ship types in the service to estimate 
comparable foreign costs for them.
    (1) Calculation of per diem WC. The per diem WC shall be calculated 
by the same method that applies to CBC, except that the normal manning 
complement shall be used.
    (2) Calculation of per month WC. The costs and manning level used in 
this calculation shall be the same as those used for the per diem WC.
    (d) Data submission requirements. For purposes of calculating CBC 
and WC the operator shall each year submit Form MA-790 and, as 
appropriate, current copies of all collective bargaining or other 
agreements, memoranda of understanding, and arbitration awards, which 
specify the fixed costs as of January 1. Schedule A of Form MA-790, 
which covers wage costs on voyages terminated during the first nine 
months of the previous calendar year, shall be submitted by January 1 of 
the subsidized year. Schedule B of Form MA-790--normal manning 
complement, rates of pay, and contributions in effect on January 1 of 
the current year--shall be submitted by January 31. Form MA-790, 
Schedules A and B, shall be submitted to the Director, Office of Ship 
Operating Costs, Maritime Administration, 400 Seventh Street, SW., 
Washington, DC 20590.
    (e) Example calculation. The following is a sample of calculation of 
CBC and WC:

                          ABC Steamship Company                         
  January 1, 1985, Collective Bargaining Costs (CBC) and U.S. Wage Cost 
                                  (WC)                                  
------------------------------------------------------------------------
                                                          Per diem      
                                                   ---------------------
                                                        WC        CBC   
------------------------------------------------------------------------
Crew complement...................................     \1\ 35     \2\ 31
Fixed costs as of January 1, 1985:                                      
  Base wages and non-watch pay....................  $1,789.79  $1,571.60
  Allowances (radio, telephone, clothing, etc.)...       5.75       5.75
  Vacation pay....................................   1,189.60   1,109.65
  Pension, welfare, training, unemployment fund                         
   contributions..................................   1,280.80   1,171.75
                                                   ---------------------
      Total fixed.................................  $4,265.94  $3,858.75

[[Page 121]]

                                                                        
Variable costs as of January 1, 1985:                                   
  Variable cost factor (based on 1984 cost                              
   experience) (in percent).......................     104.69     104.69
      Total variable costs (January 1, 1985, base                       
       wages  x  variable cost factor)............  $1,873.73  $1,645.31
                                                   ---------------------
      Total wage costs as of January 1, 1985......  $6,139.67  $5,504.06
------------------------------------------------------------------------
\1\ Normal manning complement.                                          
\2\ Approved manning complement.                                        

    (f) Method of calculating foreign wage costs. The foreign wage cost 
(FC) of the principal foreign-flag competitors and the comparable WC of 
the subsidized vessel are matched as of January 1 of the last fiscal 
year preceding the subsidized fiscal year for purposes of determining 
the wage cost of the principal foreign flags. The following procedures 
are used:
    (1) Manning. The foreign manning complement in number and 
nationality for the principal foreign-flag competitors shall be 
constructed for the subsidized vessel type using the manning scales and 
practices of the competitors as developed through an examination of 
alien crew manifests, payrolls, and other reliable information. The 
commonly used crew complement of the competitors shall be adjusted to 
fit the predominant vessel type, in recognition of differences in 
physical characteristics that would affect manning scales. Where the 
manning complement cannot be estimated with reasonable substantiation, 
it will be deemed to be identical with that of the subsidized vessel.
    (2) Method. The method of calculating FC shall be the same as that 
used for WC, provided that it is possible to obtain foreign cost data on 
the same basis as wage cost data. Preference shall be given to pricing 
out for fixed costs and to cost experience for variable costs. Where 
applicable, foreign currencies shall be converted into U.S. currency 
equivalents by using the average of end-month exchange rates for the 
period July through June that includes the January 1 for which FC is 
calculated. The exchange rates shall be obtained from the publication, 
``International Financial Statistics,'' published monthly by the 
International Monetary Fund. If exchange rates for particular foreign 
currencies are not available in this publication, they shall be obtained 
from the United States Department of the Treasury.
    (3) Foreign wage costs. The per diem composite foreign wage cost is 
determined by multiplying the per diem WC for the U.S. ship type, 
calculated as of January 1 of the subsidized fiscal year, by the ratio 
of FC to WC, calculated as of January 1 of the last fiscal year 
preceding the subsidized fiscal year. The following is a sample 
calculation of the foreign cost percentage.

              ABC Steamship Company, Inc., Trade Route 21--January 1, 1985--Foreign Wage Cost (FC)              
----------------------------------------------------------------------------------------------------------------
                                United              United                                     United           
                                States    Belgium   States    Germany            Netherlands   States    Norway 
----------------------------------------------------------------------------------------------------------------
Crew Complement..............        35        35        35        23                    22         35        28
Base Wages...................  1 53,687  1 24,779  1 53,687  1 25,192              1 23,127   1 53,687  1 27,257
Allowances...................   1 1,074   1 4,584   1 1,074   1 8,879               1 3,097    1 1,074   \1\ 289
Vacation Pay (leave).........  1 35,681  1 13,009  1 35,681   1 9,912               1 9,499   1 35,681  1 11,976
Pension and Welfare..........  1 38,407   1 2,065  \1\ 38,4                                                     
                                                         07     1 124               1 3,923   3 36,342     1 124
Social Security..............   2 6,608   2 7,227   1 3,717   1 6,814               1 4,584    2 6,608  2 10,118
Overtime and other variable                                                                                     
 costs (not elsewhere                                                                                           
 included)...................  2 48,732  2 10,944  2 48,732  2 10,325               2 7,021   2 48,732  2 12,389
Repatriation.................  ........  ........  ........  ........  ........  ...........  ........   \2\ 413
                              ----------------------------------------------------------------------------------
Total wage costs.............   184,189    62,608   181,298    61,246                51,251    182,124    62,566
Unweighted Percentage FC to                                                                                     
 WC..........................              33.99%              33.78%                28.27%               34.35%
Competition Weight Factor....               22.1%               19.6%                 19.1%                39.2%
Weighted Percentage..........               7.51%               6.62%                 5.40%               13.47%
Composite Weighted Percentage                                            33.00%                                 
----------------------------------------------------------------------------------------------------------------
1 Based on Jan. 1 priced out cost.                                                                              
2 Based on cost experience.                                                                                     
3 Excludes training costs--foreign data not available.                                                          


[[Page 122]]

    (g) Determination of daily wage rate. The foreign wage cost is 
deducted from subsidizable wage costs to determine the daily wage 
subsidy rate. Table 1 is an example calculation of a daily wage subsidy 
rate using the procedures described in this section.
    (h) Unpredictably timed costs (UTC) are subsidized by calculating 
costs incurred during the previous six months and converting them into a 
daily rate or, in the alternative, a lump sum amount will be paid for 
special lump sum assessments or for per man-day increases to benefit 
plans which become effective during the six months following the 
establishment of the daily rate. In either case, the percentage subsidy 
rate--which is the differential percentage between the subsidizable wage 
cost and the foreign wage cost--is used to establish the amount of 
subsidy payable for UTC incurred.
    (1) UTC expenses such as severance pay and area bonuses are eligible 
for subsidy payment without obtaining prior approval and subsidy shall 
be paid as a lump sum amount.
    (2) Expenses such as shortfalls in benefit fund contributions, 
special assessments for benefit funds, and retroactive wage increases 
may be treated as UTC if the cost increase was not negotiated. Such 
costs must be approved as UTC by the Director, Office of Ship Operating 
Costs. To the extent such expenses qualify for UTC, the Director shall 
determine the appropriate method of paying subsidy--added to the per 
diem wage subsidy rate and/or as a lump sum amount treated separately.

[[Page 123]]



                                                                        Table 1--ABC Steamship Co., Inc., Trade Route 21                                                                        
                                                                              [Calculation of wage subsidy rates*]                                                                              
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        (1)                 (2)            (3)        (4)                 (5)                 (6)             (7)             (8)          (9)         (10)        (11)       (12)       (13)   
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Averaging                                                                                            
                                                                                            in base                                                                           Wage       Wage   
                                          U.S.    Collective  Application of BLS index to   periods                           Base    Subsidizable   Composite  Composite   subsidy     subsidy 
    Base period       Interim period      wage    bargaining        base period cost        (4)+(5)    Appropriate limits    period     wage cost    weighted    foreign     daily    percentage
                                          cost       cost                                 -----------                         cost                  percentage  wage cost     rate       rate   
                                                                                               2                                                                                       (12)+(9) 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1981..............  ..................  4,162.60   3,850.29   ...........................  .........  ...................   3,850.29     3,850.29        32.99   1,373.24   2,477.05       64.33
                    1982..............  4,578.24   4,230.15    3,850.29 x 1.0845=4,175.64  .........    .9 x (4)=3,807.14  .........     4,175.64        32.98   1,509.90   2,665.74       63.84
                                                                                                       1.1 x (4)=4,653.17                                                                       
                    1983..............  5,013.80   4,560.38    3,850.29 x 1.1816=4,549.50  .........    .9 x (4)=4,104.34  .........     4,549.50        36.15   1,812.49   2,737.01       60.16
                                                                                                       1.1 x (4)=5,016.42                                                                       
                    1984..............  5,539.40   4,966.90    3,850.29 x 1.2992=5,002.30  .........    .9 x (4)=4,470.21  .........     5,002.30        34.77   1,926.05   3,076.25       61.50
                                                                                                       1.1 x (4)=5,463.59                                                                       
1985..............  ..................  6,139.57   5,504.06    3,850.29 x 1.4044=5,407.35   5,455.71   .95 x (4)=5,228.86   5,455.71     5,455.71        33.00   2,026.06   3,429.65       62.86
                                                                                                      1.05 x (4)=5,779.26                                                                       
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*This computation is based on a new vessel entering subsidized service in May 1981.                                                                                                             

[51 FR 34609, Sept. 30, 1986, as amended at 54 FR 5088, Feb. 1, 1989]

[[Page 124]]



Sec. 282.22  Maintenance (upkeep) and repairs.

    (a) Basis for subsidy. The fair and reasonable maintenance and 
repair costs not compensated by insurance, if eligible for subsidy under 
the ODSA and the regulations in 46 CFR part 272, shall be used for 
determining the daily amount of subsidy. The U.S.-foreign cost 
differential shall be determined from price estimates of representative 
items of maintenance and repair work and by using the repair practices 
of the foreign-flag competition.
    (b) U.S.-foreign cost differential. MARAD shall use the following 
procedures for calculating the U.S.-foreign cost differential for M&R.
    (1) Cost Survey. MARAD shall select a sample of jobs which are 
representative of the various types of maintenance and repair work--
drydocking and underwater repairs, machinery repairs, hull and deck 
repairs, electrical repairs, exterior painting and interior painting, 
etc. The jobs shall be described fully and combined into a standard set 
of specifications based on a particular type of vessel. The same 
specifications shall be used for obtaining all price estimates. MARAD 
shall request reliable and mutually acceptable ship repair cost experts 
to ascertain the U.S. and foreign M&R prices. MARAD shall survey foreign 
countries during a three-year cycle. The survey year prices shall be 
adjusted in the years between surveys by price adjustments estimated by 
the ship repair cost experts.
    (2) Country cost differential. A country cost differential shall be 
determined for each country where work was performed on the competitive 
vessels. The country cost differential shall be 100 percent minus the 
ratio of the estimated foreign price to the U.S. price estimate. The 
U.S. price estimate shall be representative of the coastal area included 
in the subsidized service (for example East Coast) or, if more than one 
coast is served, the coast where the company is home based. For example:

Determination of Country Cost Differential--Year--1985--U.S. East Coast--
                     Foreign Country--United Kingdom                    
------------------------------------------------------------------------
                                                  Foreign               
                Repair category                    price      U.S. price
------------------------------------------------------------------------
Drydocking & Underwater Repairs...............      $49,598      $70,662
Boiler Repairs................................       18,938       20,287
Machinery Repairs.............................       33,004       36,193
Hull and Deck Repairs.........................       16,729       20,853
Electrical Repairs............................       11,868       11,117
Exterior Painting.............................        5,456        7,974
Interior Painting.............................          681        1,162
                                               -------------------------
      Estimate Totals.........................     $136,274     $168,248
Foreign/U.S. Price Ratio--81%                                           
Country Cost Differential (100-81)--19%.                                
------------------------------------------------------------------------

    (3) Distribution of repairs. The distribution of repairs refers to 
the countries where M&R work was performed on the vessels of the 
foreign-flag competitor. When data on the repairing practices are 
obtained directly from the foreign competitor, they be used. If 
information about such practices is unavailable--or only partially 
available--data, published by the classification societies and Lloyd's 
Voyage Record, reporting the dates and localities of drydocking and 
completion of the various types of vessel surveys, shall be used for 
determining the geographical distribution of the unknown repairing 
practices. For diesel vessels, there are three basic types of surveys--
drydocking, machinery, and hull. For steam vessels, there is a fourth 
survey--boiler--in addition to the other three surveys. Since these 
surveys may be performed in different countries, they are weighted in 
order to determine the distribution of repairs. The weighting factors 
shall be: drydocking--20 percent, machinery--40 percent (10 percent 
allocated to boiler survey on steam vessels), and hull--40 percent.
    (4) Proportionate cost differential. A proportionate cost 
differential for each principal foreign-flag competitor shall be 
determined by multiplying the percentage distribution of repairs for 
each country where repair work was performed by the country cost 
differential for that country and by adding the resulting weighted 
percentages for all

[[Page 125]]

countries where repair work was performed.
    (5) U.S.-foreign cost differential. The U.S.-foreign cost 
differential shall be determined by multiplying the proportionate cost 
differential for each principal foreign-flag competitor by the 
competition weight factor for that competitor, and by adding the 
resulting differentials for all principal foreign-flag competitors, as 
shown in the following example.

ABC Steamship Company, Inc.--Trade Route--X--U.S.-Foreign Cost Differential for Maintenance (Upkeep) and Repairs
                                               Subsidy Rate--1985                                               
----------------------------------------------------------------------------------------------------------------
                                  (1) Distribution of                        (3)                                
                                        repairs            (2) Country  Proportionate      (4)      (5) Weighted
                             ----------------------------     cost           cost      Competition  differential
    Principal competitors                                 differential   differential     weight     (3)  x  (4)
                                  Country      (Percent)    (percent)    (1)  x  (2)      factor      (Percent) 
                                                                          (percent)     (Percent)               
----------------------------------------------------------------------------------------------------------------
Japan.......................  Japan..........        85        36.21          30.78    ...........  ............
                              U.S............        15            0              0    ...........  ............
                                              -----------              ---------------                          
                              ...............       100   ............        30.78         23.4          7.20  
                                              ===========              ===============                          
Norway......................  Norway.........        15        44.72           6.71    ...........  ............
                              Netherlands....        20        43.23           8.65    ...........  ............
                              Japan..........        45        36.21          16.29    ...........  ............
                              U.S............        20            0              0    ...........  ............
                                              -----------              ---------------                          
                              ...............       100   ............        31.65         31.1          9.84  
                                              ===========              ===============                          
United Kingdom..............  U.K............        80        19.00          15.20    ...........  ............
                              Hong Kong......        15        50.35           7.55    ...........  ............
                              U.S............         5            0              0    ...........  ............
                                              -----------------------------------------                         
                              ...............       100   ............        22.75         45.5         10.35  
                                              ===========              ===============--------------------------
U.S.-Foreign Cost             ...............  .........  ............  .............  ...........       27.39  
 Differential.                                                                                                  
                                              ===========              ================                         
----------------------------------------------------------------------------------------------------------------

    (c) Calculation. The appropriate U.S.-foreign cost differential 
shall be applied to the subsidizable and audited maintenance and repair 
costs for the three-year period, discussed in paragraph (c)(1) of this 
section, to establish a relationship of the cost differentials between 
M&R and wages. This relationship shall be used to establish the M&R 
subsidy on a current basis by applying the percentage relationship to 
the per diem wage subsidy rate.
    (1) Historical period. The relationship of calendar period M&R 
subsidy to fiscal period wage subsidy shall be measured for the three-
year period commencing five years prior to January 1 of the subsidized 
year. The M&R subsidy and the wage subsidy shall be expressed as an 
amount per voyage day for purposes of establishing the relationship. 
This ratio shall be established for each subsidized service and applied 
to the per diem wage rate of each ship type in the service to factor a 
daily amount of subsidy for M&R. The following is an example of the 
determination of the relationship and the daily amount of subsidy for 
M&R.

                                Determination of Daily Amount of Subsidy For M&R                                
----------------------------------------------------------------------------------------------------------------
                                                   Calender Year   Calender Year   Calender Year                
                  T.R. 98 item                         1980            1981            1982            Total    
----------------------------------------------------------------------------------------------------------------
M&R C.Y. Expenses...............................      $1,700,000      $2,000,000      $1,900,000  ..............
Subsidy Rate....................................          40.00%          44.00%          50.00%  ..............
Subsidy.........................................        $680,000        $880,000        $950,000      $2,510,000
Voyage Days.....................................           1,100           1,225           1,175           3,500
                      Average Subsidy Per Voyage Day ($2,510,0003,500 days)=$717.14                     
                                                    Fiscal Year                                                 
                                                       1980         Fiscal Year                                 
                                                                       1981         Fiscal Year                 
                                                                                       1982            Total    
Wages F.Y. Per Diem Rate........................          $7,700          $8,050          $8,200  ..............
Voyage Days.....................................           1,180           1,230           1,060           3,470

[[Page 126]]

                                                                                                                
Subsidy.........................................      $9,086,000      $9,901,500      $8,692,000     $27,679,500
                    Average Subsidy Per Voyage Day ($27,679,5003,470 days)=$7,976.80                    
                            Ratio M&R ODS to Wage ODS $717.14$7,976.80=8.99%                            
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                      Daily wage ODS 1/1/ Ratio M&R to wage   Daily M&R ODS 1/1/
                  T.R. 98 ship type                           85            ODS (percent)             85        
----------------------------------------------------------------------------------------------------------------
C4-A................................................              $9,000             x 8.99              $809.10
C5-B................................................              $9,300             x 8.99              $836.07
C6-C................................................              $9,600             x 8.99              $863.04
----------------------------------------------------------------------------------------------------------------

    (2) Data submission requirement. The operator is required to submit 
annually a certified statement of eligible and audited M&R expenses, 
segregated by service, for the historical period referred to in 
paragraph (c)(1) of this section. The report shall be submitted to the 
Director, Office of Ship Operating Costs no later than January 1 of the 
subsidized year.



Sec. 282.23  Hull and machinery insurance.

    (a) Subsidy items. The fair and reasonable net premium costs 
(including stamp taxes) of hull and machinery, increased value, excess 
general average, salvage, and collision liability insurance against 
risks and liabilities covered under the tems and conditions of policies 
approved as to form and coverage by MARAD, less lay-up returns, shall be 
eligible for subsidy and used for determining the U.S.-foreign cost 
differential. Port risk premiums are eligible for subsidy but not for 
determining the U.S.-foreign cost differential.
    (b) U.S.-foreign cost differential. A U.S.-foreign cost differential 
shall be calculated for each service. Due to the difficulty of comparing 
forms and costs of hull and machinery insurance coverages, the following 
assumptions shall be used for estimating the composite premium cost of 
the foreign-flag competitor.
    (1) Coverage. The foreign competitive vessels have the same types 
and amounts of insurance coverages and deductible averages as the 
subsidized vessels.
    (2) Premium rate. The foreign competitive vessels are insured in the 
British market and the rate for such vessels is the same as the British 
market rate for the subsidized vessels. If the operator carries all of 
its insurance in the American market, the American market rate shall be 
assumed to be the same as the British market rate.
    (3) Repairs. Insurable repairs of the foreign competitive vessels 
are performed in the same countries and in the same distribution as non-
insurable repairs, and the cost differential for such repairs shall be 
the same as the maintenance and repair percentage differential.
    (4) Particular average. The percentage of particular average repair 
claims for the foreign competitive vessels is the same as the percentage 
of particular average repair claims for the subsidized vessels. The 
particular average portion of the premium cost for the subsidized 
vessels shall be determined as follows:
    (i) Percentage. The particular average portion of the premium cost 
shall be determined by applying a percentage to the hull and machinery 
premium cost after deducting the estimated total loss premium. The 
percentage is based on insured claims experience. The percentage shall 
be determined by dividing the total of underwriter's absorptions for 
particular average domestic repair claims paid and estimated by the 
total of underwriter's absorptions for all claims paid and estimated 
(excluding total loss and constructive total loss claims) under the hull 
and machinery portion of the insurance coverage, except that such 
percentage shall not exceed eighty-five (85) percent. The percentage is 
based on the claims experience of the subsidized

[[Page 127]]

vessels for the five (5) calendar year period preceding the subsidized 
year. For subsidized operators that do not have five years of claims 
experience, the average percentage of particular average domestic repair 
claims for all similar subsidized vessels shall be used unless the 
operator can submit data to substantiate its own claims cost experience 
on similar vessels.
    (ii) Data submission requirement. The operator shall submit the five 
year claims experience, invoices showing net premium costs and coverages 
for the subsidized year, and lay-up returns for the previous year to the 
Director, Office of Ship Operating Costs, not later than sixty (60) days 
after the cost of each calendar year.
    (c) Calculation. In calculating the subsidized premium cost, the 
following steps shall be taken:
    (1) The particular average portion of the premium cost shall be 
adjusted in order to give effect to the repair cost differential for the 
foreign competitive vessels by applying the complement of the 
maintenance and repairs percentage cost differential (100 percent minus 
the differential) to the particular average portion of the premium cost. 
The adjusted particular average foreign premium cost shall be added to 
the net premium cost excluding the particular average portion to 
determine the composite foreign premium cost.
    (2) The foreign premium cost shall be substracted from the 
operator's total premium cost to determine the difference in dollars. 
The percentage differential is detemined by dividing the dollar 
difference by the operators' total premium cost. An example calculation 
is included in Table 2.
    (3) The net premium cost of the subsidized vessels shall be divided 
by the number of days in the calendar year and the resultant daily 
insurance cost shall be multiplied by the U.S.-foreign cost differential 
percentage applicable to the most recent year to determine the daily 
amount of subsidy for hull and machinery insurance.

Table 2--ABC Steamship Company, Inc.; Cargo vessels--Trade Route--X, U.S./Foreign Cost Differential for Hull and
                                               Machinery Insurance                                              
                                                     [1985]                                                     
                                                                                                                
                                                                                                                
1. COMPOSITE FOREIGN PREMIUM COST:                                                                              
    A. Hull and Machinery, Total coverage.....................................      $92,741,996                 
        Average Premium Rate in British Market................................         1.00966%                 
            Premium Cost in British Market....................................  ...............         $936,379
      (Estimated Total Loss Payment $92,741,966@ .46500% \1\..................        $431,250)                 
    B. Increased Value, Total Coverage........................................       $1,083,325                 
        Average Premium Rate in British Market................................          .32550%                 
            Premium Cost in British Market.....................................................           $3,526
    C. Excess Liability, Total Coverage........................................................             None
                                                                                                                
                                                              ------------------                                
    D. Total Premium Cost if Insured 100% in British Market....................................         $939,905
    E. Deduct Particular Average Portion:                                                                       
            $936,379 Less $431,250=$505,129 x 62% \2\..........................................          313,180
    F. Net Premium Cost Exclusive of Particular Average........................................         $626,725
                                                                                                                
                                                              --------------------------------------------------
                                                                 Trade Route        Trade Route    Trade Route  
                                                                    No. X            No. X            No. X     
                                                                    Line A           Line B           LIne C    
                                                                                                                
                                                              --------------------------------------------------
    Particular Average Adjustment:                                                                              
        P/A Portion of Premium Cost..........................         $313,180         $313,180         $313,180
        M & R Subsidy Rate Complement \3\....................           84.48%           86.63%           87.34%
                                                                                                                
                                                              --------------------------------------------------
        Adjusted P/A Foreign Premium Cost....................         $264,574         $271,308         $273,531
        Add: Net Premium Cost (Excluding P/A)................         $626,725         $626,725         $626,725
                                                                                                                
                                                              --------------------------------------------------
2. Composite Foreign Premium Cost............................         $891,299         $898,033         $900,256
3. TOTAL PREMIUM COST TO SUBSIDIZED OPERATORS................       $1,068,998       $1,068,998       $1,068,998
                                                                                                                
                                                              --------------------------------------------------
4. DIFFERENTIAL IN DOLLARS \4\...............................          177.699          170,965         $168,742
                                                                                                                
                                                              ==================================================
5. COMPOSITE WEIGHTED DIFFERENTIAL \5\.......................           16.62%           15.99%           15.79%
                                                                                                                
                                                              --------------------------------------------------

[[Page 128]]

                                                                                                                
6. U.S.--FOREIGN COST DIFFERENTIAL...........................           16.62%           15.99%           15.79%
----------------------------------------------------------------------------------------------------------------
\1\ Estimated gross total loss rate adjusted for broker's discounts, policy tax and other costs, as necessary.  
\2\ Percentage of particular average.                                                                           
\3\ 100% minus M&R subsidy rate of the same calendar year.                                                      
\4\ Line 3 less line 2.                                                                                         
\5\ Line 4 divided by line 3.                                                                                   



Sec. 282.24  Protection and indemnity insurance.

    (a) Subsidy items. Items eligible for determination of subsidizable 
costs and the U.S.-foreign cost differential are:
    (1) Premiums. The fair and reasonable net premium costs (including 
stamp taxes) of protection and indemnity, excess insurance, second 
seamen's insurance, ``tovalop'' or other forms of pollution insurance, 
bumbershoot (only that portion identified as applicable to P&I 
insurance), cargo liability if excluded from the primary policy, 
supplemental calls against liabilities covered under the terms and 
conditions of policies approved as to form and coverage by MARAD, less 
lay-up return premiums, shall be eligible for subsidy and used for 
determining the U.S.-foreign cost differential.
    (2) Deductibles. The fair and reasonable cost of crew claims paid by 
and pending with the operator under the deductible provision of the 
protection and indemnity insurance policy approved as to form and 
coverage by MARAD, to the extent that such cost would have been paid by 
the insurance underwriter under the terms of the policy, except for the 
fact that it did not exceed the deductible provision of the policy, 
shall be eligible for subsidy. For subsidy purposes, the deductible 
absorption shall not exceed $50,000 for each accident or occurrence, 
provided however, that benefits paid on unearned wages, if excluded from 
coverage under the protection and indemnity insurance policy, shall be 
eligible, notwithstanding that the deductible provisions of the policy 
may be exceeded.
    (b) Assumption made in calculation. For purposes of determining 
subsidy for protection and indemnity insurance, it shall be assumed that 
the cost differential between the subsidized vessels and the foreign 
competitive vessels is limited to those portions of premium costs and 
deductible absorptions which are related to crew liability and that the 
cost of all other liabilities is the same for both the subsidized 
vessels and the foreign competitive vessels.
    (c) Calculation. The following is the method of calculating the 
U.S.-foreign cost differential for premiums:
    (1) General. A differential shall be calculated for each subsidized 
service of the vessel. Since the premium cost for all other liabilities 
is assumed to be the same for both the U.S. and foreign competitive 
vessels, the calculation of the differential for protection and 
indemnity insurance premiums is in effect based on the difference 
between U.S. and foreign premium costs for crew liabilities. Premium 
costs are determined in costs per gross registered ton (GRT).
    (2) Reporting Requirement. The operator shall submit the total 
premium cost for the subsidized year, plus any supplemental calls and 
lay-up return premiums not previously reported, to the Director, Office 
of Ship Operating Costs, not later than 60 days after the beginning of 
such year. The data shall be supported by invoices from the insurance 
underwriter.
    (3) U.S. crew liability cost. The crew liability portion of the 
total premium cost shall be determined by applying a percentage to the 
total premium cost based on five (5) years of claims experience for the 
five years commencing six years prior to January 1 of the subsidized 
year. The percentage shall be determined by dividing the total of 
underwriter's absorptions for crew claims, paid and estimated, by the 
total of underwriter's absorptions for all claims, paid and estimated. 
The crew claims portion shall be limited to

[[Page 129]]

eighty-five (85) percent unless the operator can substantiate a higher 
percentage as a result of having crew liability and all other 
liabilities insured with different underwriters. The operator shall 
submit the five-year claims experience not later than 60 days following 
the close of each calendar year.
    (4) All other liabilities cost--U.S. and foreign. The all other 
liabilities portion of the U.S. premium cost shall be determined by 
subtracting the crew liability portion from the total premium cost. The 
same cost shall be used for the all other liabilities portion of the 
foreign-flag competitor's premium cost.
    (5) Foreign crew liability cost. The crew liability cost of each 
principal foreign-flag competitor shall be used, if reliable cost data 
can be obtained. If such data cannot be obtained for a principal 
competitor, and it is determined that such competitor has a non-national 
crew, the crew liability cost for similar vessels registered under the 
flag of the crew's nationality may be used, at the Maritime 
Administrator's discretion, provided reliable cost data are obtained. If 
no reliable cost data are obtained for a competitor, the crew liability 
cost for that competitor shall be estimated by multiplying the 
subsidized operator's crew liability portion of the total premium cost 
by the ratio of that competitor's wage costs (FC) to the subsidized 
operator's wage costs (WC), as determined in the calculation of the wage 
differential.
    (6) U.S.-foreign cost differential. The U.S.-foreign cost 
differential shall be the excess of the operator's total premium cost 
over the principal foreign-flag competitor's estimated total premium 
cost, expressed as a percentage, calculated in the following manner.

  ABC Steamship Company, Inc., Trade Route X, Protection and Indemnity  
                        Insurance Premiums, 1985                        
------------------------------------------------------------------------
                                   United                         South 
     Premium cost (per GRT)        States    Greece   Pakistan   Africa 
------------------------------------------------------------------------
Crew liability..................  \1\ $3.9                              
                                      8     \2\ $1.2                    
                                                7     \3\ $0.4          
                                                          5     \2\ 0.08
All other liability.............     $1.06     $1.06     $1.06     $1.06
                                 ---------------------------------------
      Total costs...............     $5.04     $2.33     $1.51     $1.14
                                 =======================================
Differential--Excess of U.S.                                            
 cost over foreign cost.........     $2.71     $3.53      3.90          
Unweighted differential                                                 
 (percent)......................     53.77     70.04     77.38          
Competition weight factor                                               
 (percent)......................  ........     24.3      24.9      50.8 
Weighted differential (percent).  ........     13.07     17.44     39.31
                                           -----------------------------
U.S.-foreign cost differential                                          
 (percent)......................  ........  ........  ........     69.82
------------------------------------------------------------------------
\1\ Determined by applying 79.03 percent (based on 5-year claims        
  experience) to total GRT premium rate of $5.04.                       
\2\ Crew liability data obtained by Maritime Administration.            
\3\ The unweighted percentage of Pakistani to U.S. wage costs of 11.23% 
  was applied to $3.98 to estimate the foreign cost.                    

    (d) Daily Subsidy Rate. The daily subsidy rate shall be calculated 
in the following manner:
    (1) Premiums. The net premium costs per calendar day for the 
subsidized year shall be multiplied by the U.S.-foreign cost 
differential percentage determined for the most recent year. The product 
shall be the daily amount of subsidy for P&I premiums.
    (2) Deductibles. (i) The eligible illness and injury crew claims 
paid and pending for each calendar year of a three-year period 
commencing six years prior to January 1 of the subsidized year shall be 
recalculated, if necessary, to reflect the operator's current deductible 
levels. These expenses, after audit, shall be multiplied by the 
percentage wage differential, as determined in the calculation of wage 
subsidy for the appropriate fiscal period. The resulting calendar period 
P&I deductible subsidy for the three-year period shall be divided by the 
voyage days for the period to arrive at an aggregate daily P&I 
deductible subsidy. The aggregate fiscal period wage subsidy accrued in 
the service for the three-year period shall be divided by the voyage 
days for the period to arrive at an aggregate daily wage subsidy amount. 
The aggregate daily P&I deductible subsidy for the three-year calendar 
period shall be divided by the aggregate daily wage subsidy for the 
three-year fiscal period. The resulting percentage shall be applied to 
the wage per diem calculated

[[Page 130]]

for each ship type in the service to derive the daily amount of subsidy 
for P&I deductibles. As to pending claims previously recognized in the 
historical period, only the amount of changes in cost with respect to 
such claims shall be subsequently recognized. The following methodology 
shall be used to determine subsidy for P&I deductibles.

                          Determination of Daily Amount of Subsidy for P&I Deductibles                          
----------------------------------------------------------------------------------------------------------------
                                                   Calendar year   Calendar year   Calendar year                
                  T.R. 98 item                         1979            1980            1981            Total    
----------------------------------------------------------------------------------------------------------------
P&I Deductible C.Y. Expenses....................      $1,680,000      $1,220,000      $1,400,000  ..............
Diff. Foreign/U.S. Wage Cost....................          26.00%          23.00%          20.00%  ..............
Subsidy.........................................        $436,800        $280,600        $280,000        $997,400
Voyage Days.....................................           1,140           1,100           1,225           3,465
                       Average Subsidy Per Voyage Day ($997,4003,465 days)=$287.85                      
                                                    Fiscal year                                                 
                                                       1979         Fiscal year                                 
                                                                       1980         Fisal year                  
                                                                                       1981            Total    
Wages F.Y. Per Diem Rate........................          $7,660          $7,700          $8,050  ..............
Voyage Days.....................................           1,090           1,180           1,230           3,500
Subsidy.........................................      $8,349,400      $9,086,000      $9,901,500     $27,336,900
                    Average Subsidy Per Voyage Day ($27,336,9003,500 days)=$7,810.54                    
                       Ratio P&I Deductible ODS to Wage ODS $287.85$7,810.54=3.69%                      
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                            Ratio P&I ded. to                   
                   T.R. 98 ship type                     Daily wage ODS 1/       wage ODS        Daily P&I ded. 
                                                                1/85            (percent)          ODS 1/1/85   
----------------------------------------------------------------------------------------------------------------
C4-A...................................................             $9,000             x 3.69            $332.10
C5-B...................................................              9,300             x 3.69             343.17
C6-C...................................................              9,600             x 3.69             354.24
----------------------------------------------------------------------------------------------------------------

    (ii) In cases where national insurance schemes cover crew claims 
costs in their entirety, resulting in no cost to the foreign competitor 
for deductible absorptions, the composite percentage differential for 
wages shall be adjusted by substituting a zero cost for such foreign 
competitor in the calculation of the differential. The adjustment of the 
wage percentage differential shall not be used for Japan, where 
operators incur minimal costs for deductible absorptions, rather than no 
costs. For Japan, the insurance related costs which are normally 
included in the calculation of Japanese wage costs shall be excluded in 
adjusting the wage percentage differential for this purpose.
    (3) Data submission requirement. The operator is required to submit 
annually a certified statement of eligible and audited crew claims, as 
identified in paragraph (d)(2) of this section, for the historical 
period identified therein. The report shall be submitted to the 
Director, Office of Ship Operating Costs no later than January 1 of the 
subsidized year.



            Subpart D--Subsidy Payment and Billing Procedures



Sec. 282.30  Payment of subsidy.

    Submission of voucher. At the close of each calendar month, the 
subsidized operator may submit a voucher, and include for payment in 
such voucher the amount of ODS accrued for the voyages terminated during 
the period.



Sec. 282.31  Subsidy billing procedures.

    (a) Subsidy voucher--(1) Form. Requests for payment of ODS shall be 
submitted on a public voucher, Standard Forms 1034 and 1034A, which can 
be obtained from the Superintendent of Documents, U.S. Government 
Printing Office, Washington DC 20402.
    (2) Copies. The operator shall submit the original and 3 copies of 
the voucher to the MARAD Region Director for payment. The original and 2 
copies must be supported by schedules and an affidavit. The third copy 
is the payee's copy and need not be supported.

[[Page 131]]

    (b) Schedules and affidavit. (1) The following schedules shall be 
used for calculating the amount of ODS payable:



Schedule A--Table of Contents




------------------------------------------------------------------------
(Company)

ODSA No. ______________________

ODS Accrued During Fiscal Year 198____

ODS Payable for the Month of______________________

------------------------------------------------------------------------
                                  Current       Previous                
                                  voucher        voucher        Total   
------------------------------------------------------------------------
Total Accrued ODS (Sched. B).  $              $             $           
                              ---------------                           
  Less ODS Reductions:                                                  
    DTR/Deviations (Sched. C)  $                                        
                              ---------------                           
    Reduced Crew (Sched. D)..  $                                        
                              ---------------                           
Net ODS Accrued..............  $              $             $           
                              =============================-------------
Less Previous Payments.......                               $           
                                                           -------------
ODS Payable..................                               $           
                                                           =============
------------------------------------------------------------------------



Schedule B--Table of Contents




------------------------------------------------------------------------
(Company)

ODS Accrued for the Month of______________________

Trade Area ____________________________________________

----------------------------------------------------------------------------------------------------------------
                                               Voyage dates                                                     
          Vessel name            Voy.  ----------------------------  Voy. days   Per diem rates    Net subsidy  
                                  No.       From           To           \1\           \1\                       
----------------------------------------------------------------------------------------------------------------
                                                                                $..............  $              
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
ODS payable for unpredictably   ......  ............  ............  ..........  ...............  $              
 timed expenses not included                                                                                    
 in daily amount (attach                                                                                        
 supporting information).                                                                                       
                                                                   -------------                                
    Total accrued subsidy       ......  ............  ............  ..........  ...............  $              
     (enter on Schedule A).                                                                                     
                                                                   =============                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
\1\ Place* next to applicable ``Voy. days'' or ``Per diem rate'' of vessel and voyage requiring reduction of ODS
  because of domestic trade operations or voyage deviations.                                                    



Schedule C--Table of Contents




------------------------------------------------------------------------
(Company)

Domestic Trade and Voyage Deviation ODS Reductions

              Domestic Trade Reduction (DTR):

[[Page 132]]



----------------------------------------------------------------------------------------------------------------
                                                                % of                                            
                                  Voy.     Gross    Domestic   dom. to    Per     Per diem     DTR        ODS   
          Vessel name             no.     voyage    revenue     gross     diem    reduction    days    reduction
                                          revenue              revenue    rate                                  
----------------------------------------------------------------------------------------------------------------
                                .......  $.......  $........  ........  $......  $.........  .......  $         
                                                               %                                                
----------------------------------------------------------------------------------------------------------------

Deviation Reduction:

----------------------------------------------------------------------------------------------------------------
                                                       Deviation days or                                        
          Vessel name                  Voy. no.            % of day          Per diem rate       ODS reduction  
----------------------------------------------------------------------------------------------------------------
                                 ...................  ..................  $.................  $                 
----------------------------------------------------------------------------------------------------------------
(Enter total Reductions on Schedule A).                                                                         



Schedule D--Table of Contents




------------------------------------------------------------------------
(Company)

Reduced Crew Period

----------------------------------------------------------------------------------------------------------------
                                  Reduced crew dates       No. of                                               
                              --------------------------  reduced     No. of                Man-day     Reduced 
            Vessel                                       crew days     crew     Man-days    amount       crew   
                                   From          To         (a)      reduced                           reduction
----------------------------------------------------------------------------------------------------------------
                               ...........  ...........         x           =         x   $=          $         
----------------------------------------------------------------------------------------------------------------
                               ...........  ...........         x           =         x   $=          $         
----------------------------------------------------------------------------------------------------------------
                               ...........  ...........         x           =         x   $=          $         
----------------------------------------------------------------------------------------------------------------
                               ...........  ...........         x           =         x   $=          $         
----------------------------------------------------------------------------------------------------------------
      Total Reduced Crew                                                                                        
       Reduction (Enter on                                                                                      
       Schedule A).                                                                                             
----------------------------------------------------------------------------------------------------------------
(a) If licensed crew, indicate (a), (b) If unlicensed crew, include (b).                                        

    (2) A notorized affidavit as shown below shall be signed by an 
official of the subsidized operator who is familiar with the ODSA, these 
regulations, the operation of the subsidized vessel and the accounts, 
books, records, and disbursements of the subsidized operator relating to 
such operation:

                                Affidavit

State of________________________________________________________________
City of_________________________________________________________________
County/Parish of________________________________________________________

    I, ________, being duly sworn, depose and say, that I am (title) of 
the ________ (herein referred to as the ``Operator''), and as such am 
familiar with (a) provisions of the Operating-Differential Subsidy 
Agreement, Contract No. ________, dated as of ________, as amended, to 
which the Operator is a party; and (b) the regulations governing the 
payment of operating-differential subsidy for liner vessels, PART 282, 
Title 46, CFR; and (c) the operation of the vessels covered by said 
Agreement and regulations; and (d) the accounts, books, records, and 
disbursements of the Operator relating to such operation.
    Referring to the public voucher dated ________, covering voyage days 
allowed for subsidy during the periods commencing ________ and ending 
________, and attached, submitted by said Operator concurrent herewith 
for a payment on account in the sum of ________, under said Agreement, I 
further depose and say that, to the best of my knowledge and belief, the 
Operator has fully complied with the terms and conditions of said 
Agreement and regulations, applicable orders, rulings and provisions of 
the Merchant Marine Act, 1936, as amended, and is entitled, under the 
provisions of said Agreement and regulations, orders and rulings 
applicable thereof, to the amount of the payment on account requested; 
and further depose and say that the vessels named in the attached 
schedules were in authorized service for the vessel operating days on 
which the payment is requested and has not included in the calculation 
of the amount of subsidy claimed in the attached voucher any costs of a 
character that the Maritime Administration, or Secretary of 
Transportation acting by and

[[Page 133]]

through the Maritime Subsidy Board or any predecessor or successor, had 
advised the Operator to be ineligible to be so included, or any costs 
collectible from insurance, or from any other source.
    Payment by the Maritime Administration of all or part of the amount 
claimed herein shall not be construed as approval of the correctness of 
the amount stated to have been due, nor a waiver of any right of remedy 
the Maritime Administration, or Secretary of Transportation, acting by 
and through the Maritime Subsidy Board, or any predecessor or successor, 
may have under the terms of said Agreement, or otherwise.
    I further depose and say that this affidavit is made for and on 
behalf and at the direction of the Operator for the purpose of inducing 
the Maritime Administration to make a payment pursuant to the provisions 
of the aforesaid Operating-Differential Subsidy Agreement, as amended.

    Subscribed and sworn to before me, a Notary Public, in and for the 
aforesaid County and State, this ________ day of ________,

My commission expires___________________________________________________
Notary Public___________________________________________________________
    (3) The subsidized operator shall furnish its own supply of 
supporting schedules and affidavit.



Sec. 282.32  Appeal procedures.

    (a) Appeals of annual or special audits. An operator who disagrees 
with the findings, interpretations or decisions in connection with audit 
reports of the Office of the Inspector General and who cannot settle 
said differences by negotiation with the Contracting Officer may submit 
an appeal to the Maritime Administrator from such findings, 
interpretations or decisions in accordance with part 205 of this 
chapter.
    (b) Appeals of administrative determinations--(1) Policy. An 
operator who disagrees with the findings, interpretations or decisions 
of the Contracting Officer with respect to the administration of this 
part may submit an appeal from such findings, interpretations or 
decisions as follows:
    (i) Appeals shall be made in writing to the Secretary, Maritime 
Subsidy Board, Maritime Administration, within 60 days following the 
date of the document notifying the operator of the administrative 
determination of the Contracting Officer. In the appeal to the 
Secretary, the operator shall indicate whether or not a hearing is 
desired.
    (ii) MARAD will notify the appellant in writing if a hearing is to 
be held and whether the operator is required to submit additional facts 
for consideration in connection with the appeal.
    (iii) When a decision has been rendered, the Board shall notify the 
appellant in writing.
    (2) Appeal to the Secretary of Transportation. An operator who 
disagrees with the Board may appeal such findings and determinations by 
filing with the Secretary of Transportation, a written petition for 
review of the Board's action. The petition shall be filed in accordance 
with provisions of the Department of Transportation pertaining to 
Secretarial review.
    (3) Hearings. MARAD shall follow the Rules of Practice and Procedure 
(46 CFR part 201, subpart M) for hearings granted under 46 U.S.C. 1176 
and 46 CFR 282.32.



PART 283--DIVIDEND POLICY FOR OPERATORS RECEIVING OPERATING-DIFFERENTIAL SUBSIDY--Table of Contents




Sec.
283.1  Purpose.
283.2  Definitions.
283.3  Dividend policy criteria.
283.4  Alternate standards.
283.5  Notification and reporting requirements.

    Authority: Sec. 204(b) Merchant Marine Act, 1936, as amended (46 
U.S.C. 1114(b)); Reorganization Plans No. 21 of 1950 (64 Stat. 1273) and 
No. 7 of 1961 (75 Stat. 840), as amended by Pub. L. 91-469 (84 Stat. 
1026); Dept. of Commerce Organization Order 10-8 (38 FR 19707, July 23, 
1973).

    Source: 45 FR 37445, June 3, 1980, unless otherwise noted.



Sec. 283.1  Purpose.

    (a) The rules of this part establish requirements for the 
declaration and payment of cash dividends by operators receiving 
operating-differential subsidy (ODS) under Title VI of the Merchant 
Marine Act, 1936, as amended (46 U.S.C. 1101 et seq.) (Act). This part 
shall be applicable immediately unless otherwise provided for in the 
operators' operating-differential subsidy agreement (ODSA).
    (b) One of the purposes of the Act is to foster the development and 
encourage the maintenance of the United States Merchant Marine. 
Subsidized operators are required to maintain the

[[Page 134]]

financial ability to assure adequate and timely reinvestment in the 
merchant marine. The policy contained herein takes into consideration 
the operators' contractual obligations to construct and acquire vessels, 
retire debt obligations secured by ship mortgages and maintain adequate 
working capital. However, this policy also takes into consideration the 
operators' need to attract new capital to the industry by paying 
dividends which are appropriate in light of the operators' earnings and 
long-range financial position.



Sec. 283.2  Definitions.

    (a) Long-Term Debt means, as of any date, the total notes, bonds, 
debentures, equipment obligations and other evidence of indebtedness 
that would be included in Long-Term Debt in accordance with generally 
accepted accounting principles, less the balance of escrow fund deposits 
attributable to the principal of obligations guaranteed pursuant to 
Title XI of the Act, where deposits are required in accordance with 
Sec. 298.33. Capitalized Lease Obligations shall be included, but 
deferred income taxes shall not be included.
    (b) Capitalized Lease Obligations means, as of any date, an amount 
(excluding amounts already included in Long-Term Debt) equal to the sum 
of: (1) The present value of all capital leases, as defined and computed 
in accordance with the Financial Accounting Standards Board Statement 
No. 13, Accounting for Leases (FASB-13), and (2) \1/2\ of the minimum 
rentals (less operating components such as insurance, maintenance, 
property taxes, etc.) of all operating leases, as defined and includable 
in footnotes to the financial statements in accordance with FASB-13, for 
shipping property, i.e., vessels, containers, barges, terminals and 
other similar property.
    (c) Equity (net worth) means, as of any date, the total of paid-in-
capital stock, paid-in-capital, retained earnings and all other amounts 
that would be included in Equity in accordance with generally accepted 
accounting principles, but adjustable as follows. The net worth shall be 
reduced to the extent that the net worth computation includes any 
receivables from an affiliate of the company or any stockholder, 
director, officer, or employee (or any member of the employee's family) 
of the company, or of an affiliate of the company, other than (1) 
reasonable advances to affiliated agents required for the normal 
operation of the company's vessels, or (2) current receivables arising 
out of the ordinary course of business, and which are not outstanding 
for more than 120 days.
    (d) Floor net worth means net worth computed as follows: The net 
worth requirement for existing operators shall be initially set at the 
greater of 90 percent of the operator's existing net worth or 50 percent 
of the operator's long-term debt contained in its audited financial 
statements for the year ended December 31, 1979. A new operator's net 
worth requirement shall initially be set at the greater of 90 percent of 
existing net worth or 50 percent of the original long-term debt issued 
with respect to the operator's vessel(s).
    (e) Adjusted floor net worth means that the floor net worth 
requirement may be reduced with consent of the Maritime Administrator in 
an amount equivalent to amounts an operator could have paid in dividends 
under the previous policy set forth in this regulation prior to 
amendment in 1980, in the three years prior to the date of effectiveness 
of this policy, but chose not to pay out in dividends. The floor net 
worth requirement for both existing operators and new operators shall be 
further adjusted from time to time as follows:
    (1) The net worth requirement shall be increased by an amount equal 
to 50 percent of the original long-term debt to be issued with respect 
to new vessel construction (with respect to existing operators, new 
vessel construction contracts executed after December 31, 1979), and
    (2) the net worth requirements shall be decreased by an amount equal 
to 50 percent of the original long-term debt issued with respect to 
vessels which are removed from service or otherwise transferred or sold.
    (f) Working capital means the difference between current assets and 
current liabilities, both determined in accordance with generally 
accepted accounting principles, adjusted as follows:

[[Page 135]]

    (1) Current assets shall be reduced with respect to:
    (i) Amounts in any Title XI Reserve Fund, pursuant to 46 CFR 
298.35(e) or Capital Construction Fund (CCF) Security Amount prescribed 
by 46 CFR 298.35(f), that is being maintained pursuant to an agreement 
covering a vessel owned or leased by the company, or in another similar 
fund required under any other mortgage, indenture or other agreement to 
which the company is a party;
    (ii) Any securities, obligations or evidences of indebtedness of an 
affiliate of the company or of any stockholder, director, officer or 
employee (or any member of the family of an employee of the company or 
of such affiliate), except: (a) Reasonable advances to affiliated agents 
required for the normal current operation of the company's vessels, or 
(b) receivables outstanding for not more than 120 days, arising out of 
the ordinary course of business.
    (2) Current assets shall be increased with respect to CCF accruals 
(but not actual deposits), if the operator has first met its prorated 
CCF minimum deposit schedule.
    (3) Current liabilities shall be increased by one-half of the annual 
payment of all charter hire and other lease obligations having a term of 
more than twelve months, other than charter hire and other lease 
obligations already included and reported as a current liability on the 
company's balance sheet.
    (4) Current liabilities shall be decreased by amounts on deposit in 
a CCF which are available for the payment of current liabilities.
    (g) Prior years' earnings means the aggregate net income after tax 
for the three years immediately preceding the year in which the dividend 
is declared. An operator may include in prior years' earnings estimated 
net operating income after tax for the current fiscal year if such 
amount is based upon actual net operating income after tax for the first 
nine months of the current year. If an operator includes estimated 
current income in its prior years' earnings computation, it may also 
include earnings for only the immediately preceding two years, rather 
than three years, in the computation of prior years' earnings.
    (h) Funds available shall mean the sum of:
    (1) Amounts on deposit in any fund established pursuant to the Act 
plus accrued deposits, unless already included in working capital, 
(including interest thereon), less accrued withdrawals from any such 
fund;
    (2) Gross book value, as shown on the operators' books of account, 
of subsidized vessels and related barges and containers, less 
accumulated depreciation;
    (3) Progress payments made on subsidized vessels and related barges 
and containers undergoing construction, reconstruction, or 
reconditioning;
    (4) Progress payments made on additional vessels and related barges 
and containers, if any, which the operator has agreed to construct or 
acquire pursuant to any contract entered into with the Maritime 
Administrator or the Maritime Subsidy Board (Board);
    (5) Balance of trade-in allowances pursuant to section 510 of the 
Act;
    (6) Capitalized Lease Obligations as defined in Sec. 283.2(b); and
    (7) Working capital as defined in Sec. 283.2(f).
    (i) Funds required means the sum of:
    (1) 25 percent of the total cost to the operator of: (i) Subsidized 
vessels under construction, reconstruction or reconditioning, (ii) 
additional vessels under construction, reconstruction or reconditioning 
pursuant to any contract entered into between the operator and the 
Maritime Administrator or the Board, and (iii) barges and containers 
under construction or under contract to purchase, and to be used as part 
of the complement of such vessels;
    (2) 25 percent of the total cost to the operator, estimated at the 
time a cash dividend is to be declared, of: (i) Replacement of 
subsidized vessels required to be replaced under the current ODSA (which 
cost must be indicated whether or not the operator anticipates leasing 
replacement vessels), (ii) additional vessels which the operator has 
agreed to construct or acquire pursuant to any contract entered into 
with the Maritime Administrator or the Board, and (iii) barges and 
containers required as part of the complement of such vessels. In making 
this computation, the operator shall obtain the

[[Page 136]]

prior written agreement of the Maritime Subsidy Board as to number of 
replacement vessels, type and commercial characteristics, projected 
award date of construction contract, projected delivery dates, estimated 
total cost (current) and method used to determine such cost, intended 
area of operation, and identity of vessels to be replaced.
    (3) Capitalized Lease Obligations as defined in Sec. 283.2(b), 
excluding that portion of any such amount payable within one year; and
    (4) Outstanding indebtedness on, or secured by, subsidized vessels 
and related barges and containers, or incurred in connection with the 
acquisition, construction or reconstruction of such vessels and related 
barges and containers.



Sec. 283.3  Dividend policy criteria.

    (a) In general. A subsidized operator may pay cash dividends at any 
time it desires up to the amount set forth in paragraph (b) of this 
section. Dividends may be paid pursuant to paragraph (c) of this 
section, as provided therein. The written approval of the Maritime 
Administrator shall be obtained prior to any declaration of dividends by 
the operator, if the payment of dividends does not meet the criteria of 
either paragraph (b) or (c) of this section. It is intended that 
dividend payments be permitted under the provisions of either paragraph 
(b) or (c), whichever allows payment of the greatest amount of 
dividends. Nothing in this part shall alter restrictions on the payment 
of dividends which may affect the operator under any other agreements 
with the Maritime Administrator.
    (b) 40 percent dividend criteria--If the operator is able to meet 
the criteria of this paragraph after declaration and payment of the 
proposed dividend, it may declare a dividend of up to 40 percent of 
prior years' earnings, less any dividends that were paid in such years, 
unless there is an operating loss in the fiscal year to the date of 
proposed payment of dividend, as well as operating losses in the 
immediately preceding two years. If in any of the years included in the 
prior years' earnings calculation dividends were paid under the 100 
percent rule, those years' earnings and dividends may be excluded from 
the prior years' earnings calculation, and then only the earnings and 
dividends associated with the remaining years of the three year period 
may be used. This provision enables an operator to pay dividends under 
the 40 percent rule when in past years it has paid dividends under the 
100 percent rule. The criteria which must be satisfied are as follows:
    (1) Working Capital--Working Capital must equal or exceed one 
dollar.
    (2) Long-term Debt to Equity ratio--Long-Term Debt must not exceed 
two times Equity. (The Maritime Administrator may modify this 
requirement during periods of vessel construction).
    (3) Net Worth Floor--Net Worth must exceed the adjusted net worth 
floor as computed in Sec. 283.2.
    (c) An operator may declare a dividend in an amount up to 100 
percent of retained earnings, unless there is an operating loss in the 
fiscal year to the date of proposed payment of dividend, as well as 
operating losses in the immediately preceding two years, if the 
following criteria are satisfied:
    (1) Working Capital--Working Capital must equal or exceed one 
dollar.
    (2) Long-Term Debt to Equity ratio--Long-Term debt must not exceed 
Equity.
    (3) Net Worth Floor--Net worth must exceed the Adjusted Net Worth 
floor as computed in Sec. 283.2.
    (4) Funding for Replacement Vessels--Funds available must exceed 
Funds Required, and the basis for Funds Required for replacement vessels 
must receive prior approval, as provided in Sec. 283.2(i) herein.



Sec. 283.4  Alternate standards.

    (a) The Maritime Administrator may waive or modify any of the 
financial terms or requirements otherwise applicable in part 283, upon 
determining that other factors exist which make alternate terms or 
requirements appropriate. An example of such a situation would involve 
an operator that: (1) Has no replacement obligation and (2) has a 
guarantee of charter hire or other guarantees sufficient to cover 
capital costs. In such cases, the Government's interest may be 
sufficiently protected although the operator cannot meet the

[[Page 137]]

standard part 283 requirements. Another example may be to include 
receivables otherwise excluded if they are properly guaranteed by an 
acceptable guarantor.
    (b) [Reserved]



Sec. 283.5  Notification and reporting requirements.

    (a) Notice--The operator shall give written notice of a dividend 
declaration to the Maritime Administrator immediately upon such 
declaration.
    (b) Reports--The operator shall submit a report as described below 
whenever it declares a dividend or applies for approval under Sec. 283.3 
to declare a dividend as of the approximate date of such declaration or 
request. Such statements shall include information no less current than 
30 days. If no dividends are declared during the calendar year, the 
operator is not required to submit a statement.

If the Maritime Administration determines that the operator was, for any 
reason, not qualified to pay the dividend, then the operator shall, in 
writing, request the approval of the Maritime Administrator for any 
subsequent dividend declaration. If such approval is then granted, the 
operator may follow the requirements of this part 283 once again. The 
reports required by this section shall be prepared in accordance with 
the definitions set forth in Sec. 283.2. A separate statement shall be 
submitted showing the adjustments made to working capital, long-term 
debt and net worth, and shall conform to the definitions of such items 
as contained herein. As appropriate, reports shall include the 
following:
    (1) The ratio of debt to equity, floor net worth and prior years' 
earnings in the format set forth in Schedule A;
    (2) The excess of ``funds available'' over ``funds required'' in the 
format as set forth in Schedule B;
    (3) Working capital as set forth in Schedule C; and
    (4) Other applicable limitations prescribed in any agreements 
between the operator and the Maritime Administrator affecting the 
payment of dividends.
    (c) Officials to whom notices and reports are to be directed. 
Operators shall submit, in triplicate, all notices, reports and requests 
prescribed in this part to the Secretary, Maritime Administration, 
Washington, DC 20590, with a copy of such notice or request to the 
appropriate Maritime Administration Region Director.

 Schedule A--Ratio of Debt to Equity, Floor Net Worth, and Prior Years' 
                                Earnings                                
                             Company ______                             
                                  ______, 19__                          
Long-term debt.................................................  $......
                                                                    ....
Retained earnings..............................................  $......
                                                                    ....
Equity.........................................................  $......
                                                                    ....
Ratio of Long-Term Debt to Equity..............................  .......
Adjusted Floor Net Worth as computed in accordance with Sec.     $......
 283.2.                                                             ....
Prior years' earnings as defined in Sec.  283.2................  $......
                                                                    ....
                                                                        
                                                                        
                                      ----------------------------------
                                         (Signature of Chief Financial  
                                          Officer or other authorized   
                                                    officer)            
                                                                        


                                 Schedule B--Funds Available and Funds Required                                 
                                                 Company ______                                                 
                                                      ______, 19__                                              
                                               I. FUNDS AVAILABLE                                               
A. On deposit in statutory funds:                                                                               
  Capital construction fund..................                                               $..........         
  Construction reserve fund..................  ........................................................         
  Construction and escrow funds..............  ........................................................         
  Plus accrued deposits to funds (or less                                                                       
   accrued withdrawals from funds)...........  ........................................................  $......
                                                                                                              ..
B. Gross book value of vessels and related                                                                      
 barges and containers employed in subsidized                                                                   
 services:                                                                                                      
  Subsidized vessels.........................  ........................................................         
  Related barges.............................  ........................................................         
  Related containers.........................  ........................................................         
  Less accumulated depreciation..............                                              (..........)  .......
C. Progress payments made on subsidized vessels and related barges and containers undergoing                    
 construction, reconstruction or reconditioning........................................................  .......
D. Progress payments made on additional vessels and related barges and containers agreed to be                  
 constructed or acquired...............................................................................  .......
E. Balance of trade-in allowances (section 510 of the Act).............................................  .......
F. Capitalized Lease Obligations as defined in Sec.  283.2(b)..........................................  .......
G. Net Working Capital (from Schedule D)...............................................................  .......
    TOTAL FUNDS AVAILABLE..............................................................................  $......
                                                                                                            ....
                                                                                                                


[[Page 138]]


                                               II. FUNDS REQUIRED                                               
A. Cost of current commitments:                                                                                 
  1. ODSA vessels under construction or reconstruction:                                                         
           Number of vessels                  Total cost            Less Government        Cost to operator     
                                                                     contributions                              
                                        $.....................    ($................)   .....................   
              25% of cost to operator.................................................  .....................   
  2. Additional vessels under construction, reconstruction or reconditioning pursuant to a contract with the    
   Assistant Secretary or the Board:                                                                            
           Number of vessels                  Total cost            Less Government        Cost to operator     
                                                                     contributions                              
                                        $.....................    ($................)   .....................   
              25% of cost to operator.................................................  .....................   
  3. Barges and containers under construction or contract to purchase:                                          
Number of:                                                              Cost to                                 
                                                                        operator                                
  Barges......................................................  $                                               
  Containers..................................................  $                       .....................   
            25% of Cost to Operator...................................................  .....................   
B. Estimated cost of additional vessels (whether to be owned or leased):                                        
  1. Subsidized vessels to be replaced under ODSA:                                                              
           Number of vessels                  Total cost            Less Government        Cost to operator     
                                                                     contributions                              
                                        $.....................    ($................)   $....................   
              25% of cost to operator.................................................  $ ...................   
  2. Additional vessels agreed to be constructed or acquired:                                                   
           Number of vessels                  Total cost            Less Government        Cost to operator     
                                                                     contributions                              
                                        $.....................    ($................)   $ ...................   
              25% of cost to operator.................................................  $ ...................   
  3. Additional barges and containers required as the complement of vessels agreed to be constructed or acquired
   in items B1 and B2 above:                                                                                    
Number of:                                                              Cost to                                 
                                                                        operator                                
  Barges......................................................  $                                               
  Containers..................................................  $                       $....................   
            25% of Cost to Operator...................................................  $....................   
C. Outstanding indebtedness on, or secured by, subsidized vessels and related barges    $....................   
 and containers, or incurred in connection with the acquisition, construction, or                               
 reconstruction of such vessels and related barges and containers.                                              
D. The present value of Capitalized Lease Obligations as defined in Sec.  283.2(b),     $....................   
 excluding that portion of any such amount payable within one year.                                             
    TOTAL FUNDS REQUIRED..............................................................  $....................   
III. EXCESS FUNDS (DEFICIENCY OF FUNDS)...............................................  $....................   
                                                                                                                
                                                                                                                
                                       -------------------------------------------------------------------------
                                           (Signature of Chief Financial Officer or other authorized officer)   
                                                                                                                


   Schedule C--Determination of Working Capital (As Defined in 46 CFR   
                                 283.2)                                 
                             Company ______                             
                                ______, 19______                        
A. CURRENT ASSETS:                                                      
  Cash and marketable securities......................  $......         
                                                           ....         
  Accounts receivable (current).......................   ......         
                                                           ....         
  Other current assets (specify)......................   ......         
                                                           ....         
    Total.............................................  $......         
                                                           ....         
  Accrued deposits to CCF, (provided operator has met   $......         
   prorated deposit schedule).                             ....         
  Other adjustments (specify).........................   ......  $......
                                                           ....     ....
B. CURRENT LIABILITIES:                                                 
  Current liabilities.................................  $......         
                                                           ....         
  Add one-half annual charter hire (if not included      ......         
   above).                                                 ....         
  Less current liabilities for which payment is          ......         
   available from CCF deposits.                            ....         
  Other adjustments (specify).........................   ......  $......
                                                           ....     ....
C. WORKING CAPITAL:                                                     
  Current assets less current liabilities......................  $......
                                                                    ....
                                  ======================                
                                                                        
                                                                        
                                  --------------------------------------
                                   (Signature of Chief Financial Officer
                                        or other authorized officer)    
                                                                        



PART 287--ESTABLISHMENT OF CONSTRUCTION RESERVE FUNDS--Table of Contents




Sec.
287.1  Definitions.
287.2  Scope of section 511 of the Act and the regulations in this part.
287.3  Requirements as to vessel operations.
287.4  Application to establish fund.
287.5  Tentative authorization to establish fund.
287.6  Establishment of fund.
287.7  Circumstances permitting reimbursement from a construction 
          reserve fund.
287.8  Investment of funds in securities.
287.9  Valuation of securities in fund.
287.10  Withdrawals from fund.
287.11  Time deposits.
287.12  Election as to nonrecognition of gain.
287.13  Deposit of proceeds of sales or indemnities.
287.14  Deposit of earnings and receipts.
287.15  Time for making deposits.
287.16  Tax liability as to earnings deposited.
287.17  Basis of new vessel.
287.18  Allocation of gain for tax purposes.
287.19  Requirements as to new vessels.
287.20  Obligation of deposits.
287.21  Period for construction of certain vessels.
287.22  Time extensions for expenditure or obligation.
287.23  Noncompliance with requirements.
287.24  Extent of tax liability.
287.25  Assessment and collection of deficiencies.
287.26  Reports by taxpayers.
287.27  Controlled corporation.
287.28  Administrative jurisdiction.

    Authority: Secs. 204, 511, 49 Stat. 1987, as amended, 54 Stat. 1106, 
as amended; 46 U.S.C. 1114, 1161.

    Source: General Order 38 (2d Rev.), 30 FR 7215, May 29, 1965; 30 FR 
8162, June 25, 1965, unless otherwise noted.

[[Page 139]]


    Editorial Note: The regulations contained in this part were codified 
by the Internal Revenue Service in Treasury Decision 6820, 30 FR 6030, 
Apr. 29, 1965. For text see also 26 CFR part 2.



Sec. 287.1  Definitions.

    (a) As used in the regulations in this part, except as otherwise 
expressly provided--
    (1) Act means the Merchant Marine Act, 1936, as amended (46 U.S.C., 
ch. 27).
    (2) Section means one of the sections of the regulations in this 
part.
    (3) Administration means the Maritime Administration of the 
Department of Transportation.
    (4) Citizen means a person who, if an individual, was born or 
naturalized as a citizen of the United States or, if other than an 
individual, meets the requirements of section 905(c) of the Act and 
section 2 of the Shipping Act, 1916, as amended (46 U.S.C. 802).
    (5) Taxpayer means a citizen who has established or seeks to 
establish a construction reserve fund under the provisions of section 
511 of the Act and the regulations in this part, and may include a 
partnership.
    (6) Corporation includes associations, joint-stock companies and 
insurance companies.
    (7) Stock includes the shares in an association, joint-stock 
company, or insurance company.
    (8) Affiliate or associate means a person directly or indirectly 
controlling, controlled by, or under common control with, another 
person.
    (9) Control, as used in paragraph (a)(8) of this section, means the 
possession of the power to direct in any manner the management and 
policies of a person, and the terms controlling and controlled shall 
have the meanings correlative to the foregoing.
    (10) Person means an individual, a corporation, a partnership, an 
association, an estate, a trust, or a company.
    (11) Partnership includes a syndicate, group, pool, joint venture, 
or other unincorporated organization.
    (12) Construction, if so determined by the Administration, shall 
include reconstruction and reconditioning.
    (13) Reconstruction and reconditioning shall include the 
reconstruction, reconditioning, or modernization of a vessel for 
exclusive use on the Great Lakes, including the Saint Lawrence River and 
Gulf, if the Administration determines that the objectives of the Act 
will be promoted by such reconstruction, reconditioning, or 
modernization, and, notwithstanding any other provisions of law, such 
vessel shall be deemed to be a new vessel within the meaning of section 
511 of the Act for such reconstruction, reconditioning, or 
modernization.
    (14) Purchase-money indebtedness means any indebtedness, or evidence 
thereof, created as the result of the purchase of a vessel by the 
taxpayer.
    (15) Contract, contract for the construction, and construction 
contract shall include, if so determined by the Administration, a 
contract for reconstruction or reconditioning and shall include, in the 
case of a taxpayer who constructs a new vessel in a shipyard owned by 
such taxpayer, an agreement, between such taxpayer and the 
Administration with respect to such construction, and containing 
provisions deemed necessary or advisable by the Administration to carry 
out the purposes and policy of section 511 of the Act.
    (b) Insofar as the computation and collection of taxes are 
concerned, other terms used in the regulations in this part, except as 
otherwise provided, have the same meaning as in the Internal Revenue 
Code and the regulations thereunder.



Sec. 287.2  Scope of section 511 of the Act and the regulations in this part.

    (a) Applicability of regulations. The regulations prescribed in this 
part--
    (1) Apply to gain realized from the sale or loss of vessels, 
earnings from the operation of vessels, and interest (or otherwise) with 
respect to amounts previously deposited in the construction reserve 
fund, for a taxable year beginning after December 31, 1964, and
    (2) Apply to the expenditure, obligation, or withdrawal, during a 
taxable year beginning after December 31, 1964, of any deposits of gain, 
earnings, and interest (or otherwise) of the character referred to in 
paragraph (a)(1) of this section without regard to the taxable year in 
which the deposits were made.
    (b) Nonrecognition and accumulation. Section 511 of the Act 
provides, under

[[Page 140]]

conditions specified, for the nonrecognition, for income and excess-
profits tax purposes, of the gain realized from the sale or 
indemnification for loss of certain vessels including certain vessels in 
the course of construction, or shares therein. It also permits the 
accumulation of the proceeds of such sales or indemnification and of 
certain earnings without liability under part I (section 531 and 
following), subchapter G, chapter 1 of the Internal Revenue Code of 
1954, and the regulations thereunder (26 CFR 1.531 through 1.537-1 
(Income Tax Regulations)).
    (c) Availability of benefits. The benefits of section 511 of the Act 
are available to any citizen as defined in paragraph (a)(4) of 
Sec. 287.1, who, during any taxable year owns, in whole or in part, a 
vessel or vessels within the scope of Sec. 287.3. A citizen operating 
such a vessel or vessels owned by any other person or persons can derive 
no benefit from the provisions relating to the nonrecognition of gain 
from the sale or loss of such vessel or vessels so owned, but may 
establish a construction reserve fund in which he may deposit earnings 
from the operation of such vessel or vessels.
    (d) Applicability of section 511. Section 511 of the Act applies 
only with respect to sales or losses of vessels within the scope of 
Sec. 287.3 or in respect of earnings derived from the operation of such 
vessels. A loss to be within section 511 of the Act must be an actual or 
constructive total loss. Whether there is a total loss, actual or 
constructive, will be determined by the Administration.



Sec. 287.3  Requirements as to vessel operations.

    Section 511 of the Act applies with respect to vessels operated in 
the foreign or domestic commerce of the United States or in the 
fisheries of the United States and vessels acquired or being constructed 
for the purpose of such operation. The foreign commerce of the United 
States includes commerce or trade between the United States (including 
the District of Columbia), the territories and possessions which are 
embraced within the coastwise laws, and a foreign country or other 
territories and possessions of the United States. The domestic commerce 
of the United States includes commerce or trade between ports of the 
United States and its territories and possessions, embraced within the 
coastwise laws and on inland rivers. The fisheries include the fisheries 
of the United States and its territories and possessions. Section 511 of 
the Act does not apply to vessels operated in the foreign commerce or 
fisheries of any country other than the United States.



Sec. 287.4  Application to establish fund.

    (a) Any person claiming to be entitled to the benefits of section 
511 of the Act may make application, in writing, to the Administration 
for permission to establish a construction reserve fund. The original 
application shall be executed and verified by the taxpayer, or if the 
taxpayer is a corporation, by one of its principal officers, in 
triplicate, and shall be accompanied by eight conformed copies when 
filed with the Administration.
    (b) Form of application:

  Application for Permission To Establish a Construction Reserve Fund 
          Under Sec. 511, Merchant Marine Act, 1936, as Amended

    The undersigned applicant, ______, hereby applies, under section 
511, Merchant Marine Act, 1936, as amended, and the regulations 
prescribed by the Secretary of Transportation acting by and through the 
Maritime Administrator (hereinafter referred to as ``Administrator'') 
(46 CFR Part 287) and the Secretary of the Treasury, Internal Revenue 
Service (26 CFR Part 2) for permission to establish a construction 
reserve fund to be used for the construction or acquisition of a new 
vessel or vessels as defined by subsection (a) of said section 511, and 
submits in support of its application the following information:
    A. Identity and nationality of applicant.
    1. Exact name.
    2. Status (individual, partnership, corporation, etc.).
    3. Give the place of incorporation--whether under the laws of the 
United States, or of a State, Territory, District, or possession 
thereof.
    4. Address of principal executive offices.
    5. A statement, if applicant is an individual or a partnership, 
should be attached in the application in affidavit form, containing 
information that applicant is a citizen of the United States by virtue 
of birth in the United States, naturalization, etc.; give place and date 
of birth and/or naturalization;

[[Page 141]]

if derivative U.S. citizenship is alleged through naturalization of 
parent while a minor, the number, date and place of issue of the 
certificate of derivative citizenship of applicant should be cited 
together with any other pertinent details relative thereto.
    6. (a) The name, office, and nationality of each officer and 
director of the applicant owning shares of stock in the corporation 
should be submitted together with the number and class of capital shares 
owned.
    (b) In order that the U.S. citizenship status of a corporation 
applicant may be determined by the Administration, an affidavit as in 
accordance with Part 355 of this Chapter shall be furnished together 
with a current copy of the Articles or Certificate of Incorporation 
certified by the Secretary of the State where incorporated (or 
appropriate officer, if other than a State, as provided in ``A.3'' 
above), and a copy of the current By-Laws certified by the Secretary of 
the Corporation.
    7. The name, address and nationality of, and number and class of 
capital shares owned by, each person not named in answer to Item 6, 
owning of record, or beneficially if known, 5 percent or more of the 
outstanding capital shares of any class of the applicant. (The applicant 
shall be required, upon request, to furnish such additional data as may 
be deemed necessary to establish the U.S. citizenship of the applicant 
pursuant to section 2, Shipping Act, 1916, or section 905(c), Merchant 
Marine Act, 1936, as amended.)
    8. A brief statement of the general effect of each voting agreement, 
voting trust, or other arrangement whereby the voting rights in any 
shares of the applicant are owned, controlled or exercised, or whereby 
the control of the applicant is in any way held or exercised by any 
person not the holder of legal title to such shares. Give the name, 
address, nationality, and business of any such person, and, if not an 
individual, the form of organization.
    B. Business of the applicant and proposed use of the new vessel.
    9. A brief description of (a) the shipping business, or (b) the 
fishing business, and (c) any other business activities of the 
applicant.
    10. If engaged in the domestic or foreign commerce of the United 
States, full details concerning the services, routes, or lines on which 
vessels owned or chartered by the applicant are or have been operated.
    11. If applicant is engaged in the fisheries of the United States, 
full details concerning the location of the fishing operations and the 
method employed.
    C. Proceeds to be deposited.
    12. If applicant proposes to deposit the proceeds from the sale of a 
vessel, a description of the transaction from which the funds were 
obtained, including the name of the vessel sold, name of purchaser, 
selling price, date and terms of sale, consideration received by the 
applicant, amount and description of any mortgage or other lien on the 
vessel at the time of sale, whether such mortgage or lien was satisfied 
from the proceeds of sale, brief description of vessel as to size, 
speed, tonnage, etc., age of vessel at the time of sale, and value and 
accrued depreciation for income tax purposes at time of sale.
    13. If applicant proposes to deposit proceeds of indemnity from loss 
of a vessel, the name of the vessel, date and description of the loss, 
amount of indemnity and date received, name of underwriter, amount and 
description of any mortgage or other lien on the vessel at time of loss, 
whether such mortgage or lien was satisfied from the proceeds of the 
indemnity, age of vessel at time of loss, brief description of vessel as 
to size, speed, tonnage, etc., and value and accrued depreciation for 
income tax purposes at time of loss.
    14. If applicant proposes to deposit earnings from the operation of 
vessels, a statement of the amount of such earnings to be deposited, the 
period during which earned, and their source, including the vessels, 
services, routes, or lines involved.
    D. The new vessel.
    15. Statement whether applicant proposes: (a) To have a new vessel 
built to specifications, or (b) to acquire a vessel already constructed 
or under construction. If the former, and a contract for construction 
has been entered into at the time of the making of this application, 
state the date said contract was entered into, the parties thereto, the 
terms thereof, and date of delivery thereunder. If the latter, give name 
of vessel, builder, from whom purchased, or to be purchased, date when 
construction commenced, and date when delivered, or if vessel is still 
under construction, anticipated date of delivery.
    16. The general characteristics of the proposed new vessel, 
including (a) principal dimensions; (b) gross, net and deadweight 
tonnage; (c) bale and grain capacities of all cargo holds; (d) 
capacities of all tanks, storage spaces, refrigerator cargo spaces and 
separately chilled cargo spaces; (e) number and classes of passenger 
accommodations; (f) type and power, and in case of steam machinery, the 
gauge pressure, total temperature, and vacuum expected of propulsive 
machinery; (g) kind of fuel to be burned; and (h) sustained sea speed at 
designed load draft.
    17. If the proposed new vessel is to operate in the domestic or 
foreign commerce of the United States, a statement of how it will meet 
the needs of the service, route or line for which it is intended, with 
emphasis on the following factors: (a) Cargo accommodations--cargo space 
and fittings and appliances for handling and stowing cargo; (b) 
passenger accommodations; (c) construction

[[Page 142]]

and design; and (d) accommodations for officers and crews.
    18. If the proposed new vessel is to be operated in the fisheries of 
the United States, a description of the vessel, and a statement of how 
the vessel will meet the needs of such operations.
    19. If the proposed new vessel is intended to replace a vessel or 
vessels requisitioned or purchased by the United States, a statement of 
how the proposed replacement vessel will meet the needs of the service, 
route, line, or use for which it is intended.
    20. If the proposed new vessel is less than 2,000 gross tons or of 
less speed than 12 knots, a description of the features which would make 
it desirable for use by the United States in case of war or national 
emergency.
    E. The construction reserve fund.
    21. A description of the deposit or deposits which the applicant 
proposes to make in the construction reserve fund, including the amounts 
to be deposited in cash, notes, mortgages or other evidences of 
indebtedness, irrevocable commitments, or securities, giving reference 
to the source as described in items C-12, C-13, or C-14.
    22. Name and address of proposed depository or depositories for the 
construction reserve fund.
    F. Taxable year of applicant.
    23. Whether applicant files its Federal income tax return on a 
calendar year or fiscal year basis and if on the latter, the beginning 
of its fiscal year.
    G. Exhibits to be furnished.
    24. The following documents shall be filed as exhibits attached to 
the application:
    Exhibit I-- If available at the time this application is filed, an 
authenticated copy of any irrevocable commitment to finance the 
construction or acquisition of the new vessel proposed to be deposited 
in the construction reserve fund pursuant to the provisions of 46 CFR 
287.13(d).
    Exhibit II-- If the applicant is a corporation, a copy of each 
contract or agreement presently in effect, referred to in answer to Item 
8.
    H. Covenants of the applicant.
    25. The applicant hereby agrees as follows:
    (a) That the construction reserve fund shall be subject to the 
provisions of section 511, Merchant Marine Act, 1936, as amended, to the 
regulations prescribed by the Administrator, and the Secretary of the 
Treasury with respect to the establishment, maintenance, expenditure, 
and use of such fund, and to such resolutions as may be adopted by the 
Administrator with respect to such fund;
    (b) That it will furnish copies of any contracts entered into for 
the construction or acquisition of new vessels which the Administrator 
may require;
    (c) That it will furnish hull plans and specifications, machinery 
plans and specifications, and data with respect to communication 
facilities if and to the extent required by the Administrator; and
    (d) If no contract for the construction of a new vessel as set forth 
in paragraph D, sub-division 15(a) hereof, has been entered into at the 
time of making of this application, it will, upon entering into said 
contract, furnish to the Administrator the date thereof, the parties 
thereto, the terms thereof and date of delivery thereunder. Name of 
applicant:

(Date)__________________________________________________________________
          By____________________________________________________________
                                                         (Name, typed)  
          ______________________________________________________________
                                                         (Title)        
          ______________________________________________________________
                                                       (Signature)      

I, ______, certify that I am the ______ (Title of office) of ______ 
(Exact name of applicant) the applicant on whose behalf I am authorized 
to execute the foregoing application and agreements; that the applicant 
is a citizen of the United States, in accordance with the requirements 
of the Merchant Marine Act, 1936, as amended; that this application is 
made for the purpose of inducing the Secretary of Transportation, 
represented by the Maritime Administrator to grant to the applicant, 
pursuant to the provisions of section 511 of the Merchant Marine Act, 
1936, as amended, and the regulations promulgated by the Secretary of 
the Treasury and the Maritime Administrator thereunder, with all of 
which I am familiar, permission to establish a construction reserve 
fund; that I have carefully examined the application and all documents 
submitted in connection therewith and, to the best of my knowledge, 
information and belief, the statements and representations contained in 
said application and related documents are full, complete, accurate, and 
true.

    Date:
          ______________________________________________________________
                                                            (Name)      
          ______________________________________________________________
                                                           (Title)      
          ______________________________________________________________
                                                         (Signature)    

    Attention: A false statement in this application is punishable by 
law (18 U.S.C. 1001).

              instructions as to preparation of application

    1. Applications shall be prepared in the form provided according to 
the lettered items and serially numbered paragraphs. They must be signed 
and sworn to as provided. Eleven copies of the applications shall be 
filed with the Maritime Administrator, at least one copy of which shall 
be signed.

[[Page 143]]

    2. Each application shall be complete. Items or part of items which 
are inapplicable may, however, be omitted. The information required by 
Article 25 need be furnished only as stated in that item. The applicant 
may incorporate by specific reference information previously furnished 
the Maritime Administrator provided that such information so 
incorporated shall have been furnished at least in triplicate.
    3. If any information called for by an applicable item is not 
furnished, and explanation of the omission shall be given. The applicant 
may furnish such relevant information as it may desire, in addition to 
that specified in the form.
    4. Any additional information called for by the Maritime 
Administrator from time to time shall be furnished as an amendment or 
amendments to the application. The original and 11 copies of each 
amendment shall be filed, shall refer to the application, and shall be 
identified as an amendment and dated. Without any specific request from 
the Maritime Administrator the applicant shall file from time to time as 
amendments any information necessary to keep the information contained 
therein or furnished in connection therewith current and correct while 
the application is pending.

    (c) Fee. Each such application shall be accompanied by the sum of 
$225, which sum will be retained to recover the cost of processing the 
application.

(Approved by the Office of Management and Budget under control number 
2133-0032)

[G.O. 38, 2d Rev., 30 FR 7215, May 29, 1965, as amended by Amdt. 1, 31 
FR 3397, Mar. 4, 1966; 47 FR 25530, June 14, 1982]



Sec. 287.5  Tentative authorization to establish fund.

    Where the time between the receipt by the Administration of the 
application for permission to establish a construction reserve fund and 
the date prior to which an amount received from the sale or loss of a 
vessel must be deposited to come within the scope of section 511 of the 
Act is insufficient to permit a determination of the eligibility of the 
applicant, the Administration may tentatively authorize the 
establishment of a construction reserve fund and the deposit of such 
amount therein. Such tentative authorization shall be subject to 
rescission by the Administration if subsequently it is determined that 
the applicant is not entitled to the benefits of section 511 of the Act, 
or has not complied with the statutory requirements. For example, a 
tentative authorization will be rescinded if the Administration 
ascertains that the applicant is not a citizen. Upon such determination, 
the fund shall be closed and all amounts on deposit therein shall be 
withdrawn.



Sec. 287.6  Establishment of fund.

    (a) Authorization by the Administration. If the application is 
approved by the Administration, the Administration will adopt Orders 
authorizing the establishment of a construction reserve fund with the 
depository or depositories designated by the taxpayer and approved by 
the Administration. The Orders will provide for joint control by the 
Administration and the taxpayer over such fund, will set forth the 
conditions governing the establishment and maintenance of the fund and 
the making of deposits therein and withdrawals therefrom, and will 
designate the representatives authorized to execute instruments of 
withdrawal on behalf of the Administration.
    (b) Resolution or agreement of the taxpayer. A certified copy of the 
Orders of the Administration will be furnished the taxpayer. If the 
taxpayer is a corporation, it shall promptly adopt, through its board of 
directors, a resolution satisfactory in form and substance to the 
Administration, authorizing the establishment and maintenance of the 
fund in conformity with the action of the Administration. If the 
taxpayer is not a corporation, it shall promptly execute an agreement 
with the depository satisfactory in form and substance to the 
Administration to conform to the action of the Administration as set 
forth in the Orders. Certified copies of the Orders of the 
Administration and of the resolution of the taxpayer (if it is a 
corporation) will be furnished to the depository by the Administration 
and the taxpayer, respectively, for its guidance in maintaining the fund 
and honoring instruments of withdrawal. The taxpayer, if a corporation, 
shall also furnish the Administration with a certified copy of its 
resolution, or if not a corporation a duplicate original of its 
agreement with the depository.

    Note: The resolutions referred to in this section shall be retained 
2 years after a final

[[Page 144]]

release or settlement agreement is completed between the Maritime 
Administration/Maritime Subsidy Board and the taxpayer.

    (c) Constructive action not recognized. Constructive deposits, 
substitutions or withdrawals will not be recognized by the 
Administration in the establishment and maintenance of the fund.
    (d) Failure to make deposits as basis for termination of fund. In 
the event no deposit is made into the fund for more than five years, any 
amounts remaining in the fund shall be removed from the fund at the 
discretion of the Administration and, if so removed, the fund shall be 
terminated. In the event of such termination, see Sec. 287.23 for 
recognition of gain.



Sec. 287.7  Circumstances permitting reimbursement from a construction reserve fund.

    (a) Payments prior to establishment of fund. If, prior to the 
establishment of a construction reserve fund under the regulations in 
this part, a taxpayer has made necessary payments under a contract which 
satisfies the provisions of the regulations in this part and section 511 
of the Act for the construction or acquisition of a new vessel, such 
taxpayer may, if subsequently authorized to establish a construction 
reserve fund under the regulations in this part, draw against such fund 
as reimbursement for the amount, if any, of other funds which, with the 
approval or ratification of the Administration, the taxpayer used for 
making such necessary payments prior to the establishment of the fund.
    (b) Payments subsequent to establishment of fund. If, subsequent to 
the establishment of a construction reserve fund under the regulations 
in this part, the taxpayer has made necessary payments under a contract 
which satisfies the provisions of the regulations in this part and 
section 511 of the Act for the construction or acquisition of a new 
vessel, such taxpayer may draw against such fund as reimbursement for 
the amount, if any, of other funds which, with the approval or 
ratification of the Administration, the taxpayer had used for the 
purpose of making such necessary payments.



Sec. 287.8  Investment of funds in securities.

    (a) Obligations of or guaranteed by the United States. Interest-
bearing direct obligations of the United States, or obligations fully 
guaranteed as to principal and interest by the United States may be 
deposited in the construction reserve fund in lieu of cash, may be 
purchased with cash on deposit in the fund, or may be substituted for 
securities or commitment to finance in the fund, subject to the 
provisions of paragraph (b) of this section.
    (b) Other securities. In cases where the taxpayer desires to deposit 
any securities in the fund in lieu of cash other than those of or 
guaranteed by the United States or to purchase such other securities 
with cash on deposit in the fund, or to substitute such other securities 
for securities or commitment to finance in the fund, the taxpayer shall 
make written application to the Administration and shall not consummate 
the transaction until the written consent of the Administration shall 
have been received. The application shall describe the securities fully. 
Every approval by the Administration of such application shall be 
conditioned upon agreement by the taxpayer forthwith to dispose of such 
securities upon subsequent request by the Administration. Immediately 
upon the purchase of any securities for deposit in the fund, the 
taxpayer shall advise the Administration, giving the date of purchase, a 
description of the securities, and the price paid therefor (net, 
brokerage and other charges, and gross). Ordinarily, the Administration 
will not approve the deposit in the fund in lieu of cash, or the 
purchase with cash on deposit in the fund or the substitution for 
securities in the fund of securities not actively traded in on exchanges 
registered under the Securities Exchange Act of 1934 (15 U.S.C. Chapter 
2B), or securities which are not legal for investment of trust funds. 
Whenever the Administration approves the substitution of other 
securities for securities in the fund, such substitution shall be 
effected only upon or after the deposit of the substituted securities 
into the fund.

[[Page 145]]

    (c) Cash. Cash may be substituted for amounts which are on deposit 
in the fund in any other form.
    (d) Devalued securities. In the event the Administration determines 
that the market value at any date of any securities in the fund has 
decreased to a figure which is less than 90 percent of the market value 
at the time of deposit into the fund, then within 60 days after the 
taxpayer receives notice of such determination the taxpayer shall 
(except as otherwise provided in this paragraph) deposit into the fund 
cash or securities in an amount equal to the difference between the 
current market value of the devalued securities and the market value of 
such securities at the time of their original deposit. However, if any 
securities in the fund are valued at the time of their deposit at less 
than the market value of such securities at the time of their deposit 
the taxpayer shall be required to deposit only an amount equal to that 
portion of the difference between the current market value of the 
devalued securities and the market value of such securities at the time 
of their original deposit which bears the same ratio to such total 
difference as the amount at which the securities were valued at the time 
of their deposit bears to the market value at the time of such deposit.



Sec. 287.9  Valuation of securities in fund.

    (a) Equipment values. In cases where securities are deposited in the 
fund in lieu of cash, or are purchased with cash on deposit in the fund, 
or are substituted for securities in the fund, the value of such 
securities must not be less than the amount of cash in lieu of which 
they are so deposited or with which they are so purchased, or the value 
at the time of deposit of the securities for which they were so 
substituted. If the securities on deposit in the fund are replaced by 
cash from the general funds of the taxpayer, the amount of cash to be 
deposited in the fund in lieu thereof shall be not less than the amount 
at which such securities were valued at the time of their deposit in the 
fund.
    (b) Determination of value. (1) For the purpose of determining the 
amount in the fund, the value of securities shall be their ``market 
value'' (which shall be the basis for determining value, unless 
otherwise agreed to by the administration) and shall be determined in 
the following manner:
    (i) In instances where no actual purchase is involved, such as the 
initial deposit of securities in the fund in lieu of cash, the last 
sales price thereof on the principal exchange on the day the deposit was 
made shall be deemed to be the ``market value'' thereof, or, if no such 
sales were made, the ``market value'' thereof will be determined by the 
Administration on such basis as it may deem to be fair and reasonable in 
each case.
    (ii) In instances where the purchase of securities with cash on 
deposit in the fund is involved, ``market value'' shall be the gross 
price paid (adjusted for accrued interest); Provided, That if such 
securities are purchased otherwise than upon a registered exchange the 
price shall be within the range of transactions on the exchange on the 
date of such purchase, or, if there were no such transactions, then the 
``market value'' thereof will be determined by the Administration on 
such basis as it may deem to be fair and reasonable in each case.
    (2) Purchase-money obligations secured by mortgages on vessels sold 
or irrevocable commitments to finance the construction or acquisition of 
new vessels which are deposited in the construction reserve fund as 
provided in Sec. 287.13 ordinarily will be considered as equivalent to 
their face value.



Sec. 287.10  Withdrawals from fund.

    (a) Withdrawals for obligations or liquidation. (1) Checks, drafts, 
or other instruments of withdrawal to meet obligations under a contract 
for the construction or acquisition of new vessel or vessels or for the 
liquidation of existing or subsequently incurred purchase-money 
indebtedness, after having been executed by the taxpayer, shall be 
forwarded to the Administration in Washington, DC, with appropriate 
explanation of the purpose of the proposed withdrawal, including 
properly certified invoices or other supporting papers. Such instruments 
of withdrawal, if payable to the Administration, will be deposited by 
the Administration for collection, and the proceeds

[[Page 146]]

thereof, upon collection, will be credited to the appropriate contract 
with the Administration; but if drawn to the order of payees other than 
the Administration, after countersignature on behalf of the 
Administration, will ordinarily be forwarded to the payees.
    (2) An amount obligated under a contract for the construction or 
acquisition of a new vessel or vessels or for the liquidation of 
existing or subsequently incurred purchase-money indebtedness, whether 
the obligor has the entire or a partial interest therein within the 
scope of section 511 of the Act, may not, so long as the contract or 
indebtedness continues in full force and effect, be withdrawn except to 
meet payments due or to become due under such contract or for such 
liquidation.
    (b) Other withdrawals. Checks, drafts, or other instruments of 
withdrawal executed by the taxpayer for purposes other than to meet 
obligations under a contract for the construction or acquisition of a 
new vessel or vessels or for the liquidation of existing or subsequently 
incurred purchase-money indebtedness, whether the taxpayer has the 
entire or a partial interest therein, shall be drawn by the taxpayer to 
its own order and forwarded to the Administration in Washington, DC, 
with appropriate explanation of the purpose of the proposed withdrawal. 
Such withdrawals may occur by reason of a determination by the 
Administration that the taxpayer is not entitled to the benefits of 
section 511 of the Act (see Sec. 287.5), or that a particular deposit 
has been improperly made (see Sec. 287.13), or by reason of the election 
of the taxpayer to make such withdrawals. Upon receipt of such checks, 
drafts, or other instruments of withdrawal, the Administration will give 
notice thereof to the Commissioner of Internal Revenue. The Commissioner 
will advise the Administration of the receipt of the notice and the date 
it was received. The Administration shall not countersign such checks, 
drafts, or other instruments of withdrawal or transmit them to the 
taxpayer until the expiration of 30 days from the date of receipt of the 
notice by the Commissioner, unless the Commissioner or such official of 
the Internal Revenue Service as he may designate for the purpose 
consents in writing to earlier countersignature by the Administration 
and transmittal to the taxpayer. Upon the expiration of such 30-day 
period, or prior thereto if the aforesaid consent of the Commissioner 
has been obtained, the Administration will countersign the check, draft, 
or other instrument of withdrawal and forward it to the taxpayer.
    (c) Inapplicability to certain transactions. The provisions of this 
section shall not be applicable to transactions deemed to be withdrawals 
by reason of the sale of securities held in the fund for an amount less 
than the market value thereof at the time of their deposit (see 
Sec. 287.23), nor to the cancellation of an irrevocable commitment 
deposited in the fund, upon proof satisfactory to the Administration 
that the terms of such commitment have been fully satisfied.



Sec. 287.11  Time deposits.

    Deposits in the construction reserve fund not invested in securities 
may be placed in time deposits when, in the judgment of the taxpayer, it 
is desirable and feasible so to do. The taxpayer shall promptly advise 
the Administration of any time deposit arrangements made with the 
depository. The Administration reserves the right at any time to require 
the termination or modification of any such arrangements. With prior 
approval of the Administration a time deposit may be made in a 
depository other than the one with which the construction reserve fund 
is established.



Sec. 287.12  Election as to nonrecognition of gain.

    (a) Election requirements. As a prerequisite to the nonrecognition 
of gain on the sale or loss of a vessel (or of a part interest therein) 
for Federal income tax purposes, the taxpayer, after establishing a 
construction reserve fund, must make an election with respect to such 
vessel or interest in the manner set forth in this paragraph.
    (1) In general. Except as provided in paragraph (a)(2) of this 
section, the election must be made in the taxpayer's Federal income tax 
return (or, in the case of a partnership, in the partnership return of 
income) for the

[[Page 147]]

taxable year in which the gain with respect to the sale or loss of the 
vessel is realized. The election as to the nonrecognition of gain shall 
be shown by a statement to that effect, submitted as a part of, and 
attached to, the return. The statement, which need not be on any 
prescribed form, shall set forth a computation of the amount of the 
realized gain, the identity of the vessel, the nature and extent of the 
taxpayer's interest therein, whether such vessel was sold or lost and 
the date of sale or loss, the full sale price or full amount of 
indemnity, and the amount and date of each payment thereof, the basis of 
tax purposes and any other data affecting the determination of the 
realized gain.
    (2) Certain Government payments. In case a vessel is purchased or 
requisitioned by the United States, or is lost, in any taxable year and 
the taxpayer receives payment for the vessel so purchased or 
requisitioned, or receives from the United States indemnity on account 
of such loss, subsequent to the end of such taxable year, the taxpayer 
shall make his election by filing notice thereof with the Commissioner 
of Internal Revenue, Washington, DC, 20224, prior to the expiration of 
60 days after receipt of the payment or indemnity. The taxpayer shall 
file a copy of the notice with the Secretary, Maritime Administration, 
Washington, DC, 20590. The form of the notice of election shall be 
prepared by the taxpayer and shall be substantially as follows:

  Election Relative to Nonrecognition of Gain Under Section 511(c)(2), 
                        Merchant Marine Act, 1936

    Pursuant to the provisions of section 511(c)(2) of the Merchant 
Marine Act, 1936, as amended, notice is hereby given that the 
undersigned taxpayer elects that gain in respect of the sale to the 
United States, or indemnification received from the United States on 
account of the loss, of the vessel named below or share therein shall 
not be recognized. The circumstances involved in the computation of such 
gain are as follows:

Name and other identification of vessel_________________________________

Nature and extent of the taxpayer's interest in the vessel______________

Nature of disposition, i.e., sale or loss_______________________________

Date of disposition_____________________________________________________

Full sale price or full amount of indemnity received by taxpayer________

Amount and date of each payment of sale price or indemnity received by 
taxpayer________________________________________________________________

Amount and date of each previous deposit of such payments in 
construction reserve fund_______________________________________________

Identification of each check or other instrument by which payment made 
to taxpayer_____________________________________________________________

Tax basis of taxpayer's interest in vessel______________________________

Any other data affecting the determination of the realized gain_________

Amount of gain (submit computation)_____________________________________

          ______________________________________________________________
                                                      (Name of taxpayer)
          By____________________________________________________________
(Date of execution)_____________________________________________________



Sec. 287.13  Deposit of proceeds of sales or indemnities.

    (a) Manner of deposit. The deposit required by section 511 of the 
Act must be made in a construction reserve fund established with a 
depository or depositories approved by the Administration and subject to 
the joint control of the Administration and the taxpayer. It is not 
necessary to establish a separate fund with respect to each vessel or 
share in a vessel sold or lost.
    (b) Amount of deposit. With respect to any vessel sold or lost, or a 
share therein, the deposit must be in an amount equal to the ``net 
proceeds'' of the sale, or the ``net indemnity'' for the loss. By ``net 
proceeds'' and ``net indemnity'' is meant (1) the depositor's interest 
in the adjusted basis of the vessel plus (2) the amount of gain which 
would be recognized for tax purposes in the absence of section 511 of 
the Act. In determining ``net proceeds'', the amount necessarily paid or 
incurred for brokers' commissions is to be deducted from the gross 
amount of the sales price. In the event the taxpayer is an affiliate or 
associate of the buyer, the amount of the sales price shall not exceed 
the fair market value of the vessel or vessels sold as determined by the 
Administration. In such case the taxpayer shall furnish evidence 
sufficient, in the opinion of the Administration, to establish that the 
sales price is not in excess of the fair

[[Page 148]]

market value. In determining ``net indemnity'', the amount necessarily 
paid or incurred purely for collection, or rate of exchange discounts on 
the payment, of the indemnity is to be deducted from the gross amount of 
collectible indemnity. In case of the sale or loss of several vessels or 
share therein, a deposit of the ``net proceeds'' or ``net indemnity'' 
with respect to one or more of the vessels or shares is permissible. 
Where several vessels or shares are sold for a lump sum, the ``net 
proceeds'' allocated to each vessel or share shall be determined in 
accordance with any reasonable rule satisfactory to the Commissioner of 
Internal Revenue. The taxpayer must deposit the full amount of each 
payment (including cash, notes, or other evidences of indebtedness) as a 
single deposit in the construction reserve fund. A payment divided 
between two or more depositories will be regarded as a single deposit. 
Amounts received by the taxpayer prior to the date of consummation of 
the sale of the vessel shall be considered as having been received by 
the taxpayer at the time the sale is consummated.
    (c) Purchase-money obligations. Where the proceeds from the sale of 
a vessel include purchase-money obligations, such obligations together 
with the entire collateral therefor, or, in the case of deposit of the 
proceeds of a share in the vessel, a proportionate part of the 
obligations and collateral as determined by the Administration, shall be 
deposited, with the remainder of the proceeds, in the construction 
reserve fund as a part of the ``net proceeds''. The depository shall 
receive payment of all amounts due on such purchase-money obligations 
and such amounts shall be placed in the fund in substitution for the 
portion of the obligations paid. All installments of purchase-money 
obligations shall be paid directly into the fund by the obligor. In the 
event any such installment is not so deposited, the Administration, at 
any time after the due date, may require the taxpayer to deposit an 
amount equal to such installment. If the taxpayer so desires, he may 
deposit in the construction reserve fund cash or approved securities in 
an amount equal to the face value of any purchase-money obligations in 
lieu of depositing such obligations.
    (d) Vessel subject to mortgage at time of sale or loss. Where a 
vessel is subject to a mortgage or other encumbrance at the time of its 
sale or loss and the taxpayer actually receives only an amount 
representing the equity therein or a share in such equity corresponding 
to his share in the vessel, he shall deposit in the construction reserve 
fund such amount and concurrently therewith other funds in an amount 
equal to the difference between the amount received and the ``net 
proceeds'' or ``net indemnity''. Such other funds may be in the form of 
cash, or, subject to the approval of the Administration, (1) interest-
bearing securities, or (2) an irrevocable and unconditional commitment 
to finance the construction or acquisition of a new vessel in whole or 
in part by an obligor approved by the Administration in an amount equal 
to the amount by which the ``net proceeds'' exceed the cash or 
securities deposited in the fund.
    (e) Unauthorized deposits. A deposit which is not provided for by 
section 511 of the Act shall, without unreasonable delay, be withdrawn 
from the fund and tax liability will be determined as though such 
deposit had not been made. (See Secs. 287.10 and 287.24.)



Sec. 287.14  Deposit of earnings and receipts.

    (a) Earnings. A citizen may deposit all or any part of earnings 
derived from the operation, within the scope of Sec. 287.3, of a vessel 
or vessels owned either by himself or any other person, if such earnings 
are intended for construction or acquisition of new vessels. Such 
earnings may include payments received by an owner, as compensation for 
use of his vessel, from other persons by whom it is so operated. 
Earnings from other sources may not be deposited. The earnings from 
operation of vessels which are eligible for deposit are the net earnings 
determined without regard to any deduction for depreciation, 
obsolescence, or amortization with respect to such vessels.
    (b) Receipts. Receipts from deposited funds, in the form of interest 
or otherwise, may be deposited.

[[Page 149]]



Sec. 287.15  Time for making deposits.

    (a) Proceeds of sale or indemnification. Deposits of amounts 
representing proceeds of the sale or indemnification for loss of a 
vessel or share therein must be made within 60 days after receipt by the 
taxpayer.
    (b) Earnings and receipts. Earnings and receipts for the taxable 
year may be deposited at any time. (See Sec. 287.14.)



Sec. 287.16  Tax liability as to earnings deposited.

    Deposit in the construction reserve fund of earnings from the 
operation of a vessel or vessels, or receipts, in the form of interest 
or otherwise, with respect to amounts previously deposited does not 
exempt the taxpayer from tax liability with respect thereto nor postpone 
the time such earnings or receipts are includible in gross income. 
Earnings and receipts deposited in a construction reserve fund 
established in accordance with the provisions of section 511 of the Act 
and the regulations in this part will be deemed to have been accumulated 
for the reasonable needs of the business within the meaning of part 1 
(section 531 and following), subchapter G, chapter 1 of the Internal 
Revenue Code of 1954, so long as the requirements of section 511 of the 
Act and the regulations in this part are satisfied relative to the use 
of the fund in the construction, reconstruction, reconditioning, or 
acquisition of new vessels, or for the liquidation of purchase-money 
indebtedness on such vessels. For incurrence of tax liability due to 
noncompliance with the requirements of section 511 of the Act and the 
regulations in this part with respect to deposits in the construction 
reserve fund, see the provisions of Sec. 287.23.



Sec. 287.17  Basis of new vessel.

    The basis for determining gain or loss and for depreciation for the 
purpose of the Federal income tax with respect to a new vessel 
constructed, reconstructed, reconditioned, or acquired by the taxpayer, 
or with respect to which purchase-money indebtedness is liquidated as 
provided in section 511(g) of the Act, with funds deposited in the 
construction reserve fund, is reduced by the amount of the unrecognized 
gain represented in the funds allocated under the provisions of the 
regulations in this part to the cost of such vessel. (See Sec. 287.18.)



Sec. 287.18  Allocation of gain for tax purposes.

    (a) General rules of allocation. As provided in Sec. 287.17, if 
amounts on deposit in a construction reserve fund are expended, 
obligated, or withdrawn for construction, reconstruction, 
reconditioning, or acquisition of new vessels, or for the liquidation of 
purchase-money indebtedness of such vessels, the portion thereof which 
represents gain shall be applied in reduction of the basis of such new 
vessels. The rules set forth below in this paragraph shall apply in 
allocating the unrecognized gain to the amounts so expended, obligated, 
or withdrawn:
    (1) If the ``net proceeds'' of a sale or ``net indemnity'' in 
respect of a loss are deposited in more than one deposit, the portion 
thereof representing unrecognized gain shall be considered as having 
been deposited first.
    (2) Amounts expended, obligated, or withdrawn from the construction 
reserve fund shall be applied against amounts deposited in the order of 
deposit.
    (3) If any deposit consists in part of gain not recognized under 
section 511(c) of the Act, then any expenditure, obligation, or 
withdrawal applied against such deposit shall be considered to consist 
of gain in the same proportion that the part of the deposit which 
constitutes gain bears to the total amount of the deposit.
    (b) Date of obligation. The date funds are obligated under a 
contract for the construction, reconstruction, reconditioning, or 
acquisition of new vessels, or for the liquidation of purchase-money 
indebtedness on such vessels, rather than the date of payment from the 
fund, will determine the order of application against the deposits in 
the fund. When a contract for the construction, reconstruction, 
reconditioning, or acquisition of new vessels, or for the liquidation of 
purchase-money indebtedness on such vessels is entered into, amounts on 
deposit in the construction reserve fund will be deemed to be obligated 
to the extent of the amount of

[[Page 150]]

the taxpayer's liability under the contract. Deposits will be deemed to 
be so obligated in the order of deposit, each new contract obligating 
the earliest deposit not previously expended, obligated, or withdrawn. 
If the liability under the contract exceeds the amount in the 
construction reserve fund, the contract will be deemed to obligate, to 
the extent of that part of such excess not otherwise satisfied, the 
earliest deposit or deposits thereafter made.
    (c) Illustration. The foregoing rules are illustrated in the 
following example:

    Example.  (1) A taxpayer who makes his returns on the calendar year 
basis sells a vessel in 1963 for $1,000,000, realizing a gain of 
$400,000. Payment of $100,000 is received in March 1963 when the 
contract is signed, and the balance of $900,000 is received in June 1963 
on delivery of the vessel. The $1,000,000 is deposited in a construction 
reserve fund in July 1963. In December 1963, the taxpayer also deposits 
$150,000, representing earnings of that year. In 1964, he sells another 
vessel for $1,000,000, realizing a gain of $250,000. The sale price of 
$1,000,000 is received on delivery of the vessel in February 1964, and 
deposited in the construction reserve fund in March 1964. In September 
1964, the taxpayer purchases for cash out of the construction reserve 
fund a new vessel for $1,750,000. To the cost of this vessel must be 
allocated the 1963 deposits of $1,150,000 and $600,000 of the March 1964 
deposit. This leaves in the fund $400,000 of the March 1964 deposit. The 
amount of the unrecognized gain to be applied against the basis of the 
new vessel is $550,000, computed as follows: Gain of $400,000 
represented in the 1963 deposits, plus the same proportion of the 
$250,000 gain represented in the March 1964 deposit ($1,000,000) which 
the amount ($600,000) allocated to the vessel is of the amount of the 
deposit, i.e., $400,000 plus 600,000/1,000,000 of $250,000 or $150,000, 
a total of $550,000. This reduces the basis of the new vessel to 
$1,200,000 ($1,750,000 less $550,000).
    (2) In 1965, the taxpayer sells a third vessel for $3,000,000, 
realizing a gain of $900,000. The $3,000,000 is received and deposited 
in the construction reserve fund in June 1965, making a total in the 
fund of $3,400,000. In December 1965, the taxpayer contracts for the 
construction of a second new vessel to cost a maximum of $3,200,000, 
thereby obligating that amount of the fund, and in June 1966, receives 
permission to withdraw the unobligated balance amounting to $200,000. To 
the cost of the second new vessel must be allocated the $400,000 balance 
of the March 1964 deposit and $2,800,000 of the June 1965 deposit. The 
unrecognized gain to be applied against the basis of such new vessel is 
that proportion of the gain represented in each deposit which the 
portion of the deposit allocated to the vessel bears to the amount of 
such deposit, i.e., 400,000/1,000,000 of $250,000, or $100,000 plus 
2,800,000/3,000,000 of $900,000, or $840,000 making a total of $940,000. 
The $200,000 withdrawal is applied against the June 1965 deposit and the 
portion thereof which represents gain will be recognized as income for 
1965, the year in which realized. The computation of the recognized gain 
is as follows: 200,000/3,000,000 of $900,000, or $60,000.



Sec. 287.19  Requirements as to new vessels.

    (a) Requirements. For the purposes of section 511 of the Act and the 
regulations in this part, the new vessel must be--
    (1) Documented under the laws of the United States when it is 
acquired by the taxpayer, or the taxpayer must agree that when acquired 
it will be documented under the laws of the United States;
    (2)(i) Constructed in the United States after December 31, 1939, or 
(ii) its construction has been financed under Title V or Title VII of 
the Act, or (iii) its construction has been aided by a mortgage insured 
under Title XI of the Act; and
    (3) Either (i) of such type, size, and speed as the Administration 
determines to be suitable for use on the high seas or Great Lakes in 
carrying out the purposes of the Act, but of not less than 2,000 gross 
tons or of less speed than 12 knots, except that a particular vessel may 
be of lesser tonnage or speed if the Administration determines and 
certifies that the particular vessel is desirable for use by the United 
States in case of war or national emergency, or (ii) constructed to 
replace a vessel or vessels requisitioned or purchased by the United 
States, in which event it must be of such type, size, and speed as to 
constitute a suitable replacement for the vessel requisitioned or 
purchased, but if a vessel already built is acquired to replace a vessel 
or vessels requisitioned or purchased by the United States, such vessel 
must meet the requirements set forth in paragraph (a)(3)(i) of this 
section. Ordinarily, under paragraph (a)(3)(i) of this section, a vessel 
constructed more than

[[Page 151]]

five years before the date on which deposits in a construction reserve 
fund are to be expended or obligated for acquisition of such vessel will 
not be considered suitable for use in carrying out the purpose of the 
Act, except that the five-year age limitation provided above in this 
sentence shall not apply to a vessel to be reconstructed before being 
placed in operation by the taxpayer.
    (b) Time of construction. A vessel will be deemed to be constructed 
after December 31, 1939, only if construction was commenced after that 
date. Subject to the provisions of this section, a new vessel may be 
newly built for the taxpayer, or may be acquired after it is built.
    (c) Replacement of vessels. It is not necessary that vessels shall 
be replaced vessels for vessel. The new vessels may be more or less in 
number than the replaced vessels, provided the other requirements of 
this section are met.



Sec. 287.20  Obligation of deposits.

    (a) Time for obligation. Within three years from the date of any 
deposit in a construction reserve fund, unless extension is granted as 
provided in Sec. 287.22, such deposit must be obligated under a contract 
for the construction or acquisition of a new vessel or vessels (or in 
the discretion of the Administration for a share therein), with not less 
than 12\1/2\ percent of the construction or contract price of the entire 
vessel or vessels actually paid or irrevocably committed on account 
thereof or must be expended or obligated for the liquidation of existing 
or subsequently incurred purchase-money indebtedness to persons other 
than a parent company of, or a company affiliated or associated with, 
the mortgagor on a new vessel or vessels. Amounts on deposit in a 
construction reserve fund will be deemed to be obligated for expenditure 
when a binding contract of construction or acquisition has been entered 
into or when purchase-money indebtedness has been incurred and, if 
obligated under a contract of construction or acquisition, will be 
deemed to be irrevocably committed when due and payable in accordance 
with the terms of the contract of construction or acquisition.
    (b) Requirements for obligation. Unless otherwise authorized by the 
Administration, contracts for the construction of new vessels must be 
for a fixed price, or provide for a base price that may be adjusted for 
changes in labor and material costs not exceeding 15 percent of the base 
price. The fixed or base price, as the case may be, shall be fair and 
reasonable as determined by the Maritime Administration. Any financial 
or other interests between the taxpayer and the contractor shall be 
disclosed to the Administration by the taxpayer. Plans and 
specifications for the new vessel or vessels must be approved by the 
Administration to the extent it deems necessary. A deposit in a 
construction reserve fund may be expended or obligated for expenditure 
for procurement under an acquisition or construction contract of a part 
interest in a new vessel or vessels only after obtaining the written 
consent of the Administration. The granting of such consent shall be 
entirely in the discretion of the Administration and it may impose such 
conditions with respect thereto as it may deem necessary or advisable 
for the purpose of carrying out the provisions of section 511 of the 
Act. Applications for such consent shall be executed in triplicate, and, 
together with eight conformed copies thereof, filed with the 
Administration.



Sec. 287.21  Period for construction of certain vessels.

    A new vessel constructed otherwise than under the provisions of 
Title V of the Act, and not purchased from the Administration must, 
within six months from the date of the construction contract, or within 
the period of any extension, be completed to the extent of not less than 
5 percent as estimated by the Administration and certified by it to the 
Secretary of the Treasury. In case of a contract covering more than one 
vessel it will be sufficient if one of the vessels is 5 percent 
completed within the six months' period from the date of the contract or 
within the period of any extension, and so certified. All construction 
must be completed with reasonable dispatch as determined by the 
Administration. If, for causes within the control of the taxpayer, the 
entire construction is

[[Page 152]]

not completed with reasonable dispatch, the Administration will so 
certify to the Secretary of the Treasury. For the effect of such 
certification, see Sec. 287.23.



Sec. 287.22  Time extensions for expenditure or obligation.

    (a) Extensions. The Administration, upon application and a showing 
of proper circumstances, (1) may allow an extension of time within which 
deposits shall be expended or obligated, not to exceed one year, and 
upon a second application received before the expiration of the first 
extension, may allow an additional extension not to exceed one year, and 
(2) may allow an extension or extensions of time within which five 
percent of the construction shall have been completed as provided in 
Sec. 287.21 not to exceed one year in the aggregate, and (3) may allow 
any other extensions that may be provided by amendment to the Act.
    (b) Application required. A taxpayer seeking an extension of time 
shall make application therefor, and transmit it with an appropriate 
statement of the circumstances, including the reasons justifying the 
requested extension or extensions, and appropriate documents in 
substantiation of the statement, to the Administration. The 
Administration will notify the Commissioner of Internal Revenue of any 
extension granted. In case an application for extension is denied, the 
taxpayer will be liable for delay as though no application had been 
made.



Sec. 287.23  Noncompliance with requirements.

    (a) Noncompliance. The amount of the gain which is that portion of 
the construction reserve fund otherwise constituting taxable income 
under the law applicable to the taxable year in which such gain was 
realized shall be included in the taxpayer's gross income for such 
taxable year for income or excess-profits tax purposes, if:
    (1) A portion of such fund is withdrawn for purposes other than--
    (i) The construction, reconstruction, reconditioning, or acquisition 
of a new vessel; or
    (ii) The liquidation of existing or subsequently incurred purchase-
money indebtedness to persons other than a parent company of, or a 
company affiliated or associated with, the mortgagor on a new vessel or 
vessels; or
    (2) The taxpayer fails to comply with the requirements of section 
511 of the Act or the regulations in this part relating to the 
utilization of construction reserve funds in the construction, 
reconstruction, reconditioning, or acquisition of a new vessel, or the 
liquidation of purchase-money indebtedness on such a vessel.

If securities on deposit in a construction reserve fund are sold and the 
amount placed in the fund in lieu thereof is less than the value of the 
securities at the time of their deposit, the difference between such 
market value and the amount placed in the fund in lieu of the securities 
will be deemed to have been withdrawn. With respect to the substitution 
of new financing in the case of an irrevocable commitment, see paragraph 
(d) of Sec. 287.13.
    (b) Amount recognized. In the event of noncompliance with the 
prescribed conditions relative to any contract for construction, 
reconstruction, reconditioning, or acquisition of new vessels, or for 
the liquidation of purchase-money indebtedness on such vessels, 
recognition will extend to the entire amount of the gain represented in 
that portion of the construction reserve fund obligated under such 
contract. Thus, if the Administration determines and certifies to the 
Secretary of the Treasury that for causes within the control of the 
taxpayer construction under a contract is not completed with reasonable 
dispatch, the entire amount of the gain represented in the portion of 
the construction reserve fund obligated under the contract will be 
recognized even though all other conditions have been satisfied. In case 
of noncompliance with the requirements of section 511 of the Act or the 
regulations in this part, see the provisions of Sec. 287.18 as to the 
allocation of gain.
    (c) Unreasonable accumulation. Noncompliance with the provisions of 
section 511 of the Act or the regulations in this part relative to the 
utilization of the deposited amounts may also, inasmuch as the provision 
of section 511(f) of the Act is then inapplicable, warrant

[[Page 153]]

an examination to ascertain whether such amounts constitute an 
unreasonable accumulation of earnings and profits within the meaning of 
part I (section 531 and following), subchapter G, chapter 1 of the 
Internal Revenue Code of 1954, or corresponding provisions of prior law. 
If amounts are deposited and the fund maintained in good faith for the 
purpose of construction, reconstruction, reconditioning, and acquisition 
of new vessels, or for the liquidation of purchase-money indebtedness on 
such vessels, such amounts will be deemed to have been accumulated for 
the reasonable needs of the business.



Sec. 287.24  Extent of tax liability.

    (a) Declared value excess-profits tax. Gain which is includible in 
gross income under Sec. 287.23 shall be included in gross income for all 
income and excess-profits tax purposes, but not for the purposes of the 
declared value excess-profits tax and the capital stock tax as provided 
in section 511(i) of the Act. In lieu of any adjustment with respect to 
such declared value excess-profits tax, there is imposed for any taxable 
year ending on or before June 30, 1945, in which the gain is realized an 
additional tax of 1.1 percent of the amount of the gain. No additional 
capital stock tax liability is incurred.
    (b) Improper deposits. In the case of deposits in the construction 
reserve fund of amounts derived from sources other than those specified 
in section 511 of the Act, or in the case of failure to deposit an 
amount equal to the ``net proceeds'' or ``net indemnity'' within the 
period prescribed in section 511(c) of the Act and Sec. 287.15, the 
taxpayer obtains no suspension or postponement of any tax liability and 
the tax is collectible without regard to the provisions of section 
511(c) of the Act.
    (c) Time for filing claim subsequent to election under section 
511(c)(2). If an election is made under section 511(c)(2) of the Act, 
and paragraph (a)(2) of Sec. 287.12, and if computation or recomputation 
in accordance therewith is otherwise allowable but is prevented, on the 
date of filing of notice of such election, or within six months 
thereafter, by any statute of limitation, such computation or 
recomputation nevertheless shall be made notwithstanding such statute if 
a claim therefor is filed within six months after the date of making 
such election. If as the result of such computation or recomputation an 
overpayment is disclosed, a claim for refund on Form 843 should also be 
filed within such six months' period.



Sec. 287.25  Assessment and collection of deficiencies.

    Any additional tax, including the 1.1 percent amount imposed by 
section 511(i) of the Act, due on account of withdrawal from a 
construction reserve fund, or failure to comply with section 511 of the 
Act or the regulations in this part, is collectible as a deficiency. 
Interest upon such deficiency will run from the date the withdrawal or 
noncompliance occurs. The amount of any deficiency, including interest 
and additions to the tax, determined as a result of such withdrawal or 
noncompliance, may be assessed, or a proceeding in court for the 
collection thereof may be begun without assessment, at any time and 
without regard to any period of limitations or any other provisions of 
law or rule of law, including the doctrine of res judicata.



Sec. 287.26  Reports by taxpayers.

    (a) Information required. With each income tax return filed for a 
taxable year during any part of which a construction reserve fund is in 
existence the taxpayer shall submit a statement setting forth a detailed 
analysis of such fund. The statement, which need not be on any 
prescribed form, shall include the following information with respect to 
the construction reserve fund:
    (1) The actual balance in the fund at the beginning and end of the 
taxable year;
    (2) The date, amount, and source of each deposit during the taxable 
year;
    (3) If any deposit referred to in paragraph (a)(2) of this section 
consists of proceeds from the sale, or indemnification of loss, of a 
vessel or share thereof, the amounts of the unrecognized gain;
    (4) The date, amount, and purpose of each expenditure or withdrawal 
from the fund; and
    (5) The date and amount of each contract, under which deposited 
funds are

[[Page 154]]

deemed to be obligated during the taxable year, for the construction, 
reconstruction, reconditioning, or acquisition of new vessels, or for 
the liquidation of purchase-money indebtedness on such vessels, and the 
identification of such vessels.
    (b) Records required. Taxpayers shall keep such records and make 
such additional reports as the Commissioner of Internal Revenue or the 
Administration may require.

    Note: The records referred to in this section shall be retained for 
a period of six months beyond the termination or closing out of the 
reserve fund.



Sec. 287.27  Controlled corporation.

    For the purpose of section 511 of the Act and the regulations in 
this part a new vessel is considered as constructed, reconstructed, 
reconditioned, or acquired by the taxpayer if constructed, 
reconstructed, reconditioned, or acquired by a corporation at a time 
when the taxpayer owns not less than 95 percent of the total number of 
shares of each class of stock of the corporation.



Sec. 287.28  Administrative jurisdiction.

    Sections 287.3 to 287.11, inclusive, Secs. 287.13 to 187.15, 
inclusive, and Secs. 287.19 to 287.22, inclusive, deal primarily with 
matters under the jurisdiction of the Administration. Sections 287.12, 
287.16 to 287.18, inclusive, and Secs. 287.23 to 287.27, inclusive, deal 
primarily with matters under the jurisdiction of the Commissioner of 
Internal Revenue. Generally, matters relating to the establishment, 
maintenance, expenditure, and use of construction reserve funds and the 
construction, reconstruction, reconditioning, or acquisition of new 
vessels are under the jurisdiction of the Administration; and matters 
relating to the determination, assessment, and collection of taxes are 
under the jurisdiction of the Commissioner of Internal Revenue. 
Correspondence should be addressed to the particular authority having 
jurisdiction in the matter.



PART 289--INSURANCE OF CONSTRUCTION-DIFFERENTIAL SUBSIDY VESSELS, OPERATING-DIFFERENTIAL SUBSIDY VESSELS AND OF VESSELS SOLD OR ADJUSTED UNDER THE MERCHANT SHIP 
SALES ACT 1946--Table of Contents




Sec.
289.1  Definition.
289.2  Vessels included.
289.3  Provision in subsidy agreements and mortgages.
289.4  Insurance by owners.
289.5  Insurance by the United States.

    Authority: Sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114. 
Interpret or apply sec. 12, 60 Stat. 49, as amended; 50 U.S.C. App. 
1745.

    Source: General Order 67 Rev., 18 FR 230, Jan. 10, 1953, unless 
otherwise noted.



Sec. 289.1  Definition.

    For the purpose of this part, when reference is made to the phrase 
interest of the United States, it shall mean:
    (a) As to vessels constructed or sold with construction-differential 
subsidy and/or national defense feature allowance under Title V or VII 
of the Merchant Marine Act, 1936, as amended, the value of the 
construction-differential subsidy allowance, plus the allowance for 
national defense features;
    (b) As to vessels constructed or sold under Title V or VII of the 
Merchant Marine Act of 1936, as amended, and adjusted in price pursuant 
to section 9 of the Merchant Ship Sales Act of 1946, the difference 
between the pre-war domestic cost and the statutory sales price as 
defined in the Merchant Ship Sales Act of 1946.



Sec. 289.2  Vessels included.

    Vessels subject to the provisions of this part are:
    (a) All vessels which may in the future be constructed or sold with 
construction-differential subsidy allowances and/or national defense 
features allowance under Title V or VII of the Merchant Marine Act 1936, 
as amended.
    (b) All vessels which have previously been constructed or sold with 
construction-differential subsidy allowances

[[Page 155]]

and national defense features allowances under Title V or VII of the 
Merchant Marine Act, 1936, as amended;
    (c) All vessels which have previously been constructed with 
construction-differential subsidy allowances or national defense 
features allowance under Title V or VII of the Merchant Marine Act of 
1936, as amended, and later adjusted in price pursuant to section 9 of 
the Merchant Ship Sales Act of 1946;
    (d) All vessels which are subsidized under operating-differential 
subsidy agreements.



Sec. 289.3  Provision in subsidy agreements and mortgages.

    (a) All construction-differential subsidy agreements and mortgages 
relative to vessels covered in Sec. 289.2(a) shall provide, wherever 
possible, that the Maritime Administrator may, in his discretion, 
require the owner to insure, with commercial underwriters, the interest 
of the United States.
    (b) All future construction-differential subsidy agreements and 
future operating subsidy agreements shall require that owners insure 
vessels covered in Sec. 289.2 (a) and (d) in amounts acceptable to the 
Maritime Administration.



Sec. 289.4  Insurance by owners.

    Owners of vessels covered in Sec. 289.2 will not be required to 
arrange commercial insurance to cover the interest of the United States, 
exclusive of its mortgage interest, but the United States reserves the 
right to require, whenever the contracts so provide, that this be done 
at some future date, should it deem it necessary.



Sec. 289.5  Insurance by the United States.

    The United States will self-insure its interest, exclusive of 
mortgage interest, as defined in Sec. 289.1.



PART 295--MARITIME SECURITY PROGRAM (MSP)--Table of Contents




                         Subpart A--Introduction

Sec.
295.1  Purpose.
295.2  Definitions.
295.3  Waivers.

          Subpart B--Establishment of MSP Fleet and Eligibility

295.10  Eligibility requirements.
295.11  Applications.
295.12  Priority for awarding agreements.

        Subpart C--Maritime Security Program Operating Agreements

295.20  General conditions.
295.21  MSP assistance conditions.
295.22  Commencement and termination of operations.
295.23  Reporting requirements.

                Subpart D--Payment and Billing Procedures

295.30  Payment.
295.31  Criteria for payment.

                      Subpart E--Appeals Procedures

295.40  Administrative determinations.

    Authority: 46 App. U.S.C. 1171 et seq.; 46 App. U.S.C. 1114 (b), 49 
CFR 1.66.

    Source: 62 FR 37737, July 15, 1997, unless otherwise noted..



                         Subpart A--Introduction



Sec. 295.1  Purpose.

    This part prescribes regulations implementing the provisions of 
subtitle B (Maritime Security Fleet Program) of title VI of the Merchant 
Marine Act, 1936, as amended, governing Maritime Security Program 
payments for vessels operating in the foreign trade or mixed foreign and 
domestic commerce of the United States allowed under a registry 
endorsement issued under 46 U.S.C. 12105.



Sec. 295.2  Definitions.

    For the purposes of this part:
    (a) Act, means the Merchant Marine Act, 1936, as amended by the 
Maritime Security Act of 1996 (MSA)(46 App. U.S.C. 1101 et seq.).
    (b) Administrator, means the Maritime Administrator, U.S. Maritime 
Administration (MARAD), U.S. Department of Transportation, who is 
authorized to administer the MSA.
    (c) Agreement Vessel, means a vessel covered by a MSP Operating 
Agreement.
    (d) Applicant, means an applicant for a MSP Operating Agreement.

[[Page 156]]

    (e) Bulk Cargo, means cargo that is loaded and carried in bulk 
without mark or count.
    (f) Chapter 121, means the vessel documentation provisions of 
chapter 121 of title 46, United States Code.
    (g) Citizen of the United States, means an individual or a 
corporation, partnership or association as determined under section 2 of 
the Shipping Act, 1916, as amended (46 App. U.S.C. 802).
    (h) Contracting Officer, means the Associate Administrator for 
National Security, MARAD.
    (i) Contractor, means the owner or operator of a vessel that enters 
into a MSP Operating Agreement for the vessel with MARAD pursuant to 
Sec. 295.20 of this part.
    (j) DOD, means the U.S. Department of Defense.
    (k) Domestic Trade, means trade between two or more ports and/or 
points in the United States.
    (l) Eligible Vessel, means a vessel that meets the requirements of 
Sec. 295.10(b) of this part.
    (m) Emergency Preparedness Program Agreement, means the agreement, 
required by section 653 of the act, between a Contractor and the 
Secretary of Transportation (acting through MARAD) to make certain 
commercial transportation resources available during time of war or 
national emergency.
    (n) Enrollment, means the entry into a MSP Operating Agreement with 
the MARAD to operate a vessel(s) in the MSP Fleet in accordance with 
Sec. 295.20 of this part.
    (o) Fiscal Year, means any annual period beginning on October 1 and 
ending on September 30.
    (p) LASH Vessel, means a lighter aboard ship vessel.
    (q) Militarily Useful, is defined according to DOD Joint Strategic 
Planning Capabilities Plan (JSCAP) guidance as follows:
    (1) U.S. Sources--All active and inactive ocean-going ships (and 
certain other specially selected vessels) within the following types and 
criteria from United States sources with a minimum speed of 12 knots.
    (2) Dry Cargo--All dry cargo ships, including integrated tug/barges 
(ITBs) with a minimum capacity of 6,000 tons (DWT) capable of carrying, 
without significant modification, any of the following cargoes: unit 
equipment, ammunition, or sustaining supplies.
    (r) MSP Fleet, means the fleet of vessels operating under MSP 
Operating Agreements.
    (s) MSP Operating Agreement, means the MSP Operating Agreement, 
providing for MSP payments entered into by a Contractor and MARAD.
    (t) MSP Payments, means the payments made for the operation of U.S.-
flag vessels in the foreign trade or mixed foreign and domestic trade of 
the United States allowed under a registry endorsement issued under 46 
U.S.C. 12105, to maintain intermodal shipping capability and to meet 
national defense and security requirements in accordance with the terms 
and conditions of the MSP Operating Agreement.
    (u) Ocean Common Carrier, means a carrier that meets the 
requirements of the MSA, section 654(3).
    (v) ODS, means Operating-Differential Subsidy provided by Subtitle 
A, Title VI, of the Act.
    (w) Operating Day, means any day during which a vessel is operated 
in accordance with the terms and conditions of the MSP Operating 
Agreement.
    (x) Related party, means:
    (1) a holding company, subsidiary, affiliate, or associate of a 
contractor who is a party to an operating agreement under Subtitle B, 
Title VI, of the Act; and
    (2) an officer, director, agent, or other executive of a contractor 
or of a person referred to in paragraph (x)(1) of this section.
    (y) Roll-on/Roll-off Vessel, means a vessel that has ramps allowing 
cargo to be loaded and discharged by means of wheeled vehicles so that 
cranes are not required.
    (z) Secretary, means the Secretary of Transportation.
    (aa) United States Documented Vessel, means a vessel documented 
under Chapter 121 of Title 46, United States Code.



Sec. 295.3  Waivers.

    In special circumstances, and for good cause shown, the procedures 
prescribed in this part may be waived in

[[Page 157]]

writing by the Maritime Administration, by mutual agreement of the 
Maritime Administration and the Contractor, so long as the procedures 
adopted are consistent with the Act and with the objectives of these 
regulations.



          Subpart B--Establishment of MSP Fleet and Eligibility



Sec. 295.10  Eligibility requirements.

    (a) Applicant. Any person may apply to MARAD for Enrollment of 
Eligible Vessels in MSP Operating Agreements for inclusion in the MSP 
Fleet pursuant to the provisions of subtitle B, title VI, of the act. 
Applications shall be addressed to the Secretary, Maritime 
Administration, 400 Seventh Street, S.W., Washington, D.C. 20590.
    (b) Eligible Vessel. A vessel eligible for enrollment in a MSP 
Operating Agreement shall be self-propelled and meet the following 
requirements:
    (1) Vessel Type--(i) Liner Vessel. The vessel shall be operated by a 
person as an Ocean Common Carrier.
    (ii) Specialty vessel. Whether in commercial service, on charter to 
the DOD, or in other employment, the vessel shall be either:
    (A) a Roll-on/Roll-off vessel with a carrying capacity of at least 
80,000 square feet or 500 twenty-foot equivalent units; or
    (B) a LASH vessel with a barge capacity of at least 75 barges; or
    (iii) Other vessel. Any other type of vessel that is determined by 
the MARAD to be suitable for use by the United States for national 
defense or military purposes in time of war or national emergency; and
    (2) Vessel Requirements--(i) U.S. Documentation. Except as provided 
in paragraph (b)(2)(iv) of this section, the vessel is a U.S.-documented 
vessel; and
    (ii) Age. Except as provided in paragraph (b)(2)(iii), on the date a 
MSP Operating Agreement covering the vessel is first entered into is:
    (A) a LASH Vessel that is 25 years of age or less; or
    (B) any other type of vessel that is 15 years of age or less.
    (iii) Waiver Authority. In accordance with section 651(b)(2) of the 
act, MARAD is authorized to waive the application of paragraph 
(b)(2)(ii) of this section if MARAD, in consultation with the Secretary 
of Defense, determines that the waiver is in the national interest.
    (iv) Intent to document U.S. Although the vessel may not be a U.S.-
documented vessel, it shall be considered an Eligible Vessel if the 
vessel meets the criteria for documentation under 46 U.S.C. chapter 121, 
the vessel owner has demonstrated an intent to have the vessel 
documented under 46 U.S.C. chapter 121, and the vessel will be less than 
10 years of age on the date of that documentation; and
    (3) MARAD's determination. MARAD determines that the vessel is 
necessary to maintain a United States presence in international 
commercial shipping and the applicant possesses the ability, experience, 
resources and other qualifications necessary to execute the obligations 
of the MSP Operating Agreement, or MARAD, after consultation with the 
Secretary of Defense, determines that the vessel is militarily useful 
for meeting the sealift needs of the United States.



Sec. 295.11  Applications.

    (a) Action by MARAD--(1) Time Deadlines. Not later than 30 days 
after the enactment of the Maritime Security Act of 1996, Pub. L. 104-
239, MARAD shall accept applications for Enrollment of vessels in the 
MSP Fleet. Within 90 days after receipt of a completed application, 
MARAD shall enter into a MSP Operating Agreement with the applicant or 
provide in writing the reason for denial of that application.
    (2) Closure of Applications. Applications for MSP Operating 
Agreements shall be made only at such time as, and in response to, 
publication of invitations to apply by MARAD in the Federal Register. 
After the Administrator has fully allocated authorized contracting 
authority through the award of the maximum number of vessels allowed 
under Sec. 295.30(a), MARAD will not accept any applications for award 
of new Operating Agreements until additional contracting authority 
becomes available, or existing contracting authority reverts back to 
MARAD.
    (3) Reflagging for Eligible vessels. Except as provided in paragraph 
(a)(4) of

[[Page 158]]

this section, an applicant may remove a vessel from U.S. registry 
without MARAD approval if an application for a MSP Operating Agreement 
has been filed for that vessel, the applicant is qualified, and it has 
been determined by MARAD to be eligible under MSA section 651(b)(1) 
under a priority for which sufficient funds are available and the 
Administrator has not awarded an Operating Agreement for the vessel 
within 90 days of that application.
    (4) Reflagging ODS and MSC chartered vessels. Vessels eligible under 
MSA section 651(b)(1) which are also subject to ODS contracts or on 
charter to MSC, and for which applications have been denied pursuant to 
Sec. 295.11(a)(1) of this part, may be removed from U.S. registry only 
after those agreements have expired and only after the age requirement 
in section 9(e)(3) of the Shipping Act, 1916 (46 App. U.S.C. 808) has 
been met.
    (b) Action by the Applicant. Applicants for MSP Payments shall 
submit information on the following:
    (1) Intermodal network. A statement describing its operating and 
transportation assets, including vessels, container stocks, trucks, 
railcars, terminal facilities, and systems used to link such assets 
together;
    (2) Diversity of trading patterns. A list of countries and trade 
routes serviced along with the types and volumes of cargo carried;
    (3) Vessel construction date;
    (4) Vessel type and size; and
    (5) Military Utility. An assessment of the value of the vessel to 
DOD sealift requirements.

(Approved by the Office of Management and Budget under Control Number 
2133-0525)



Sec. 295.12  Priority for awarding agreements.

    Subject to the availability of appropriations, MARAD shall enter 
into individual MSP Operating Agreements for Eligible Vessels according 
to the following priorities:
    (a) First priority requirements. First priority shall be accorded to 
any Eligible Vessel meeting the following requirements:
    (1) U.S. citizen ownership. Vessels owned and operated by persons 
who are Citizens of the United States as defined in Sec. 295.2; or
    (2) Other corporations. Vessels less than 10 years of age and owned 
and operated by a corporation that is:
    (i) eligible to document a vessel under 46 U.S.C. chapter 121; and
    (ii) affiliated with a corporation operating or managing for the 
Secretary of Defense other vessels documented under 46 U.S.C. chapter 
121, or chartering other vessels to the Secretary of Defense.
    (3) Limitation on number of vessels. Limitation on the total number 
of Eligible Vessels awarded under paragraph (a) of this section shall 
be:
    (i) For any U.S. citizen under paragraph (a)(1), the number of 
vessels may not exceed the sum of:
    (A) the number of U.S.-flag documented vessels that the Contractor 
or a related party operated in the foreign commerce of the United States 
on May 17, 1995, except mixed coastwise and foreign commerce; and
    (B) the number of U.S.-flag documented vessels the person chartered 
to the Secretary of Defense on that date; and
    (ii) For any corporation under paragraph (a)(2) of this section, not 
more than five Eligible Vessels.
    (4) Related party. For the purpose of this section a related party 
with respect to a person shall be treated as the person.
    (b) Second priority requirements. To the extent that appropriated 
funds are available after applying the first priority in paragraph (a) 
of this section, the MARAD shall enter into individual MSP Operating 
Agreements for Eligible Vessels owned and operated by a person who is:
    (1) U.S. citizen. A Citizen of the United States, as defined in 
Sec. 295.2(g), that has not been awarded a MSP Operating Agreement under 
the priority in paragraph (a) of this section, or
    (2) Other. A person (individual or entity) eligible to document a 
vessel under 46 U.S.C. chapter 121, and affiliated with a person or 
corporation operating or managing other U.S.-documented vessels for the 
Secretary of Defense or chartering other vessels to the Secretary of 
Defense.

[[Page 159]]

    (c) Third priority. To the extent that appropriated funds are 
available after applying the first and second priority, any other 
Eligible Vessel.
    (d) Number of MSP Operating Agreements Awarded. If appropriated 
funds are not sufficient to award agreements to all vessels within a 
priority set forth herein, MARAD shall award to each eligible applicant 
in that priority a number of Operating Agreements that bears 
approximately the same ratio to the total number of Operating Agreements 
requested under that priority, and for which timely applications have 
been made, as the amount of appropriations available for MSP Operating 
Agreements for Eligible Vessels in the priority bears to the amount of 
appropriations necessary for MSP Operating Agreements for all Eligible 
Vessels in the priority.



        Subpart C--Maritime Security Program Operating Agreements



Sec. 295.20  General conditions.

    (a) Approval. MARAD may approve applications to enter into a MSP 
Operating Agreement and make MSP Payments with respect to vessels that 
are determined to be necessary to maintain a United States presence in 
international commercial shipping or those that are deemed, after 
consultation with the Secretary of Defense, to be militarily useful for 
meeting the sealift needs of the United States in national emergencies.
    (b) Effective date--(1) General Rule. Unless otherwise provided in 
the contract, the effective date of a MSP Operating Agreement is the 
date when executed by the Contractor and MARAD.
    (2) Exceptions. In the case of an Eligible Vessel to be included in 
a MSP Operating Agreement that is subject to an ODS contract under 
subtitle A, title VI, of the act or on charter to the U.S. Government, 
other than a charter under the provisions of an Emergency Preparedness 
Program Agreement provided by section 653 of the act, unless an earlier 
date is requested by the applicant, the effective date for a MSP 
Operating Agreement shall be:
    (i) The expiration or termination date of the ODS contract or 
Government charter covering the vessel, respectively, or
    (ii) Any earlier date on which the vessel is withdrawn from that 
contract or charter.
    (c) Replacement Vessels. MARAD may approve the replacement of an 
Eligible Vessel in a MSP Operating Agreement provided the replacement 
vessel is eligible under Sec. 295.10.
    (d) Notice to shipbuilders. The Contractor agrees that no later than 
30 days after soliciting any offer or bid for the construction of any 
vessel in a foreign shipyard, and before entering into any contract for 
construction of a vessel in a foreign shipyard, the Contractor shall 
provide notice of its intent to enter into such a contract (for vessels 
being considered for U.S.-flag registry) to MARAD. Within 10 business 
days after the receipt of such notification, MARAD shall issue a notice 
in the Federal Register of the Contractor's intent. The Contractor is 
prohibited from entering into any such contract until 10 business days 
after the date of publication of such notice.
    (e) Early termination. A MSP Operating Agreement shall terminate on 
a date specified by the Contractor if the Contractor notifies MARAD not 
later than 60 days before the effective date of the proposed 
termination, that the Contractor intends to terminate the Agreement. The 
Contractor shall be bound by the provisions relating to vessel 
documentation and national security commitments to the extent and for 
the period contained in section 652(m) of the Act.
    (f) Non-renewal for lack of funds. If, by the first day of a fiscal 
year, insufficient funds have been appropriated under section 655 of the 
act for that fiscal year, MARAD shall notify the Congress that MSP 
Operating Agreements for which insufficient funds are available will be 
terminated on the 60th day of that fiscal year if sufficient funds are 
not appropriated or otherwise made available by that date. If only 
partial funding is appropriated by the 60th day of such fiscal year, 
then MSP Operating Agreements for which funds are not available shall be 
terminated using the pro rata distribution method used to award MSP 
Operating Agreements set forth in Sec. 295.12(d). With respect to each

[[Page 160]]

terminated agreement the Contractor shall be released from any further 
obligation under the agreement, and the Contractor may transfer and 
register the applicable vessel under a foreign registry deemed 
acceptable by MARAD. In the event that no funds are appropriated, then 
all MSP Operating Agreements shall be terminated and each Contractor 
shall be released from its obligations under the agreement. Final 
payments under the terminated agreements shall be made in accordance 
with Sec. 295.30. To the extent that funds are appropriated in a 
subsequent fiscal year, existing operating agreements may be renewed if 
mutually acceptable to the Administrator and the Contractor and the MSP 
vessel remains eligible.
    (g) Operation under a Continuing Resolution. In the event a 
Continuing Resolution (CR) is in place that does not provide sufficient 
appropriations to fully meet obligations under MSP Operating Agreements, 
a Contractor may request termination of the agreement in accordance with 
paragraph (f), herein, and Sec. 295.30.
    (h) Requisition authority. To the extent section 902 of the act is 
applicable to any vessel transferred foreign under this section, the 
vessel shall remain available to be requisitioned by the Maritime 
Administration under that provision of law.
    (i) Transfer of Operating Agreements. A Contractor subject to an 
Agreement may transfer that Agreement (including all rights and 
obligations thereunder) to any person eligible to enter into an 
Agreement under the same priority established in section 652(i)(1)(A) of 
the act as the Contractor, provided that:
    (1) The Contractor gives notice of any such transfer to the Maritime 
Administrator by filing a completed application;
    (2) The transfer is not disapproved in writing by the Maritime 
Administrator within 90 days of the notification; and
    (3) the vessel to be covered by the Agreement after transfer is the 
same vessel originally covered by the Agreement or is an eligible vessel 
under section 651(b) of the act and is the same type, and comparable to, 
the vessel originally covered by the Agreement.



Sec. 295.21  MSP assistance conditions.

    (a) Term of MSP Operating Agreement. MSP Operating Agreements shall 
be effective for a period of not more than one fiscal year, and unless 
otherwise specified in the Agreement, shall be renewable, subject to the 
availability of appropriations or amounts otherwise made available, for 
each subsequent fiscal year through the end of FY 2005. In the event 
appropriations are enacted after October 1 with respect to any 
subsequent fiscal year, October 1 shall be considered the effective date 
of the renewed agreement, provided sufficient funds are made available 
and subject to the Contractor's rights for early termination pursuant to 
section 652(m) of the act.
    (b) Terms under a Continuing Resolution (CR). In the event funds are 
available under a CR, the terms and conditions of the MSP Operating 
Agreements shall be in force provided sufficient funds are available to 
fully meet obligations under MSP Operating Agreements, and only for the 
period stipulated in the applicable CR. If funds are not appropriated at 
sufficient levels for any portion of a fiscal year, the terms and 
conditions of any applicable MSP Operating Agreement may be voided and 
the Contractor may request termination of the MSP Operating Agreement in 
accordance with Sec. 295.20(f).
    (c) National security requirements. Each MSP Operating Agreement 
shall require the owner or operator of an Eligible Vessel included in 
that agreement to enter into an Emergency Preparedness Program Agreement 
pursuant to section 653 of the act.
    (d) Vessel operating requirements. The MSP Operating Agreement shall 
require that during the period an Eligible Vessel is included in that 
Agreement, the Eligible Vessel shall:
    (1) Documentation. Be documented as a U.S.-flag vessel under 46 
U.S.C. chapter 121; and
    (2) Operation. Be operated exclusively in the U.S.-foreign trade or 
in mixed foreign and domestic trade allowed under a registry endorsement 
issued under 46 U.S.C. 12105, and shall not otherwise be operated in the 
coastwise trade of the United States.

[[Page 161]]

    (e) Limitations. Limitations on Contractors with respect to the 
operation of foreign-flag vessels shall be in accordance with section 
804 of the act, as amended. The operation of vessels, other than 
Agreement Vessels, in the noncontiguous trades shall be limited in 
accordance with service levels and conditions permitted in section 656 
of the act.
    (f) Non-Contiguous Domestic Trade. [Reserved]
    (g) Obligation of the U.S. Government. The amounts payable as MSP 
Payments under a MSP Operating Agreement shall constitute a contractual 
obligation of the United States Government to the extent of available 
appropriations.



Sec. 295.22  Commencement and termination of operations.

    (a) Time frames. A Contractor that has been awarded a MSP Operating 
Agreement shall commence operations of the Eligible Vessel, under the 
applicable agreement or a subsequently renewed agreement, within the 
time frame specified as follows:
    (1) Existing vessel. Within one year after the initial effective 
date of the MSP Operating Agreement in the case of a vessel in existence 
on that date and after notification to MARAD within 30 days of the 
Contractor's intent; or
    (2) New building. Within 30 months after the initial effective date 
of the MSP Operating Agreement in the case of a vessel to be constructed 
after that date.
    (b) Unused authority. In the event of a termination of unused 
authority pursuant to paragraph (a) of this section, such authority 
shall revert to MARAD.



Sec. 295.23  Reporting requirements.

    The Contractor shall submit to the Director, Office of Financial 
Approvals, Maritime Administration, 400 Seventh St., SW., Washington, DC 
20590, one of the following reports, including management footnotes 
where necessary to make a fair financial presentation:
    (a) Form MA-172. Not later than 120 days after the close of the 
Contractor's semiannual accounting period, a Form MA-172 on a semiannual 
basis, in accordance with 46 CFR 232.6; or
    (b) Financial Statement. Not later than 120 days after the close of 
the Contractor's annual accounting period, an audited annual financial 
statement in accordance with 46 CFR 232.6 and the most recent vessel 
operating cost data submitted as part of its Emergency Preparedness 
Agreement.

(Approved by the Office of Management and Budget under Control Number 
2133-0525.)



                Subpart D--Payment and Billing Procedures



Sec. 295.30  Payment.

    (a) Amount payable. A MSP Operating Agreement shall provide, subject 
to the availability of appropriations and to the extent the agreement is 
in effect, for each Agreement Vessel, an annual payment of $2,100,000 
for each fiscal year. This amount shall be paid in equal monthly 
installments at the end of each month. The annual amount payable shall 
not be reduced except as provided in paragraph (b) of this section and 
Sec. 295.31(a)(3).
    (b) Reductions in amount payable. (1) The annual amount otherwise 
payable under a MSP Operating Agreement shall be reduced on a pro rata 
basis for each day less than 320 in a fiscal year that an Agreement 
Vessel is not operated exclusively in the U.S.-foreign trade or in mixed 
foreign and domestic trade allowed under a registry endorsement issued 
under 46 U.S.C. 12105. Days during which the vessel is drydocked or 
undergoing survey, inspection, or repair shall be considered to be days 
during which the vessel is operated, provided the total of such days 
within a fiscal year does not exceed 30 days, unless prior to the 
expiration of a vessel's 30 day period, approval is obtained from MARAD 
for an extension of the 30 day provision.
    (2) There shall be no payment for any day that a MSP Agreement 
Vessel is engaged in transporting more than 7,500 tons (using the U.S. 
English standard of short tons, which converts to 6,696.75 long tons, or 
6,803.85 metric tons) of civilian bulk preference cargoes pursuant to 
section 901(a), 901(b), or 901b of the act, provided that it is bulk 
cargo.

[[Page 162]]



Sec. 295.31  Criteria for payment

    (a) Submission of voucher. For contractors operating under more than 
one MSP Operating Agreement, the contractor may submit a single monthly 
voucher applicable to all its agreements. Each voucher submission shall 
include a certification that the vessel(s) for which payment is 
requested were operated in accordance with Sec. 295.21(d) and applicable 
MSP Operating Agreements with MARAD, and consideration shall be given to 
reductions in amounts payable as set forth in Sec. 295.30. All 
submissions shall be forwarded to the Director, Office of Accounting, 
MAR-330 Room 7325, Maritime Administration, 400 Seventh Street, SW., 
Washington, DC 20590. Payments shall be paid and processed under the 
terms and conditions of the Prompt Payment Act, 31 U.S.C. 3901.
    (1) Payments shall be made per vessel, in equal monthly 
installments, of $175,000.
    (2) To the extent that reductions under Sec. 295.30(b) are known, 
such reductions shall be applied at the time of the current billing. The 
daily reduction amounts shall be based on the annual amounts in 
295.30(a) of this part divided by 365 days (366 days in leap years) and 
rounded to the nearest cent. Daily reduction amounts shall be applied as 
follows:

FY 1997--$5,753.42
FY 1998--$5,753.42
FY 1999--$5,753.42
FY 2000--$5,737.70
FY 2001--$5,753.42
FY 2002--$5,753.42
FY 2003--$5,753.42
FY 2004--$5,737.70
FY 2005--$5,753.42

    (3) In the event a monthly payment is for a period less than a 
complete month, that month's payment shall be calculated by multiplying 
the appropriate daily rate in Sec. 295.31(a)(2) by the actual number of 
days the Eligible Vessel operated in accordance with Sec. 295.21.
    (4) MARAD may require, for good cause, that a portion of the funds 
payable under this section be withheld if the provisions of 
Sec. 295.21(d) have not been met.
    (5) Amounts owed to MARAD for reductions applicable to a prior 
billing period shall be electronically transferred using MARAD's 
prescribed format, or a check may be forwarded to the Maritime 
Administration, P.O. Box 845133, Dallas, Texas 75284-5133, or the amount 
owed can be credited to MARAD by offsetting amounts payable in future 
billing periods.
    (b) [Reserved]



                      Subpart E--Appeals Procedures



Sec. 295.40  Administrative determinations.

    (a) Policy. A Contractor who disagrees with the findings, 
interpretations or decisions of the Contracting Officer with respect to 
the administration of this part may submit an appeal to the Maritime 
Administrator. Such appeals shall be made in writing to the Maritime 
Administrator, within 60 days following the date of the document 
notifying the Contractor of the administrative determination of the 
Contracting Officer. Such an appeal should be addressed to the Maritime 
Administrator, Att.: MSP Contract Appeals, Maritime Administration, 400 
Seventh St., S.W. Washington, D.C. 20590.
    (b) Process. The Maritime Administrator may require the person 
making the request to furnish additional information, or proof of 
factual allegations, and may order any proceeding appropriate in the 
circumstances. The decision of the Maritime Administrator shall be 
final.

[[Page 163]]



                SUBCHAPTER D--VESSEL FINANCING ASSISTANCE





PART 298--OBLIGATION GUARANTEES--Table of Contents




                         Subpart A--Introduction

Sec.
298.1  Purpose.
298.2  Definitions.
298.3  Applications.

                         Subpart B--Eligibility

298.10  Citizenship.
298.11  Vessel requirements.
298.12  Applicant and operator's qualifications.
298.13  Financial requirements.
298.14  Economic soundness.
298.15  Investigation fee.
298.16  Substitution of participants.
298.17  Evaluation of applications.
298.18  Financing Advanced or Modern Shipbuilding Technology.
298.19  Financing Eligible Export Vessels.

                          Subpart C--Guarantees

298.20  Term, redemptions and interest rate.
298.21  Limits.
298.22  Amortization of Obligations.
298.23  Refinancing.
298.24  Financing facilities and equipment related to marine operations.
298.25  Excess interest or other consideration.
298.26  Lease payments.
298.27  Advances.

                        Subpart D--Documentation

298.30  Nature and content of Obligations.
298.31  Mortgage.
298.32  Required provisions in documentation.
298.33  Escrow fund.
298.34  Construction fund.
298.35  Reserve Fund and Financial Agreement.
298.36  Annual Guarantee Fee.
298.37  Examination and audit.
298.38  Partnership agreements.
298.39  Exemptions.

Subpart E--Defaults and Remedies, Reporting Requirements, Applicability 
                             of Regulations

298.40  Defaults.
298.41  Remedies after default.
298.42  Reporting requirements--financial statements.
298.43  Applicability of the regulations.

                  Subpart F--Administration  [Reserved]

    Authority: 46 App. U.S.C. 1114(b), 1271 et seq.; 49 CFR 1.66.

    Source: 61 FR 21314, May 9, 1996, unless otherwise noted.



                         Subpart A--Introduction



Sec. 298.1  Purpose.

    This part prescribes regulations implementing the provisions of 
Title XI of the Merchant Marine Act, 1936, as amended, governing Federal 
ship financing assistance (46 App. U.S.C. 1271 et seq.).



Sec. 298.2  Definitions.

    For the purpose of this part:
    Act means the Merchant Marine Act, 1936, as amended (46 App. U.S.C. 
1101 through 1294).
    Actual Cost of a Vessel or Advanced or Modern Shipbuilding 
Technology means, as of any specified date, the aggregate, as determined 
by the Secretary, of all amounts paid by or for the account of the 
Obligor on or before that date and all amounts which the Obligor is then 
obligated to pay from time to time thereafter, for the construction, 
reconstruction or reconditioning of such Vessel or Advanced or Modern 
Shipbuilding Technology (described in Sec. 298.21(b)).
    Advanced Shipbuilding Technology means:
    (1) Numerically controlled machine tools, robots, automated process 
control equipment, computerized flexible manufacturing systems, 
associated computer software, and other technology for improving 
shipbuilding and related industrial production which advance the state-
of-the-art; and
    (2) Novel techniques and processes designed to improve shipbuilding 
quality, productivity, and practice, and to promote sustainable 
development, including engineering design, quality assurance, concurrent 
engineering, continuous process production technology, energy 
efficiency, waste minimization, design for recyclability or parts reuse, 
inventory management, upgraded

[[Page 164]]

worker skills, and communications with customers and suppliers.
    Citizen of the United States means a person who, if an individual, 
is a Citizen of the United States by birth, naturalization or as 
otherwise authorized by law or, if other than an individual, meets the 
requirements of Section 2 of the Shipping Act, 1916, as amended (46 App. 
U.S.C. 802), as further described at 46 CFR 221.3(c).
    Closing means a meeting of various participants or their 
representatives in a Title XI financing, at which a commitment to issue 
Guarantees is executed, or at which all or part of the Obligations are 
authenticated and issued and the proceeds are made available for a 
purpose set forth in section 1104(a) of the Act, or at which a Vessel is 
delivered and a Mortgage is executed as security to the Secretary.
    Commitment Closing means a meeting of various participants or their 
representatives in a Title XI financing at which a commitment to issue 
Guarantees is executed and the forms of the Obligations and the related 
Title XI documents are also either agreed upon or executed.
    Depository means a bank or other financial institution organized and 
doing business under the laws of the United States, any State or 
territory thereof, the District of Columbia or the Commonwealth of 
Puerto Rico that is authorized under such laws to exercise corporate 
trust powers, is a member of the Federal Deposit Insurance Corporation, 
and accepts deposits for purposes of implementing the program authorized 
by Title XI of the Act; but in the case of an Eligible Export Vessel can 
also mean, with the specific approval of the Secretary, foreign 
branches, but not the foreign subsidiaries, of such United States 
financial institutions.
    Depreciated Actual Cost of a Vessel or Advanced or Modern 
Shipbuilding Technology means the Actual Cost of the Vessel or Advanced 
or Modern Shipbuilding Technology, as defined in paragraph (b) of this 
section (less a residual value of 2\1/2\ percent of United States 
shipyard construction cost or, in the case of Advanced or Modern 
Shipbuilding Technology, a residual value as appropriate), depreciated 
on a straightline basis over the useful life of the Vessel or Advanced 
or Modern Shipbuilding Technology as determined by the Secretary, not to 
exceed twenty-five years from the date the Vessel or Advanced or Modern 
Shipbuilding Technology was delivered by the shipbuilder or manufacturer 
or, if the Vessel or Advanced or Modern Shipbuilding Technology has been 
reconstructed or reconditioned, the Actual Cost of the Vessel or 
Advanced or Modern Shipbuilding Technology depreciated on a straightline 
basis from the date the Vessel or Advanced or Modern Shipbuilding 
Technology was delivered by the shipbuilder or manufacturer to the date 
of such reconstruction or reconditioning, on the basis of the original 
useful life of the Vessel or Advanced or Modern Shipbuilding Technology, 
and from the date of said reconstruction or reconditioning on a 
straightline basis and on the basis of a useful life of the Vessel or 
Advanced or Modern Shipbuilding Technology determined by the Secretary, 
plus all amounts paid or obligated to be paid for the reconstruction or 
reconditioning, depreciated on a straightline basis and on the basis of 
a useful life of the Vessel or Advanced or Modern Shipbuilding 
Technology determined by the Secretary.
    Documentation means all or part of the agreements relating to an 
entire Title XI financing which must be furnished to the Secretary, 
irrespective of whether the Secretary is a party to each agreement.
    Eligible Export Vessel means a Vessel constructed, reconstructed, or 
reconditioned in the United States for use in world-wide trade which 
will, upon delivery or redelivery, be placed under or continued to be 
documented under the laws of a country other than the United States.
    Eligible Shipyard means a private shipyard located in the United 
States.
    General Shipyard Facility means:
    (1) For operations on land, any structure or appurtenance thereto 
designed for the construction, repair, rehabilitation, refurbishment, or 
rebuilding of any Vessel, including graving docks, building ways, ship 
lifts, wharves and pier cranes; the land necessary for any structures or 
appurtenances; and

[[Page 165]]

equipment necessary for the performance of any function referred to in 
this paragraph; and
    (2) For operations other than on land, any Vessel, floating drydock, 
or barge built in the United States, within the meaning of 
Sec. 298.11(a), and used for, or a type that is usually used for, 
activities referred to in paragraph (k) of this section.
    Guarantee means the contractual commitment of the United States of 
America, represented by the Secretary, endorsed on each Obligation, to 
make payment to the Obligee or an agent, upon demand, of the unpaid 
interest on, and the unpaid balance of the principal of such Obligation, 
including interest accruing between the date of default (described in 
Sec. 298.40 of this part) and the date of payment.
    Guarantee Fee means the annual fee payable to the Secretary in 
consideration for the continuing Guarantees.
    Indenture Trustee means a bank with corporate trust powers, or a 
trust company, with a combined capital and surplus of at least 
$3,000,000, which is located in and organized and doing business under 
the laws of the United States, any State or territory thereof, the 
District of Columbia or the Commonwealth of Puerto Rico, which has 
duties under the terms of a Trust Indenture, entered into with the 
Obligor, providing for the issuance and registration of the ownership 
and transfer of Obligations, the disbursement of funds held in trust by 
the Indenture Trustee for the redemption and payment of interest and 
principal with respect to Obligations, demands by the Indenture Trustee 
for payment under the Guarantees in the event of default and the 
remittance of payments received to the Obligees. Pursuant to a specific 
authorization of the Secretary, the Indenture Trustee may also 
authenticate the Guarantees.
    Letter Commitment means a letter from the Secretary to an applicant 
for Guarantees, setting forth specific determinations made by the 
Secretary with respect to the applicant's proposed project, as required 
by the Act and regulations of this part, and stating the Secretary's 
commitment to execute Guarantees, subject to compliance by the applicant 
with any conditions specified therein.
    Maritime Administration means that agency created within the 
Department of Transportation by Reorganization Plan No. 21 of 1950 (64 
Stat. 1273), amended by Reorganization Plan No. 7 of 1961 (75 Stat. 
840), as amended by Pub. L. 91-469 (84 Stat. 1036).
    Modern Shipbuilding Technology means a technology to be introduced 
into the shipyard that is comprised of the best available proven 
technology, techniques, and processes appropriate to advancing the 
state-of-the-art of the applicant shipyard, or exceeds the best 
available processes of American shipbuilding, and that will enhance its 
productivity and make it more competitive internationally.
    Mortgage means a first Preferred Mortgage on any Vessel or a first 
mortgage with respect to Advanced Shipbuilding Technology or with 
respect to Modern Shipbuilding Technology.
    Obligation means any note, bond, debenture, or other evidence of 
indebtedness, as defined in section 1101(c) of the Act, issued for one 
of the purposes specified in section 1104(a) of the Act.
    Obligee means the holder of an Obligation.
    Obligor means any party primarily liable for payment of principal of 
or interest on any Obligation.
    Paying Agent means any Person appointed by the Obligor to pay the 
principal of or interest on the Obligations on behalf of the Obligor.
    Person means any individual, estate, foundation, corporation, 
partnership, limited partnership, joint venture, association, joint-
stock company, trust, unincorporated organization or other acceptable 
legal business entity, government, or any agency or political 
subdivision thereof.
    Preferred Mortgage means:
    (1) In the case of a mortgage on a Vessel documented under United 
States law, whenever made, a mortgage that--
    (i) Includes the whole of a Vessel;
    (ii) Is filed in substantial compliance with 46 U.S.C. 31321;
    (iii) Covers a documented Vessel or a Vessel for which an 
application for documentation has been filed that is in

[[Page 166]]

substantial compliance with the requirements of 46 U.S.C. Ch. 121 and 
the regulations prescribed under that Chapter by the United States Coast 
Guard; and
    (iv) Has as the mortgagee--
    (A) A State;
    (B) The United States Government;
    (C) A Federally insured depository institution, unless disapproved 
by the Secretary for that Vessel;
    (D) An individual who is a citizen of the United States;
    (E) A Person qualifying as a citizen of the United States pursuant 
to a provision of 46 App. U.S.C. 802; or
    (F) A Person approved by the Secretary pursuant to regulations at 46 
CFR 221.23(d); and
    (2) In the case of a mortgage on an Eligible Export Vessel, whenever 
made, a mortgage that--
    (i) Constitutes a mortgage that is established as security on an 
Eligible Export Vessel under the laws of a foreign country;
    (ii) Was executed under the laws of that foreign country and under 
which laws the ownership of the Vessel is documented;
    (iii) Is registered under the laws of that foreign country in a 
public register at the port of registry of the Vessel or at a central 
office;
    (iv) Otherwise satisfies the requirements of 46 U.S.C. 31301(6)(B) 
to constitute a Preferred Mortgage; and
    (v) Has the Secretary as the mortgagee, or such other mortgagee as 
is permitted by the applicable foreign law and approved by the 
Secretary.
    Related Party means as that term is defined by generally accepted 
accounting principles outlined in paragraph 24 of Statement of Financial 
Accounting Standards No. 57, Related Party Disclosures.
    Secretary means the Secretary of Transportation, acting by and 
through the Maritime Administrator, Department of Transportation, the 
Maritime Administrator or any official of the Maritime Administration to 
whom is duly delegated the authority, from time to time, to perform the 
functions of the Secretary of Transportation or the Maritime 
Administrator, Department of Transportation.
    Secretary's Note means a promissory note from the Obligor to the 
Secretary in an amount equal to the aggregate amount of the Obligations, 
which is issued simultaneously with the Guarantees.
    (aa) Security Agreement means the primary contract between the 
Obligor and the Secretary, providing for the transfer to the Secretary 
by the Obligor of all right, title and interest of the Obligor in 
certain described property (including rights under contracts in 
existence or to be entered into), and containing other provisions 
relating to representations and responsibilities of the Obligor to the 
Secretary as security for the issuance of Guarantees.
    Vessel means all types of vessels, whether in existence or under 
construction, including passenger, cargo and combination passenger-cargo 
carrying vessels, tankers, towboats, barges and dredges which are or 
will be documented under the laws of the United States, floating 
drydocks which have a capacity of at least thirty-five thousand or more 
lifting tons and a beam of one hundred and twenty-five feet or more 
between the wing walls and oceanographic research or instruction or 
pollution treatment, abatement or control vessels, which are owned by 
citizens of the United States; except that an Eligible Export Vessel 
shall not be documented under the laws of the United States.

[61 FR 21314, May 9, 1996, as amended at 62 FR 47152, Sept. 8, 1997]



Sec. 298.3  Applications.

    (a) Content and amendment. Each application for a commitment to 
execute Guarantees shall be made on Form MA 163 to the Secretary, 
Maritime Administration, U.S. Department of Transportation, Washington, 
DC 20590, and be certified in the manner prescribed on said form. All 
required information, including copies of any demise charters, time 
charters in excess of six months, contracts of affreightment, drilling 
contracts or other contractual arrangements with respect to the Vessel 
or Vessels, shall be presented on the form or in exhibits and schedules 
submitted with the application. In addition, the Declaration of Lobbying 
form as required by 31 U.S.C. 1352 shall be

[[Page 167]]

filed with the initial application, as part of the formal submission. 
Each exhibit and schedule shall contain a statement, on the first page 
thereof, clearly identifying the document as an attachment to an 
application for Obligation Guarantees, stating the name of the applicant 
and the date of the application. Any amendment of data contained in the 
application filed shall be marked ``Amendment,'' and shall contain a 
statement on the first page thereof, clearly identifying the document as 
an amendment to an application for Obligation Guarantees, stating the 
name of the applicant and the date of application. The certification 
required on Form MA 163 shall be affixed to each amendment.
    (b)(1) Time requirements for application. Each application shall be 
submitted to the Secretary at least four months prior to the anticipated 
date by which the applicant requires a Letter Commitment. The Secretary 
may consider applications with less notice prior to the anticipated date 
by which the applicant requires a Letter Commitment, upon written 
documentation that extenuating circumstances exist. During the first 15 
calendar day period after submission, the Secretary will perform a 
preliminary review of the application for adequacy and completeness. If 
the application is found to be incomplete, or if additional data is 
required, the Secretary will notify the applicant promptly in writing 
and the applicant will have 15 calendar days to correct deficiencies 
from the date of each request for additional information. If the 
applicant has not corrected the deficiencies, or made substantial 
progress toward correcting them, within this 15 calendar day period, 
then the Secretary may terminate the processing of the application 
without prejudice. Once the Title XI application is considered complete 
by the Secretary, the Secretary will act on the application within a 
period of 60 calendar days, unless for good cause the Secretary deems it 
necessary to extend such period. If an application is not completed by 
the applicant and acted upon by the Secretary within four months from 
the submission date, unless such time period is extended by the 
Secretary, the Secretary will notify the applicant in writing that 
processing of the application is terminated and that the applicant may 
reapply at a later date. If an application is terminated by MARAD 
without prejudice, no new filing fee will be assessed for a subsequent 
application for a similar project that is filed within one year of the 
termination date. If a subsequent application is for a substantially 
different project as determined by MARAD on a case-by-case basis a new 
filing fee will be assessed.
    (2) Time requirements for documentation. An applicant to whom a 
Letter Commitment has been issued shall submit four sets of the 
documentation to the Secretary for review. The documentation shall be 
submitted to the Secretary for review at least six weeks prior to the 
anticipated closing to afford the Secretary time to complete an adequate 
review of the documentation. The applicant shall utilize the standard 
form of documentation which will be provided by the Secretary.
    (3) Processing applications. In processing applications, the 
Secretary shall consider the different degrees of risk involved with 
different applications.
    (4) Additional assurances. For those applications not involving well 
established firms with strong financial qualifications and strong market 
shares, seeking financing guarantees for replacement vessels in an 
established market, in which projected demand exceeds supply, the 
Secretary may require additional assurances prior to approval, such as 
firm charter commitments, parent company guarantees, greater equity 
participation, private financing participation, security interest on 
other property and similar arrangements.
    (c) Filing Fee. Each application must be accompanied by a filing fee 
in the amount of $5,000, which will be non-refundable, irrespective of 
whether the Secretary subsequently issues a Letter Commitment.
    (d) Confidential Information. If the application, including 
attachments thereto, contains information which the applicant considers 
to be trade secrets or commercial or financial information and 
privileged or confidential, or otherwise exempt from disclosure under 
the Freedom of Information Act (5

[[Page 168]]

U.S.C. 552), the applicant shall assert a claim of exemption at the time 
of application. The same requirement shall apply to any amendment to the 
application. If no claim of exemption is made when the application or 
amendment is filed, the Maritime Administration shall not oppose any 
request subsequently made for disclosure, pursuant to the Freedom of 
Information Act (FOIA), of any information contained in the application. 
The following procedures shall apply with respect to the assertion and 
review of FOIA exemption claims:
    (1) Form and bases for claim. Any claim of exemption shall be made 
in a memorandum or letter contained in a sealed envelope marked 
``Confidential Information,'' addressed to the Secretary, Maritime 
Administration, and shall be subscribed by the applicant, or with 
respect to a corporate applicant, by a responsible corporate officer of 
the applicant. The applicant shall specifically and separately designate 
each part of the application, including attachments or amendments 
thereto, to which exemption from disclosure is claimed by noting 
``Confidential Information'' thereon, and shall place each page in the 
sealed envelope. The applicant shall state in the memorandum or letter 
the bases, in detail, for each assertion of exemption, including but not 
limited to statutory and decisional authority.
    (2) The Secretary, Maritime Administration, shall make a 
determination as to any claim of exemption at the time a request is made 
for the information pursuant to the Freedom of Information Act. If the 
Secretary, Maritime Administration makes a determination unfavorable to 
the applicant as to any item of information in the application or 
amendment, the applicant will be advised that the Maritime 
Administration will not honor the request for confidentiality at the 
time of any request for production of information made pursuant to the 
Freedom of Information Act by third parties.
    (e) Priority. The Maritime Administration shall give priority for 
processing applications to vessels capable of serving as a naval and 
military auxiliary in time of war or national emergency, and requests 
for financing construction of equipment or vessels less than one year 
old as opposed to the financing of existing equipment or vessels that 
are one year old or older. Any applications involving the purchase of 
vessels currently financed under Title XI will also receive priority 
consideration for purposes of processing the assumption of the 
obligations as will applications from those willing to take guarantees 
for less than the normal term for that class of vessel. In regard to 
shipyards, priority will be given to applications from General Shipyard 
Facilities that have engaged in naval Vessel construction and that have 
pilot projects for shipyard modernization and Vessel construction, with 
respect only to funds appropriated to the Secretary of Defense, pursuant 
to provision of section 1359(a) of Pub. L. 103-160, 107 Stat. 1547. With 
regard to Eligible Export Vessels, the Secretary may not issue a 
commitment to guarantee Obligations for an Eligible Export Vessel unless 
the Secretary determines, in the sole discretion of the Secretary, that 
the issuance of a commitment to guarantee obligations for an Eligible 
Export Vessel will result in the denial of an economically sound 
application to issue a commitment to guarantee Obligations for vessels 
documented under the laws of the United States operating in the domestic 
or foreign commerce of the United States, after considering:
    (1) The status of pending applications for commitments to guarantee 
obligations for vessels documented under the laws of the United States 
and operating or to be operated in the domestic or foreign commerce of 
the United States;
    (2) The economic soundness of the applications referred to in 
paragraph (e)(1) of this section; and
    (3) The amount of guarantee authority available.

(Approved by the Office of Management and Budget under control number 
2133-0018)



                         Subpart B--Eligibility



Sec. 298.10  Citizenship.

    (a) Applicability. Prior to acquiring a legal or beneficial interest 
in a Vessel financed under Title XI of the Act which is operating in or 
will be operated in the U.S. coastwise trade, the

[[Page 169]]

applicant and any other Person, (including the shipowner and any 
bareboat charterer), shall establish its United States citizenship, 
within the definition ``citizen of the United States'' in Sec. 298.2.
    (b) Prior to Letter Commitment. The applicant and any Person 
identified in paragraph (a) of this section, who is required to 
establish United States citizenship shall, prior to the issuance of the 
Letter Commitment, establish United States citizenship in form and 
manner prescribed in 46 CFR part 355.
    (c) Commitment Closing. Unless otherwise waived by the Secretary for 
good cause, at least 10 days prior to every Commitment Closing, all 
Persons identified with the project who have previously established 
United States citizenship in accordance with paragraphs (a) and (b) of 
this section shall submit pro forma Supplemental Affidavits of 
Citizenship which have previously been approved as to form and substance 
by the Secretary, and on the date of such closing such Persons shall 
submit to the Secretary three executed copies of such Supplemental 
Affidavits of Citizenship evidencing the continuing United States 
citizenship of such Persons bearing the date of such closing.
    (d) Additional information. If additional material is determined at 
any time to be essential to clarify or support evidence of U.S. 
citizenship, such material shall be furnished by the applicant, the 
Obligor or any Person identified in paragraph (a) of this section upon 
request by the Maritime Administration.

[62 FR 47152, Sept. 8, 1997]



Sec. 298.11  Vessel requirements.

    Each Vessel to be constructed, reconstructed or reconditioned and 
financed by issuance of Guarantees shall meet the following criteria:
    (a) United States Construction. A Vessel, including an Eligible 
Export Vessel, financed by an Obligation Guarantee is considered to be 
of United States construction if the Vessel is assembled in a shipyard 
geographically located within the United States. A U.S.-flag Vessel must 
meet the applicable United States Coast Guard requirements. An Eligible 
Export Vessel must meet the applicable laws, rules, and regulations of 
its country of documentation, all applicable treaties, conventions on 
international agreements to which that country is a signatory, and the 
laws of the ports it serves. An Eligible Export Vessel shall be 
constructed in accordance with the requirements of the International 
Maritime Organization.
    (b) Actual Cost. The applicant's estimated Actual Cost as described 
in Sec. 298.21(b), must be approved by the Secretary for the 
construction, reconstruction, reconditioning of a Vessel as a condition 
for issuance of the Letter Commitment. The Secretary may require the 
applicant to have the shipyard that has contracted to build the vessel 
to submit additional technical data, backup cost details, and other 
evidence if the Secretary has insufficient data. The estimated cost of 
the Vessel may include escalation for the anticipated construction 
period of the Vessel, as described in Sec. 298.21(e).
    (c) Class condition and operation. The Vessel shall be constructed, 
maintained, and operated so as to meet the highest classification, 
certification, rating, and inspection standards for Vessels of the same 
age and type imposed by the American Bureau of Shipping (ABS), or other 
such standards as may be approved by the United States Coast Guard, or 
in the case of an Eligible Export Vessel, such standards as may be 
imposed by a member of the International Association of Classification 
Societies (IACS) classification societies to be ISO 9000 series 
registered or Quality Systems Certificate Scheme qualified IACS members 
who have been recognized by the United States Coast Guard as meeting 
acceptable standards with such recognition including, at a minimum, that 
the society meets the requirements of IMO Resolution A.739(18) with 
appropriate certificates required at delivery, so long as the home 
country of that IACS member accords equal reciprocity, as determined by 
the Secretary, to United States classification societies. A Vessel, 
except an Eligible Export Vessel, shall comply with all applicable laws, 
rules, and regulations as to condition and operation, including, but not 
limited to, those administered by the United States Coast Guard, 
Environmental

[[Page 170]]

Protection Agency, Federal Communications Commission, Public Health 
Service, or their respective successor agencies, and all applicable 
treaties and conventions to which the United States is a signatory, 
including, but not limited to, the International Convention for Safety 
of Life at Sea. An Eligible Export Vessel shall be documented in a 
country that is party to the International Convention for Safety of Life 
at Sea, or other treaty, convention, or international agreement 
governing vessel inspection to which the United States is a signatory, 
and shall comply with the applicable laws, rules, and regulations of its 
country of documentation, all applicable treaties, conventions on 
international agreements to which that country is a signatory, and the 
laws of the ports it serves. An Eligible Export Vessel shall be 
constructed in accordance with the requirements of the International 
Maritime Organization.
    (d) Reconstruction or reconditioning. Repairs necessary for the 
Vessel to meet the classification standards approved by the Secretary, 
or any regulatory body, or because of previous inadequate maintenance 
and repair, shall not constitute reconstruction or reconditioning within 
the meaning of this paragraph. An applicant for Guarantees secured by a 
Vessel to be reconstructed or reconditioned shall make the Vessel 
available at a time and place acceptable to the Secretary for a 
condition survey to be conducted by representatives of the Secretary. 
The applicant shall pay the cost of the condition survey. The scope and 
extent of the condition survey shall not be less effective than that 
required by the last ABS special survey completed (if the Vessel is 
classified), next due or overdue, whichever date is nearest in 
accordance with the Vessel's age. The Vessel shall meet the standard of 
the survey necessary for retention of class (if the Vessel is 
classified), and the operating records of the Vessel shall reflect 
normal operation of the Vessel's main propulsion and other machinery and 
equipment, consistent with accepted commercial experience and practice.
    (e) Metric Usage. The preferred system of measurement and weights 
for Vessels and Advanced and Modern Shipbuilding Technology shall be the 
metric system.



Sec. 298.12  Applicant and operator's qualifications.

    (a) Operator's qualifications. No Letter Commitment shall be issued 
by the Secretary without a prior determination that the applicant, 
bareboat charterer, or other Person identified in the application as the 
operator of the Vessel, possesses the necessary experience, ability and 
other qualifications to properly operate and maintain the Vessel or 
Vessels which serve as security for the Guarantees, and otherwise to 
comply with all requirements of this part.
    (b) Identity and ownership of applicant. In order to assess the 
likelihood that the project will be successful, the Secretary needs 
information about the applicant and the proposed project. To permit this 
assessment, each applicant shall provide the following information in 
its application for Title XI guarantees.
    (1) Incorporated companies. If the applicant is an incorporated 
company, it shall submit the following identifying information:
    (i) Exact name of applicant and tax identification number of a U.S. 
corporation, or if appropriate, international identification number of 
the applicant;
    (ii) State or country in which incorporated and date of 
incorporation; and
    (iii) Address of principal executive offices and of important branch 
offices, if any.
    (2) Partnerships, joint-ventures, associations, unincorporated 
companies. If the applicant is a partnership, joint-venture, 
association, or unincorporated company, it shall submit the following 
identifying information:
    (i) Name of partnership, association, or unincorporated company, and 
tax identification number, or if appropriate, international 
identification number of applicant;
    (ii) Business address;
    (iii) Date of organization;
    (iv) Name of partners (general and special) of the partnership or 
trustee and holders of beneficial interest in the association or 
company;

[[Page 171]]

    (v) Certified copy of Partnership or Joint Venture Agreement, as 
amended; and
    (vi) A detailed statement regarding financial, management and/or 
equity transactions which could have a significant impact on the ability 
of the applicant to meet the requirements placed on the applicant under 
its financing.
    (3) Other entities. For any entity that does not fit the 
descriptions in paragraphs (b)(1) through (b)(3) of this section, MARAD 
will specify the information that the entity shall submit regarding its 
identity and ownership.
    (c) Applicants: Business and affiliations. The applicant shall 
include:
    (1) A brief description of the principal business activities during 
the past 5 years of applicant and of any predecessor of the applicant. 
If any change in the principal business activities is presently 
contemplated (whether in connection with the work to be financed by the 
guarantees applied for, or otherwise), applicant shall give a brief 
statement of the nature and circumstances thereof;
    (2) A list of all companies or persons (hereinafter referred to as 
related companies) that directly or indirectly, through one or more 
intermediaries, control, are controlled by, or are under common control 
with, the applicant. Also indicate the nature of the business transacted 
by each, the relationships between the companies named, and the nature 
and extent of the control. This information may be furnished in the form 
of a chart. Specify whether any related companies have previously 
applied for or received any Title XI assistance;
    (3) A statement of whether or not during the past 5 years the 
applicant, or any predecessor or related company, has been in bankruptcy 
or in reorganization under the Federal Bankruptcy Act or in any other 
insolvency or reorganization proceedings under either domestic or 
foreign statutes, and whether or not any substantial property of the 
applicant or a predecessor or related company has been acquired in any 
such proceedings or has been subject to foreclosure or receivership 
during such period, and details of all such occurrences; and
    (4) A statement of whether or not the applicant or any predecessor 
or related company is now, or during the past 5 years has been, in 
default under any agreement or undertaking:
    (i) With others, the United States or a country other than the 
United States; or
    (ii) Guaranteed or insured by the United States or a country other 
than the United States.
    (d) Management of applicant. The applicant shall include:
    (1) A brief description of the principal business activities during 
the past 5 years of each director and each principal executive officer 
of the applicant; and
    (2) The name and address of each organization engaged in business 
activities related to those carried on or to be carried on by the 
applicant with which any person named in answer to paragraph (d)(1) of 
this section has any present business connection, the name of each such 
person and, briefly, the nature of such connection.
    (e) Applicant's property and activity. The applicant shall provide:
    (1) A brief description of the general character and location of the 
principal properties of the applicant employed in its business, other 
than vessels, describing encumbrances, if any;
    (2) A statement with respect to each vessel owned by the applicant, 
or operated by it under charter, stating name, gross tonnage, net 
tonnage, deadweight tonnage, age, type, speed, registry, cargo capacity 
and number and type of cargo units (container, trailer, etc.); and
    (3) A summary statement which addresses the services, routes, or 
line (including ports served) on which the applicant operates any of the 
vessels owned or chartered by it. Also, a schedule and tonnage of cargo 
carried by the applicant during the two preceding years, the units 
carried (containers, barges, passengers, etc.) and the cargo capacity 
utilization factor experienced.
    (f) Operating ability. (1) In the case of an applicant for a vessel 
financing Guarantee, the applicant shall submit a detailed statement 
showing its ability to successfully operate the Vessel(s), including 
name, education, background of, and licenses held by all

[[Page 172]]

senior supervisory personnel concerned with the physical operation of 
the ships owned by the applicant or proposed for construction. If not 
now an operator of Vessel(s), the applicant shall indicate a proposed 
organizational structure of key operating personnel or the name of the 
proposed operating agent. If now the owner and/or operator of ships, the 
applicant shall furnish data as to union affiliations and existing 
contracts necessary to the management and operation of the Vessel(s) 
covering such items as bunkers, repairs, stores and stevedoring, and 
names of companies (domestic and foreign) for which the company acts as 
agent. If a company other than the applicant is designated to operate 
the Vessel(s), then the above information shall be provided for that 
company, together with a copy of the proposed operating agreement(s).
    (2) In the case of an Eligible Shipyard which is an applicant for a 
Guarantee for Advanced or Modern Shipbuilding Technology, a detailed 
statement shall be submitted evidencing its ability to successfully 
construct/reconstruct vessel(s), including name, education, background 
of, and licenses, if any, held by all senior supervisory personnel in 
the shipyard concerned with the physical operation of the shipyard, 
union affiliations and existing contracts necessary to the management 
and operation of the shipyard.



Sec. 298.13  Financial requirements.

    (a)(1) In general. To be eligible for guarantees, the applicant and/
or the parent organization (when applicable), and any other participants 
in the project having a significant financial or contractual 
relationship with the applicant shall submit information, respectively, 
on their financial condition. This information shall be submitted at the 
time of the application and supplemented as subsequently required by the 
Secretary. In addition, the applicant shall submit information 
satisfactory to the Secretary that financial resources are available to 
support the project which is the subject of the Title XI application.
    (2) Cost of the project. Applicant shall submit the following cost 
information with respect to the project:
    (i) In the case of an applicant for Vessel financing Guarantees, a 
detailed statement of the estimated Actual Cost of construction, 
reconstruction or reconditioning of the Vessel(s) including those items 
which would normally be capitalized as Vessel construction costs. Net 
interest during construction is the total estimated construction period 
interest on non-equity funds less estimated earnings from the escrow 
fund, if such fund is to be established prior to Vessel(s) delivery. 
Each item of foreign components and services shall be excluded from 
Actual Cost, unless a waiver is specifically granted for the item, which 
waiver shall not be granted for major foreign components of the hull and 
superstructure. The standard for granting a waiver is certification by 
the applicant, to be reviewed by the Secretary, that a foreign item or 
service is not available in the United States on a timely or price-
competitive basis, or is not of sufficient quality. Although excluded 
from Actual Cost, foreign components of the hull and superstructure can 
be regarded as owner-furnished equipment that may be used in satisfying 
the applicant's equity requirements imposed by paragraph (a)(3) of this 
section. An illustration of how the cost of foreign components of the 
hull and superstructure may be used to satisfy an applicant's equity 
requirements is outlined below. If any of the costs have been incurred 
by written contracts such as the shipyard contract, management or 
operating agreement, signed copies should be forwarded with the 
application. The applicant may be required to have the contracting 
shipyard submit back-up cost details and technical data. This 
information shall be submitted in the format as prescribed by the Title 
XI application procedures.

ILLUSTRATION--COST OF FOREIGN COMPONENTS SATISFYING EQUITY REQUIREMENTS.

    Assuming that the total project cost is $100 million, of which the 
cost of major foreign components in the hull and superstructure total 
$20 million, and that the Title XI applicant has requested financing for 
87\1/2\ percent of the cost of the project, the following is a 
demonstration of how the value of the major

[[Page 173]]

foreign components in the hull and superstructure may be used in meeting 
the equity requirements of Sec. 298.13 (a)(3):

          Cost of Foreign Components Excluded from Actual Cost

Cost of Project...........................................$100.0 million
Cost of Major Foreign Components in Hull and Superstructure........$20.0 
                                                                 million
Total Actual Cost of Project...............................$80.0 million
Required Equity (12\1/2\ percent)..........................$10.0 million
Total Project Cost Financed w/Title XI (87\1/2\ percent)...$70.0 million

    The $10 million in required equity may be satisfied by the owner's 
contribution of the foreign components of hull and superstructure to the 
project.

    (ii) In the case of Advanced or Modern Shipbuilding Technology, a 
detailed statement of the actual cost of such technology, including 
those items which would normally be capitalizable. If any of the costs 
have been incurred by written contracts, signed copies shall be 
forwarded with the application. The applicant may be required to have 
manufacturers submit back-up cost details and technical data. This 
information shall be submitted in the format prescribed by the Title XI 
application procedures.
    (iii) A detailed statement showing the actual cost of any shore 
facilities, cargo containers, etc., required to be purchased in 
conjunction with the project.
    (iv) A detailed statement showing any other costs associated with 
the project which were not included in paragraphs (a)(2) (i) through 
(iii) of this section, such as: Legal and accounting fees, printing 
costs, guarantee fees, vessel insurance, underwriting fees, fee to a 
Related Party, etc.
    (v) If the project involves refinancing, the exhibit entitled 
Request for Actual Cost Approval and Reimbursement, its summary sheet 
and supplemental schedules shall be submitted at the time of filing the 
application.
    (3) Financing. The applicant shall describe, in detail, how the 
costs of the project (sums referred to in paragraph (a)(2) of this 
section) are to be funded and the timing of such funding. The applicant 
shall include any vessel trade-ins, related or third party financings, 
etc. The applicant shall also provide the proposed terms and conditions 
of all private funding, from both equity and debt sources and clearly 
identify all parties involved. If the applicant intends to utilize co-
financing (involving a blend of Title XI and private financing for the 
debt portion), the terms and conditions of such financing shall be 
subject to approval by the Secretary. The applicant shall demonstrate 
with financial statements that at least 12\1/2\ percent of the 
construction or reconstruction costs of the Vessel(s) or the cost of the 
Advanced Shipbuilding Technology or Modern Shipbuilding Technology will 
be in the form of equity and not additional debt, except to the extent 
allowed by paragraph (g) of this section. The applicant shall disclose 
all of the Vessel(s), Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology financing in the format prescribed by the Title 
XI application procedures. If the applicant uses co-financing (involving 
a blend of Title XI and private financing for the debt portion of the 
project), the ability of the co-financiers to exercise their rights 
against collateral shared with the Secretary for any transaction shall 
be subject to the approval of the Secretary.
    (4) Financial Information. The applicant shall submit the following 
additional financial statements with respect to both the proposed Title 
XI project and the overall operations of the applicant, prepared in 
accordance with 46 CFR part 232 and including notes to explain the basis 
used for arriving at the figures (in the case of Eligible Export 
Vessels, the Secretary may accept financial information provided in the 
normal accounting system used by the applicant provided that it is an 
accepted accounting system in the applicant's country of origin and, 
further, provided that the applicant provides a reconciliation of the 
major differences between the accounting system employed and U.S. 
generally accepted accounting principles):
    (i) The three most recent audited financial statements of the 
applicant, its parent, if any, and other significant participants. If 
the applicant is a new entity or is to be funded from or guaranteed by 
external source(s), it shall provide the audited financial statements of 
the funding source(s);

[[Page 174]]

    (ii) A pro forma balance sheet of the applicant as of the estimated 
date of execution of the Guarantees reflecting the assumption of the 
Title XI Obligations;
    (iii) A schedule of amortization of all existing debt (Title XI or 
otherwise) of the applicant for the period in which the Guarantees are 
to be outstanding; and
    (iv) A Sources and Uses Statement for the first full year of 
operations and the following five years, including a clear source of 
funding for the payment of all debt when due.
    (b) Financial definitions. For the purpose of this section and 
Secs. 298.35 and 298.42 of this part:
    (1) Company means any Person subject to financial requirements 
imposed under paragraphs (d) and (e) of this section and paragraphs (b) 
and (c) of Sec. 298.35, as well as the reporting requirements imposed by 
Sec. 298.42.
    (2) Working Capital means the difference between current assets and 
current liabilities, adjusted as follows:
    (i) Current assets shall exclude:
    (A) Amounts in or required to be set aside in any Title XI Reserve 
Fund, pursuant to Sec. 298.35(e) or Capital Construction Fund Security 
Amount prescribed by Sec. 298.35(f), (excluding that portion of such 
fund which is available for the payment of current liabilities) that is 
being maintained pursuant to an agreement covering a Vessel owned or 
leased by the company, or in another similar fund required under any 
other mortgage, indenture or other agreement to which the company is a 
party; and
    (B) Any receivables from a Related Party or from any stockholder, 
director, officer or employee (or their family) of the company or of a 
Related Party other than current receivables arising out of the ordinary 
course of business and not outstanding for more than 60 days.
    (ii) Current liabilities shall include the current portion of 
charter hire and other lease obligations not already included as a 
current liability.
    (3) Equity (net worth) shall be exclusive of:
    (i) Any receivables from a Related Party or from any stockholder, 
director, officer or employee (or their family) of the company or of a 
Related Party other than current receivables arising out of the ordinary 
course of business and not outstanding for more than 60 days, and
    (ii) Any increment resulting from the reappraisal of assets.
    (4) Long Term Debt shall exclude the balance of Escrow Fund deposits 
attributable to the principal of Obligations sold, where deposits are 
required in accordance with Sec. 298.33. However, there shall be 
included any guarantee or other liability for the debt of any other 
Person.
    (5) Capitalizable Cost means the aggregate of the Actual Cost of the 
Vessel or Advanced or Modern Shipbuilding Technology and those other 
items which customarily would be capitalized as Vessel costs or Advanced 
or Modern Shipbuilding Technology costs under generally accepted 
accounting principles and those other items which customarily would be 
capitalized as Vessel costs under generally accepted accounting 
principles.
    (6) Depreciated Capitalizable Cost means the Capitalizable Cost of a 
Vessel or Advanced or Modern Shipbuilding Technology, depreciated on a 
straight line basis over the same useful life as determined by the 
Secretary for Actual Cost, and depreciated as required by 
Sec. 298.21(g).
    (c) Applicability. The financial resources shall be adequate to meet 
the Equity requirements in the project and existing Working Capital 
requirements, as set forth in paragraphs (d) and (e) of this section.
    (1) The various financial requirements shall be met by the owner of 
the Vessel or Vessels or Advanced or Modern Shipbuilding Technology to 
be security to the Secretary for the Guarantees, except that if the 
owner is not the operator, the overall financial requirements shall be 
allocated among the owner, the operator and other parties as determined 
by the Secretary.
    (2) The Company shall satisfy the applicable financial requirements, 
in addition to any other financial requirements already imposed or which 
may be imposed upon it in connection with other Vessels financed under 
the Title XI program or in connection with other Advanced or Modern 
Shipbuilding

[[Page 175]]

Technology financed under the Title XI program.
    (3) A determination as to whether the Company has satisfied all 
financial requirements shall be based on the assumption that the 
projected financing has been completed. Accordingly, a pro forma balance 
sheet shall be submitted at the time of the application, reflecting any 
adjustment made pursuant to paragraph (d)(1)(i) of this section, and a 
revised pro forma balance sheet, reflecting the completion of the 
projected financing, shall be submitted at least five business days 
before the first Closing at which the Obligations are issued.
    (d) Primary financial requirements at Closing. Where the primary 
minimum financing requirements at Closing are satisfied, the financial 
convenants in Sec. 298.35(b) are applicable. Primary financial 
requirements can apply to one or more Companies, and are determined as 
follows:
    (1) Owner as operator. Where the owner is to be the Vessel operator, 
minimum requirements at Closing usually are as follows:
    (i) Working Capital. The Company's Working Capital shall not be less 
than one dollar. This Working Capital requirement is based on the 
premise that the Company engages in a service-type activity with only 
normal Vessel inventory. If Working Capital includes other inventory, in 
addition to such normal Vessel inventory, the Secretary may adjust the 
requirement as considered appropriate. Also, if the Secretary determines 
that the Company's Working Capital includes amounts receivable that it 
reasonably could not expect to collect within one year, the Secretary 
may make adjustments to the Working Capital requirements.
    (ii) Equity (net worth). The Company's Equity shall be the greater 
of:
    (A) 50 percent of its Long Term Debt or
    (B) 90 percent of its Equity as shown on the last audited balance 
sheet, dated not earlier than six months before the date of issuance of 
the Letter Commitment.
    (2) Lessee or charterer as operator. Where a lessee or charterer is 
to be the Vessel operator, minimum requirements at Closing usually are 
as follows:
    (i) Working Capital. The operator's Working Capital requirement 
shall be the same as that which would have otherwise been imposed on the 
owner as operator under paragraph (d)(1)(i) of this section and based on 
the same premise stated therein.
    (ii) Long Term Debt. The operator's Long Term Debt shall not be 
greater than twice its Equity.
    (iii) Equity (net worth). Different Equity requirements shall be 
imposed on the owner and operator of the Vessel, respectively, as 
follows:
    (A) The owner's Equity shall at least be equal to the difference 
between the Capitalizable Cost or Depreciated Capitalizable Cost of the 
Vessel (whichever is applicable) and the total amount of the Guarantees.
    (B) The operator's Equity shall be the same as that which would have 
otherwise been required of the owner as operator under paragraph 
(d)(1)(ii) of this section.
    (3) Owner as General Shipyard Facility. Where the owner of Advanced 
or Modern Shipbuilding Technology is a General Shipyard Facility, 
minimum requirements at Closing will be the same as those set forth in 
paragraph (d)(1) of this section for an owner as operator.
    (e) Special financial requirements at closing. If the proposed 
project involves a leverage lessor, parent company or ``hell or high 
water'' charterer committed to financing the debt service for the term 
of the Guarantees and who meets the primary financial requirement at 
closing, then with respect to the applicant, the eligibility for 
Guarantees may be based upon satisfaction of special financial 
requirements, in which the financial covenants imposed and the 
requirements for maintenance of a Title XI Reserve Fund shall be as 
provided for in Sec. 298.35(c) of this part. Special financial 
requirements are as follows:
    (1) Owner as operator. Where the owner is the Vessel operator, the 
special requirements at Closing are as follows:
    (i) Working Capital. The Company's Working Capital, which may be 
adjusted by the Secretary in accordance

[[Page 176]]

with the provisions set forth in paragraph (d)(1)(i) of this section, 
shall be an amount at least equal to the sum of the following:
    (A) The first year's debt service relating to the Vessel to be 
financed upon delivery (redelivery in the case of a reconstructed or 
reconditioned Vessel), or the first year's debt service relating to the 
Vessel to be financed or refinanced after delivery. With respect to a 
reconstructed or reconditioned Vessel, the estimated Capitalizable Cost 
or Depreciated Capitalizable Cost, whichever is applicable (depending 
upon when financing occurs), shall be that related only to the cost of 
work performed in the reconstruction or reconditioning;
    (B) One year's premium for vessel insurance including Hull, 
Machinery, Protection and Indemnity, and War Risk coverage; and
    (C) One year's Guarantee Fee.
    (ii) Equity (net worth). The Company's Equity shall be at least 
equal to 90 percent of the Equity as shown on the last audited balance 
sheet dated not earlier than six months before the issuance of the 
Letter Commitment, but not less than the sum of the following:
    (A) The difference between:
    (1) The estimated Capitalizable Cost of a new Vessel to be financed 
upon delivery, the estimated Capitalizable Cost of the work to be 
performed in reconstructing or reconditioning a Vessel, the Depreciated 
Capitalizable Cost of an existing Vessel to be refinanced or the 
Depreciated Capitalizable Cost of a new Vessel to be financed after 
delivery, and
    (2) The amount of the Guarantees; and
    (B) The amount of Working Capital as determined in accordance with 
the provisions of paragraph (e)(1)(i) of this section.
    (2) Lessee or charterer as operator. Where the lessee or charterer 
is the Vessel operator, the special financial requirements at Closing 
are as follows:
    (i) Working Capital. The Company shall have Working Capital in an 
amount determined in accordance with the provisions of paragraph 
(e)(1)(i) of this section, applicable as if the owner were the operator.
    (ii) Equity (net worth). Different Equity requirements shall be 
imposed on the operator and the owner, respectively as follows:
    (A) The operator shall have Equity at least equal to 90 percent of 
the Equity shown on the last audited balance sheet dated not earlier 
than six months before the issuance of the Letter Commitment, but no 
less than its Working Capital requirement.
    (B) The owner shall have Equity in an amount determined in 
accordance with the provisions of paragraph (e)(1)(ii)(A) of this 
section.
    (3) Owner as General Shipyard Facility. Where the owner of Advanced 
or Modern Shipbuilding Technology is a General Shipyard Facility, 
special financial requirements at Closing will be the same as those 
outlined in paragraph (e)(1) of this section for an owner as operator 
insofar as they apply to such technology.
    (f) Adjustments to financial requirements at Closing. If the owner, 
although not operating a Vessel, assumes any of the operating 
responsibilities, the Secretary may adjust the respective Working 
Capital and Equity requirements of the owner and operator, otherwise 
applicable under paragraphs (d) and (e) of this section, by increasing 
the requirements of the owner and decreasing those of the operator by 
the same amount.
    (g) Subordinated debt considered to be Equity. With the consent of 
the Secretary, part of the Equity requirements applicable under 
paragraphs (a)(3), (d) and (e) of this section may be satisfied by debt, 
fully subordinated as to the payment of principal and interest on the 
Secretary's Note and any claims secured as provided for in the Security 
Agreement or the Mortgage. Repayment of subordinated debt may be made 
only from funds available for payment of dividends or for other 
distributions, in accordance with requirements of the Reserve Fund and 
Financial Agreement (described in Sec. 298.35 of this part). Such 
subordinated debt shall not be secured by any interest in property that 
is security for Guarantees or mortgage insurance under Title XI, unless 
the Obligor and the lender enter into a written agreement, satisfactory 
to the Secretary, providing,

[[Page 177]]

among other things, that if any Title XI financing or advance by the 
Secretary to the Obligor shall occur in the future, such security 
interest of the lender shall become subordinated to any indebtedness 
incurred by the Obligor and to any security interest obtained by the 
Secretary in that property or other property, with respect to the 
subsequent indebtedness.
    (h) Modified requirements. The Secretary may waive or modify the 
financial terms or requirements otherwise applicable under Secs. 298.13, 
298.35 and 298.42, upon determining that there is adequate security for 
the Guarantees. The Secretary may impose similar financial requirements 
on any Person providing other security for the Guarantees.



Sec. 298.14  Economic soundness.

    (a) Economic Evaluation. No Letter Commitment for guarantees shall 
be given by the Secretary without a finding that the proposed project, 
with respect to which the Vessel(s) or Advanced or Modern Shipbuilding 
Technology to be financed or refinanced under Title XI, will be 
economically sound.
    (1) Basic feasibility factors. In making the economic soundness 
findings the Secretary shall consider all relevant factors, including, 
but not limited to:
    (i) The need in the particular segment of the maritime industry for 
new or additional capacity, including any impact on existing equipment 
for which a guarantee under this title is in effect;
    (ii) The market potential for the employment of the Vessel or 
utilization of the Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology of a General Shipyard Facility over the life of 
the guarantee;
    (iii) Projected revenues and expenses associated with employment of 
the Vessel or utilization of the Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology of a General Shipyard Facility;
    (iv) Any charters, contracts of affreightment, transportation 
agreements, or similar agreements or undertakings relevant to the 
employment of the Vessel or utilization of the Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology of a General Shipyard 
Facility;
    (v) For inland waterways, the need for technical improvements 
including but not limited to increased fuel efficiency, or improved 
safety; and
    (vi) Other relevant criteria.
    (2) Project Feasibility. The applicant shall state in detail the 
purpose for the obligations to be guaranteed and shall supplement the 
application by exhibits deemed to be necessary. The applicant shall 
submit the following information to demonstrate the economic feasibility 
of the project over the Guarantee period.
    (i) Relevant market. A written narrative of the market (or potential 
market) for the project including full details on the following, as 
applicable:
    (A) Nature and amount of cargo/passengers available for carriage and 
applicant's projected share (provide also the number of units; i.e., 
containers, trailers, etc.);
    (B) Services or routes in which the Vessel(s) will be employed, 
including an itinerary of ports served, with the arrival and departure 
times, sea time, port time, hours working or idle in port, off hire days 
and reserve or contingency time, proposed number of annual sailings and 
number of annual working days for the Vessel(s) or, with respect to 
Advanced or Modern Shipbuilding Technology, how the equipment will be 
employed;
    (C) Suitability of the Vessel(s) or Advanced or Modern Shipbuilding 
Technology for their anticipated use;
    (D) Significant factors influencing the applicant's expectations for 
the future market for the Vessel(s) or Advanced or Modern Shipbuilding 
Technology, for example, competition, government regulations, 
alternative uses, and charter rates; and
    (E) Particulars of any charters, contracts of affreightment, 
transportation agreements, etc. The narrative should be supplemented by 
providing copies of any marketing studies and/or supporting information 
(for instance, existing or proposed charters, contracts of 
affreightment, transportation agreements, and letters of intent from 
prospective customers).

[[Page 178]]

    (F) The potential for purchasing existing equipment of a reasonable 
condition and age from another source, including information regarding--
    (1) Market assessment concerning the availability and cost of 
existing equipment that may be an alternative to new construction or the 
new technology;
    (2) The cost of modification, reconditioning or reconstruction of 
existing equipment to make it suitable for intended use; and
    (3) Descriptions of any bids or offers which the company had made to 
purchase existing equipment, especially Vessels which currently are 
financed with Title XI Obligations including date of offer, Vessels and 
amount of offer.
    (ii) Revenues. A detailed statement of the revenues expected to be 
earned from the project based upon the information in paragraph (a)(2) 
of this section. The revenues shall be based on a realistic estimate of 
the Vessel(s) or the new technology utilization rate at a breakeven rate 
for the project. A justification for the utilization rate shall be 
supplied and should indicate the number of days per year allowed for 
maintenance, drydocking, inspection, etc.
    (iii) Expenses. A detailed statement of estimated daily vessel 
expense or expenses associated with Advanced or Modern Shipbuilding 
Technology, including the following (where applicable):
    (A) Wages, including staffing (submit itemized staffing schedule and 
wages, identifying the seamen's unions involved), and aggregated as to 
straight time, overtime and fringe benefits;
    (B) Subsistence cost (indicate cost per person per day);
    (C) Fuel cost (specify purchase ports), including estimated fuel 
consumption at design speed loaded and in port;
    (D) Cost of stores, supplies and equipment, segregated as to Deck, 
Engine and Stewards Departments;
    (E) Maintenance and repair cost at midlife of ship (specify in 
years) segregated as to voyage repairs, special surveys, drydocking and 
tailshaft removal, annual survey and structural renewals;
    (F) Insurance costs, Hull and Machinery, Protection and Indemnity, 
War Risk and other (an insurance broker's estimate based upon current 
premium rates, if available, is considered preferable); and
    (G) Other expenses directly allocable to the asset (indicate items 
included).
    (iv) Estimated voyage expense: These items shall include:
    (A) Port expense segregated by port as to agency fees, wharfage and 
dockage and other port expenses;
    (B) Cargo expense, segregated as to stevedoring and other cargo 
expense (show average cost per ton for loading and discharging for each 
port or geographic area);
    (C) Brokerage expense, segregated as to freight and passenger; and
    (D) Other voyage expense segregated as to canal tolls and other 
expense (indicate items included).
    (v) Owner's expenses annually. These expenses shall be segregated as 
to:
    (A) Interest and amortized principal on mortgage indebtedness;
    (B) Estimated government Guarantee Fee; and
    (C) Salaries and other administrative expenses (indicate basis of 
allocations).
    (b) Objective Criteria. The Secretary shall make a finding of 
economic soundness with respect to each proposed project based on an 
assessment of the entire project. In order to be considered for 
approval, a project must meet the following criteria as determined by 
the Secretary:
    (1) The projected long-term demand (equal to length of financing 
being requested) for the particular Vessel(s) or new technology to be 
financed must exceed the supply of similar Vessels or new technology in 
the applicable markets, based on the Secretary's assessment of existing 
equipment, similar Vessels or new technology under construction and the 
projected need for new equipment in that particular segment of the 
maritime industry. Such an assessment shall be determined by the 
Secretary's analysis of the following three elements:
    (i) Conformity of the company's projections with supply and demand 
analyses prepared by the Maritime Administration;

[[Page 179]]

    (ii) Availability of charters, letters of intent, outstanding 
contractual commitments, contracts of affreightment, transportation 
agreements or similar agreements or undertakings; and
    (iii) The applicant's existing market share compared with the market 
share necessary to meet projected revenues.
    (2) A projected cash flow and net income, supported by the findings 
of paragraph (b)(1) of this section, that is sufficient to meet the 
projected Title XI debt service requirements and any other debt 
obligations of the company.



Sec. 298.15  Investigation fee.

    (a) In general. Prior to the issuance of the Letter Commitment the 
applicant shall pay an Investigation Fee, computed as hereinafter 
provided, to the Secretary in the amount stated in the Letter 
Commitment. This fee is imposed to pay for the investigation of the 
project described in the application and the participants in the 
project, the appraisal of properties offered as security, Vessel 
inspection during construction, reconstruction or reconditioning (where 
applicable) and other administrative expenses. If, for any reason, the 
Secretary shall subsequently disapprove the application, one-half of the 
Investigation Fees shall be due and payable.
    (b) Base Fee. The investigation fee shall be one-half of one percent 
on obligations to be issued up to and including $10,000,000 and \1/8\ of 
one percent on all obligations to be issued in excess of $10,000,000. 
The $1,000 filing fee previously paid upon filing the original 
application (described in Sec. 298.3 of this part) shall be credited 
against the investigation fee.



Sec. 298.16  Substitution of participants.

    (a) Application may be made to the Maritime Administration for 
permission to substitute participants to a Mortgage and/or Security 
Agreement in a financing that is receiving assistance authorized by 
Title XI of the Act, both prior and subsequent to amendment by Pub. L. 
92-507. A non-refundable fee shall be imposed, payable at the time of 
application. This fee shall be in addition to the Annual Guarantee Fee 
or annual premium charge for Mortgage insurance, whichever is 
applicable.
    (b) A $3,000 fee shall be required to defray all costs of processing 
and reviewing a joint application by a mortgagor and/or Obligor and a 
proposed transferee of a Vessel or Advanced or Modern Shipbuilding 
Technology, which is security for Title XI debt, if the proposed 
transferee is to assume the Mortgage and/or the Security Agreement.



Sec. 298.17  Evaluation of applications.

    (a) In evaluating project applications, the Secretary shall also 
consider whether the application provides for:
    (1) The capability of the Vessel(s) serving as a naval and military 
auxiliary in time of war or national emergency.
    (2) The financing of the Vessel(s) within one year after delivery.
    (3) The acquisition of Vessel(s) currently financed under Title XI 
by assumption of the total obligation(s).
    (4) The Guarantees extend for less than the normal term for that 
class of vessel.
    (5) In the case of an Eligible Shipyard, the capability of the 
shipyard to engage in naval vessel construction in time of war or 
national emergency.
    (6) In the case of Advanced or Modern Shipbuilding Technology, the 
Guarantees extend for less than the technological life of the asset.
    (b) In determining the amount of equity which must be provided by 
the applicant, the Secretary shall consider, among other things, the 
following:
    (1) The financial strength of the company;
    (2) Adequacy of collateral; and
    (3) The term of the Guarantees.



Sec. 298.18  Financing Advanced or Modern Shipbuilding Technology.

    (a) Initial criteria. The Secretary may approve Guarantees issued to 
finance Advanced or Modern Shipbuilding Technology at a General Shipyard 
Facility. The Secretary will approve such Guarantees after consideration 
of the following factors: whether the Guarantees will aid in the 
transition from naval shipbuilding to commercial ship construction for 
domestic and export

[[Page 180]]

sales, will encourage shipyard modernization, and/or will support 
increased productivity. The applicant shall provide a detailed statement 
with the Guarantee application which will provide the basis for such 
consideration by the Secretary.
    (b) Other conditions. Applications for loan guarantees under this 
section shall not be approved unless the Secretary determines that the 
following requirements have been met:
    (1) The term for such Guarantees will not exceed the reasonable 
economic useful life of the collective assets which comprise this 
technology, as determined by the Secretary;
    (2) There is sufficient collateral to secure the Guarantee; and
    (3) Approval of the application will not preclude approval of any 
other pending application for Advanced or Modern Shipbuilding Technology 
Guarantees which, in the sole opinion of the Secretary, would result in 
a more desirable use of appropriated funds. The Secretary's opinion will 
take into consideration such factors as the types of vessels which will 
be built by the shipyard, the productivity increases which will be 
achieved, the geographic location of the shipyard, the long-term 
viability of the shipyard, the soundness of the financial transaction, 
any financial impact on other Title XI transactions, and the furtherance 
of the goals of the Shipbuilding Act.



Sec. 298.19  Financing Eligible Export Vessels.

    (a) Transmittal to Secretary of Defense. Upon receiving an 
application for a loan Guarantee for an Eligible Export Vessel, the 
Secretary shall promptly provide to the Secretary of Defense notice of 
the receipt of the application. During the 30-day period beginning on 
the date on which the Secretary of Defense receives such notice, the 
Secretary of Defense may disapprove the loan guarantee based on the 
assessment of the Secretary of Defense of the potential use of the 
Vessel in a manner that may cause harm to United States national 
security interests. The Secretary of Defense may not disapprove a loan 
Guarantee under this section solely on the basis of the type of vessel 
to be constructed with the loan Guarantee. The authority of the 
Secretary of Defense to disapprove a loan Guarantee under this section 
may not be delegated to any official other than a civilian officer of 
the Department of Defense appointed by the President, by and with the 
advice and consent of the Senate. The Secretary of Transportation may 
not make a loan guarantee disapproved by the Secretary of Defense.
    (b) Determinations by the Secretary. (1) If the loan Guarantee 
commitment cost of any such Vessel is made available from funds 
transferred from the Secretary of Defense pursuant to section 108 of the 
National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-
160, 107 Stat. 1547), the Vessel must be of at least 5,000 gross tons 
and found by the Secretary to be commercially marketable on the 
international market. Vessels of less than 5,000 gross tons can receive 
Guarantees with funds appropriated to the Department of Transportation.
    (2) Such Guarantees shall not be approved unless:
    (i) The Secretary finds that the construction, reconstruction or 
reconditioning of the Vessel will aid in the transition of United States 
shipyards to commercial activities or will preserve shipbuilding assets 
that would be essential in time of war or national emergency; and
    (ii) The owner of the Vessel agrees with the Secretary that the 
Vessel shall not be transferred to any country designated by the 
Secretary of Defense as a country whose interests are hostile to the 
interests of the United States.
    (3) The Secretary may approve Guarantees issued to finance Eligible 
Export Vessels. Such Guarantee shall not be approved unless the 
Secretary determines that the countries in which the shipowner, its 
charterers, guarantors, or other financial interests supporting the 
transaction, if any, have their chief executive offices or have located 
a substantial portion of their assets, present an acceptable financial 
or legal risk to MARAD's collateral interests. The Secretary's 
determination shall be based on confidential risk assessments provided 
by the Export-Import Bank of the United States and country risk

[[Page 181]]

analyses provided by the Inter-Agency Country Risk Assessment System and 
shall take into account any other factors related to the loan guarantee 
transaction deemed pertinent by the Secretary.



                          Subpart C--Guarantees



Sec. 298.20  Term, redemptions and interest rate.

    (a) In general. To be eligible for Guarantees, Obligations shall 
have a maturity date satisfactory to the Secretary, not exceeding the 
anticipated physical and economic life of the Vessel or Vessels or 
Advanced or Modern Shipbuilding Technology. Such maturity date may be 
less than but in no event more than:
    (1) Twenty-five years from the date of delivery from the shipbuilder 
of a single new Vessel which is to be security for Guarantees;
    (2) Twenty-five years from the date of delivery from the shipyard of 
the last of multiple Vessels which are to be security for the 
Guarantees;
    (3) The later of twenty-five years from the date of original 
delivery of a reconstructed or reconditioned Vessel which is to be 
security for the Guarantees, or at the expiration of the remaining 
useful life of the Vessel, as determined by the Secretary; and
    (4) The technological life of the Advanced or Modern Shipbuilding 
Technology.
    (b) Required redemptions. Where multiple Vessels or multiple 
Advanced Shipbuilding Technology or Modern Shipbuilding Technology 
assets are to be used as security for the Guarantees, as set forth in 
paragraph (a) of this section, the Secretary may require payments of 
principal prior to maturity (redemptions) with respect to all related 
Obligations, as may be deemed necessary to maintain adequate security 
for the Guarantees.
    (c) Interest rate. The interest rate of each Obligation must be 
determined by the Secretary to be reasonable, taking into account the 
range of interest rates prevailing in the private market for similar 
loans and the risks assumed by the Secretary.



Sec. 298.21  Limits.

    (a) Actual Cost basis. The amount of Obligations to be issued shall 
be satisfactory to the Secretary based upon the economic soundness of 
the transaction. Such amount may be less than but in no event more than 
75 percent or 87\1/2\ percent, whichever is applicable under the 
provisions of section 1104A(b)(2) or section 1104B(b)(2) of the Act, of 
the Actual Cost of the Vessel or Vessels or Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology asset(s). If minimum 
horsepower of the main engine is a requirement for Guarantees up to 
87\1/2\ percent of the Actual Cost, the standard with respect to such 
horsepower shall be continuous rated horsepower. Where existing debt is 
being refinanced, pursuant to section 1103A(a)(5) of the Act, the amount 
of new Obligations issued in respect to such existing debt may not 
exceed the lesser of:
    (1) The amount of outstanding debt being refinanced (whether or not 
receiving assistance under Title XI); or
    (2) Seventy-five or 87\1/2\ percent whichever is applicable, of the 
Depreciated Actual Cost of the Vessel or Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology with respect to which the 
new Obligations are being issued.
    (b) Actual Cost items. Actual Cost is comprised essentially of those 
items which would customarily be capitalized as Vessel or Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology construction 
costs such as designing, engineering, constructing (including 
performance bond premiums approved by the Secretary), inspecting, 
outfitting and equipping. There shall be included those cost items 
usually specified in Vessel or Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology construction contracts, e.g., changes and 
extras, cost of owner furnished equipment, shoreside spare parts and 
commitment fees and interest on the Obligations or other borrowings 
during the construction period (excluding interest paid on subordinated 
debt considered to be Equity, and incurred during the construction 
period), and less income realized from investment of Escrow Fund 
deposits

[[Page 182]]

during the construction period. Recognizing the importance that the 
payment of commissions plays in the export market, commissions (which 
represent a portion of the total shipyard contract price) may be 
included in the foreign equipment and services amount of the Actual Cost 
of an export project, provided:
    A majority of the work done by the parties receiving the commissions 
is in the form of design and engineering work, and
    The commissions represent a small amount of the total contract 
price. In addition, Guarantee Fees determined in accordance with the 
provisions of section 1104(e) of the Act shall be included in the items 
of Actual Cost. In approving Actual Cost the Secretary will consider all 
pertinent factors.
    (c) Items excludible from Actual Cost. Actual Cost shall not include 
any other costs such as the following:
    (1) Legal fees or expenses;
    (2) Accounting fees or expenses;
    (3) Commitment fees or interest other than those specifically 
allowed;
    (4) Fees, commissions or charges for granting or arranging for 
financing;
    (5) Fees or charges for preparing, printing and filing an 
application for Title XI Guarantees and supporting documents, for 
services rendered to obtain approval of the application and for 
preparing, printing and processing documents relating to the application 
for Guarantees;
    (6) Underwriting or trustee's fees;
    (7) Federal documentary tax stamps;
    (8) Investigation Fee determined in accordance with section 1104(f) 
of the Act and Sec. 298.15 of this part;
    (9) Predelivery Vessel operating expenses, Vessel insurance premiums 
and other items which may not be properly capitalized by the owner as 
costs of the Vessel under generally accepted accounting principles;
    (10) The cost of the condition survey required by Sec. 298.11(d) of 
this part and all work necessary to meet the standards set forth 
therein;
    (11) The cost to the Shipowner of a Vessel which is to be 
reconstructed or reconditioned, e.g., cost of acquisition or repair 
work;
    (12) Generally not include any amount payable to the shipyard for 
early delivery of the Vessel;
    (13) Generally not include any amount payable to the manufacturer of 
the Advanced Shipbuilding Technology or Modern Shipbuilding Technology 
for early delivery of the equipment to the General Shipyard Facility;
    (14) Predelivery Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology expenses which may not be properly capitalized 
by the General Shipyard Facility as costs of the technology under 
Generally Accepted Accounting Principles; and
    (15) The cost of major foreign components and other foreign 
components for which there is no waiver and their assembly when 
comprising any part of the hull and superstructure of a Vessel.
    (d) Substantiation of Actual Cost. Prior to payment from the Escrow 
Fund or Construction Fund (described in Secs. 298.33 and 298.34 of this 
part), and prior to the final Actual Cost determination for each Vessel 
or Advanced Shipbuilding Technology or Modern Shipbuilding Technology, 
the applicant shall submit to the Secretary documents substantiating all 
claimed costs eligible under Sec. 298.21(b) or, alternatively, 
appropriate certification of such costs by an agent approved by the 
Secretary. These documents may include but need not be limited to copies 
of invoices, change orders, subcontracts, and where required by the 
Secretary, statements from independent certified or independent licensed 
public accountants that the costs for which payment or reimbursement is 
sought were actually paid or are payable with respect to the 
construction of a Vessel or Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology. These documents must be summarized, indexed and 
arranged according to cost categories, pursuant to directions contained 
in forms prescribed by the Secretary.
    (e) Escalation as part of Actual Cost. Escalation clauses in 
construction contracts shall be subject to approval by the Secretary. 
After a review of the base contract price and the escalation clauses, 
the Secretary shall, in order to estimate the Actual Cost amount to be 
stated in the Letter Commitment, add

[[Page 183]]

to the approved base contract price the amount of estimated escalation 
as approved by the Secretary. The Secretary must subsequently approve 
the amount of escalation claimed by the applicant as Actual Cost.
    (f) Moneys received in respect of construction. If the Obligor or 
any Person acting in behalf of the Obligor shall from time to time 
receive moneys due in respect to construction of a Vessel or Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology (described in 
the Security Agreement) from the shipbuilder, guarantors, sureties or 
other Persons, the Obligor shall give written notice of such fact to the 
Secretary. So long as the Guarantees have not been paid by the 
Secretary, the Obligor or other recipient shall promptly make deposit of 
these moneys in a Depository with a written notice that the Depository 
shall hold such moneys on deposit until it receives written instructions 
from the Secretary as to their disposition. The Secretary shall 
determine the extent to which Actual Cost is to be reduced with respect 
to these moneys. In no event shall Actual Cost be reduced with respect 
to payments by the shipyard to a Vessel or Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology owner of liquidated damages 
for late delivery of the Vessel or Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology. If the Secretary shall have paid the 
Guarantees, the Obligor or other recipient shall promptly pay these 
moneys including any liquidated damages to the Secretary for deposit 
into the Federal Ship Financing Fund.
    (g) Depreciated Actual Cost. After a Vessel or Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology has been delivered or 
redelivered (in the case of reconstruction or reconditioning), the 
limitation on the amount of Guarantees shall be 75 or 87\1/2\ percent, 
whichever is applicable, of the Depreciated Actual Cost of the Vessel or 
Advanced Shipbuilding Technology or Modern Shipbuilding Technology.



Sec. 298.22  Amortization of Obligations.

    Generally after Vessel or Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology delivery, and until maturity of the Obligations, 
the Obligor shall be required by provision of the Trust Indenture or 
other part of the Documentation to make periodic payment of interest on 
and principal of the Obligations. Usually, the payment of principal 
(amortization) shall be made semi-annually, but in no event, less 
frequently than on an annual basis, and in either case shall be in equal 
parts (straightline basis), unless the Secretary consents to the 
periodic payment of a constant aggregate amount, comprised of both 
interest and principal components which are variable in amount (level 
debt basis). No other proposed method of amortization will be allowed 
which would reduce the amount of periodic amortization below that 
determined under the straightline or level debt basis at any time prior 
to maturity of the Obligations, except where:
    (a) The Obligor can demonstrate to the satisfaction of the Secretary 
that there will be adequate funds to discharge the Obligations at 
maturity;
    (b) The Obligor establishes a fund acceptable to the Secretary in 
which the Obligor deposits an equal annual amount necessary to redeem 
the outstanding Obligations at maturity; or
    (c) With regard to Eligible Export Vessels, in accordance with such 
other terms as the Secretary determines to be more favorable and to be 
compatible with export credit terms offered by foreign governments for 
the sale of vessels built in foreign shipyards.



Sec. 298.23  Refinancing.

    The Secretary may approve guarantees with respect to Obligations to 
be secured by one or more Vessels or Advanced or Modern Shipbuilding 
Technology and issued to refinance existing debt, whether or not covered 
by mortgage insurance or Guarantees, so long as the existing debt has 
been issued for one of the purposes set forth in Sections 1104(a) (1) 
through (4) of the Act. Section 1104(a)(1) of the Act requires that, if 
the existing indebtedness was incurred more than one year after the 
delivery or redelivery of the related Vessel or Advanced or Modern 
Shipbuilding Technology, the proceeds of such Obligations shall be 
applied to the

[[Page 184]]

construction, reconstruction or reconditioning of other Vessels or 
Advanced or Modern Shipbuilding Technology or for facilities or 
equipment pertaining to marine operation (described in Sec. 298.24 of 
this part). The Secretary may permit the refinancing of existing debt 
but only if any security lien on the Vessel(s) or Advanced or Modern 
Shipbuilding Technology is discharged immediately prior to the placing 
of any Mortgage thereon by the Secretary. The applicant shall satisfy 
all the eligibility requirements set forth in subpart B of this part, 
including economic soundness, as may be necessary. Refinancing of Title 
XI debt only shall be permitted for Advanced or Modern Shipbuilding 
Technology.



Sec. 298.24  Financing facilities and equipment related to marine operations.

    The Secretary may approve Guarantees secured by one or more Vessels 
and issued to finance the construction, reconstruction, or 
reconditioning of facilities or equipment pertaining to marine 
operations. Such facilities or equipment shall be of a specialized 
nature, used principally for servicing vessels and in handling 
waterborne cargo in the close proximity of the berthing area, excluding 
over-the-road equipment (other than chassis and containers), permanent 
or semipermanent structures and real estate.



Sec. 298.25  Excess interest or other consideration.

    The Secretary shall not execute Guarantees if any agreement in the 
Documentation directly or indirectly provides for:
    (a) The payment to an Obligee of interest, or other compensation for 
services which have not been performed, in a manner that such 
compensation or payment is being provided as interest in excess of the 
rate approved by the Secretary; or
    (b) Grants of security to an Obligee in addition to the Guarantees.



Sec. 298.26  Lease payments.

    If payment of principal and interest on Obligations would in any way 
be dependent upon the lease or charter hire payments for a Vessel or 
Advanced Shipbuilding Technology or Modern Shipbuilding Technology that 
is security for the Obligations, the amount and conditions of lease or 
charter payments shall be subject to the Secretary's approval.



Sec. 298.27  Advances.

    (a) In general. In accordance with the provisions of section 207 and 
Title XI of the Act, the Secretary shall have the discretion to make or 
commit to make an advance or payment of funds to, or on behalf of the 
owner, or operator or directly to any other person or entity for items, 
including, but not limited to, principal, interest, insurance and other 
vessel-related expenses or fees. Such advances or payments shall be made 
only to protect, preserve or improve the collateral held as security by 
the Secretary to secure Title XI debt. The applicant making the request 
for an advance shall demonstrate (with market and cash flow analysis and 
other projections) that its problems are of a short term duration (less 
than two years); with the help of an advance(s), the applicant would be 
assisted over its temporary difficulties; and there is adequate 
collateral for the advance.
    (b) Filing requirements. Any company that desires to request an 
advance or other payment, or a commitment to make an advance or other 
payment from the Secretary for the purposes stated in Sec. 298.27 of 
this part, shall apply for such assistance as far in advance as is 
reasonably possible. A request for an advance for principal and interest 
payments shall be received by the Secretary at least 30 days prior to 
the initial payment date. A request for an advance of insurance payments 
shall be received by the Secretary at least 30 days prior to a renewal 
or termination date. The Secretary may consider requests for assistance 
with less notice, upon written documentation of extenuating 
circumstances. Any requests for assistance must be accompanied by 
supporting data with respect to the need for the advance, that financing 
assistance has been sought from other sources, that the company is 
taking and has taken measures to alleviate its situation, financial 
projections, proposed term of the repayment, current and projected 
market conditions, information on other available

[[Page 185]]

collateral, liens and other creditor information, and any other 
information which may be requested by the Secretary.



                        Subpart D--Documentation



Sec. 298.30  Nature and content of Obligations.

    An Obligation, whether issued in the form of a note, bond of any 
type, or other debt instrument, when engraved, printed or lithographed 
on a single sheet of paper shall include on its face the name of the 
Obligor, the principal sum, the rate of interest, the date of maturity, 
and the Guarantee of the United States, authenticated by the Indenture 
Trustee. If the Obligation is typewritten, printed or reproduced by 
other means on several pages of paper, the Guarantee of the United 
States and the authentication certificate of the Indenture Trustee may 
appear at the end of the typewritten Obligation. The instrument which is 
evidence of indebtedness shall also contain all information necessary to 
apprise the Obligees of their rights and responsibilities with respect 
thereto, including, but not limited to, time and manner for payment of 
principal and interest, redemptions, default procedure and notification 
(in case of registered Obligations) of sale or other transfer of the 
instruments.



Sec. 298.31  Mortgage.

    (a) In general. (1) Under normal circumstances, a Guarantee shall 
not be endorsed on any Obligation until the Secretary receives 
satisfactory evidence of a Mortgage in one or more Vessels or a Mortgage 
or other security interest in the Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology (the ``Technologies''), in favor of the 
Secretary. During construction of a new Vessel or any of the 
Technologies, a security interest may be perfected by a filing under the 
Uniform Commercial Code.
    (2) In order to ensure that the Secretary's Mortgages or other 
security interests are valid and enforceable, the Secretary shall 
require that the Obligor obtain legal opinions, in form and substance 
satisfactory to the Secretary, from independent, outside legal counsel 
satisfactory to the Secretary, including foreign independent outside 
legal Counsel with respect to Eligible Export Vessels, which opinions 
shall state, among other things, that the Mortgage or other security 
interest(s) are valid and enforceable:
    (i) In the country in which the Vessel is documented (or, in the 
case of a security interest, in jurisdictions acceptable to the 
Secretary);
    (ii) In the United States; and
    (iii) For vessels operating on specified trade routes, in the 
country or countries involved in this service, unless the Secretary 
determines that those destinations are too numerous, in which case, the 
Secretary will instead require an opinion of foreign validity and 
enforceability in the Vessel's primary port of operation.
    (3) In the case where a Mortgage or security interest on the 
financed assets may not be available or enforceable, the Secretary shall 
require alternative forms of security.
    (4) The Security Agreement shall provide that upon delivery of a new 
Vessel or upon final installation of the Technologies, or at the time 
Guarantees are issued with respect to an existing Vessel or the 
Technologies, a Mortgage on the Vessel and a Mortgage or other security 
interest on the Technologies shall be executed in favor of the 
Secretary, unless the Secretary determines that a Mortgage or a security 
interest is not required in accordance with the preceding sentence.
    (5) The Mortgage shall be filed with the United States Coast Guard 
at the Vessel's port of record, or with the proper foreign authorities 
with respect to an Eligible Export Vessel, and with respect to assets of 
a General Shipyard Facility a Mortgage and security interest shall be 
filed with the proper authorities within the appropriate state and shall 
be delivered to the Secretary after being recorded.
    (b) Mortgage secured by multiple Vessels. When two or more Vessels 
are to be security for Guarantees, the Security Agreement may provide 
that one Mortgage relating to all the Vessels (Fleet Mortgage) shall be 
executed, perfected and delivered to the Secretary by the Obligor. If 
the Fleet

[[Page 186]]

Mortgage relates to undelivered Vessels, the Fleet Mortgage shall be 
executed upon delivery of the first vessel. At the time of each 
subsequent Vessel delivery, the Obligor shall execute a supplement to 
the Fleet Mortgage which makes that Vessel subject to the Secretary's 
Mortgage lien. The Fleet Mortgage shall provide that payment by the 
Obligor of the entire amount of Obligations covered or to be covered by 
Guarantees shall be required to discharge the Fleet Mortgage, regardless 
of the amount of the Secretary's Note or Notes issued and outstanding at 
the time of execution and delivery of the Fleet Mortgage or the number 
of Vessels covered by the Fleet Mortgage. The discharge date of the 
Fleet Mortgage shall be the maturity date of the Secretary's Note. The 
Secretary may require, as authorized by section 1104(c)(2) of the Act, 
such payments of principal prior to maturity (redemptions), with respect 
to all related Obligations, as deemed necessary to maintain adequate 
security for the Guarantees. Each Fleet Mortgage shall provide that in 
the event of constructive total loss, requisition of title or sale of 
any Vessel covered by the Fleet Mortgage, indebtedness represented by 
the Obligations shall be paid, unless the Secretary shall otherwise 
determine that there remains adequate security for the Guarantees, and 
the Vessel shall be discharged from the Mortgage lien.
    (c) Adequacy of collateral. Under normal circumstances, a First 
Preferred Mortgage on the Vessel(s) or Advanced or Modern Shipbuilding 
Technology will be adequate security for the Guarantees. If, however, 
the Secretary determines that the Mortgage on the Vessel(s) or Advanced 
or Modern Shipbuilding Technology is not sufficient to provide adequate 
security, the Secretary, as a condition to approving the Letter 
Commitment or processing the application may require additional 
collateral, such as a mortgage(s) on other vessel(s) or Advanced or 
Modern Shipbuilding Technology or on other assets, special escrow funds, 
pledges of stock, charters, contracts, notes, letters of credit, 
accounts receivable assignments, and guarantees.



Sec. 298.32  Required provisions in documentation.

    (a) Performance under shipyard and related contracts. Generally, 
shipyard and related contracts shall contain provisions for:
    (1) Furnishing by the shipyard or manufacturer of the Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology of 
satisfactory insurance and a satisfactory performance bond where 
Obligations are issued during the construction period, except that if 
the shipyard or manufacturer of the Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology demonstrates to the satisfaction of the 
Secretary that it has sufficient financial resources and operational 
capacity to complete the project, posting of a bond will not be 
required;
    (2) Allowing access to the Vessel or Advanced or Modern Shipbuilding 
Technology, as well as all related work projects being performed by the 
contractor and subcontractors, to a representative of the Secretary, at 
all reasonable times, to inspect performance of the work and to observe 
trials and other tests for the purpose of determining that the Vessel or 
Advanced or Modern Shipbuilding Technology is being constructed, 
reconstructed or reconditioned in accordance with contract plans and 
specifications approved by the Secretary;
    (3) Submitting to the Secretary, upon request, one set of shipyard 
plans, in form and substance satisfactory to the Secretary, for the 
Vessel or Advanced or Modern Shipbuilding Technology as built;
    (4) Making periodic payments for the work in accordance with an 
agreed schedule, submitted by the shipyard in a form acceptable to the 
Secretary, based on percentage of completion, after such percentage and 
satisfactory performance are certified by the Obligor, shipyard and a 
representative of the Secretary as to each payment;
    (5) Prohibiting the use of proceeds from the sale of Obligations for 
the payment of work performed outside the shipyard, unless the Secretary 
consents in writing to such use; and
    (6) Requiring that all components of the hull and superstructure of 
a U.S.-

[[Page 187]]

documented Vessel and an Eligible Export Vessel shall be assembled in 
the United States. If obligations will not be issued during the period 
of construction of a Vessel, shipyard-related contracts shall generally 
include the provisions specified in paragraphs (a)(2) and (a)(3) of this 
section and this paragraph (a)(6).
    (b) Assignments and general covenants from Obligor to Secretary. The 
Obligor shall assign rights and shall covenant with the Secretary, as 
required by the Secretary, including, but not limited to, the following:
    (1) Assignment of all or part of the right, title and interest under 
the construction contract and related contracts, except those rights 
expressly reserved therein by the Obligor relating to such things as 
patent infringement and liquidated damages;
    (2) Assignment of rights to receive all moneys which from time to 
time become due with respect to Vessel or Advanced or Modern 
Shipbuilding Technology construction;
    (3) Assignment, where applicable, of all or a part of the bareboat 
charter, time charter, contracts of affreightment or other agreements 
relating to the use of the Vessel or Advanced or Modern Shipbuilding 
Technology and all hire payable to the Obligor, and delivery to the 
Secretary of required consents by appropriate parties to any such 
assignments;
    (4) Covenants relating to the annual filing of satisfactory evidence 
of continuing United States citizenship, in accordance with 46 CFR part 
355, with the exception of Eligible Export Vessels and shipyards with 
Advanced or Modern Shipbuilding Technology projects; warranty of Vessel 
or Advanced or Modern Shipbuilding Technology title free from all liens 
other than those specifically excepted; maintaining United States 
documentation of the Vessel or documentation under the laws of a country 
other than the United States with regard to an Eligible Export Vessel; 
compliance with the provisions of 46 U.S.C. 31301-31343, except that 
Eligible Export Vessels shall comply with the definition of a 
``preferred mortgage'' in 46 U.S.C. 31301(6)(B), requiring, among other 
things, that the Mortgage shall comply with the mortgage laws of the 
foreign country where the Vessel is documented and shall have been 
registered under those laws in a public register; Notice of Mortgage, 
payment of all taxes (except if being contested in good faith); annual 
financial statements audited by independent certified or independent 
licensed public accountant.
    (5) Covenants to keep records of construction costs paid by or for 
the Obligor's account and to furnish the Secretary with a detailed 
statement of those costs, distinguishing between:
    (i) Items paid or obligated to be paid, attested to by independent 
certified public accountants unless otherwise verified by the Secretary; 
and
    (ii) Costs of American and foreign materials (including services) in 
the hull and superstructure.
    (6) Covenants to maintain Marine and War Risk Hull and Machinery 
insurance on the Vessel or Eligible Export Vessel in an amount equal to 
110% of the outstanding Obligations or up to the full commercial value 
of the Vessel or Eligible Export Vessel, whichever is greater; Marine 
and War Risk Protection and Indemnity insurance; Interim War Risk 
Binders for Hull and Machinery, and Protection and Indemnity coverages 
underwritten by the Maritime Administration as authorized by Title XII 
of the Act; and such additional insurance as may be required by the 
Secretary. All insurance required to be maintained shall be placed with 
the United States Government and American and/or British (and/or other 
foreign, if permitted by the Secretary by prior written notice) 
insurance companies, underwriters' associations or underwriting funds 
approved by the Secretary through marine insurance brokers and/or 
underwriting agents approved by the Secretary. All insurance required to 
be maintained shall be placed under the latest (at the time of issue) 
forms of American Institute of Marine Underwriters policies approved by 
the Secretary and/or under such other forms of policies which the 
Secretary may approve in writing and/or policies issued by or for the 
Maritime Administration insuring the Vessel or Eligible Export Vessel 
against the usual risks provided for under such

[[Page 188]]

forms, including such amounts of increase value other forms of ``total 
loss only'' insurance permitted by the Hull and Machinery insurance 
policies;
    (7) Collateralize other debt due to the Secretary under other Title 
XI financings;
    (8) Covenants to maintain shipyard insurance on the Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology in an amount 
equal to 110% of the outstanding Obligations or up to the full 
commercial value of the technology, whichever is greater, and such 
additional insurance as may be required by the Secretary; and
    (9) Covenants to maintain additional types of insurance as may be 
required by the Secretary with respect to Eligible Export Vessels, i.e. 
political risk insurance, to cover such items as the political, 
financial, and/or economic risk in a foreign country.



Sec. 298.33  Escrow fund.

    (a) Circumstances requiring deposits. The Obligor may be required to 
establish a fund with the Secretary (Escrow Fund) in accordance with 
section 1108(a) of the Act and the Security Agreement. The deposit with 
the Secretary shall be in cash or Federal Reserve Bank funds.
    (b) Principal Deposit-Single Vessel or Advanced or Modern 
Shipbuilding Technology. If a single Vessel or Advanced or Modern 
Shipbuilding Technology is security for the Guarantees, the deposit of 
principal shall be calculated by subtracting from the aggregate 
principal amount of the Obligations sold, 75 or 87\1/2\ percent 
(whichever is applicable under section 1104(b)(2) of the Act) of the 
amount of Actual Cost or Depreciated Actual Cost determined by the 
Secretary to have been paid, as of the date of the deposit, by or for 
the account of the Obligor for construction, reconstruction or 
reconditioning of the Vessel or Advanced or Modern Shipbuilding 
Technology. In the event that Obligations are issued and sold on a date 
subsequent to the initial issuance and sale of Obligations, a deposit 
shall be calculated in the same manner as for the first sale of 
Obligations.
    (c) Principal deposit--multiple Vessels or Advanced or Modern 
Shipbuilding Technology. If multiple Vessels or Advanced or Modern 
Shipbuilding Technology are security for the Guarantees, with the 
Secretary's approval, the Obligor may calculate the aggregate deposit of 
principal amount in the Escrow Fund by computing on an individual Vessel 
or Advanced or Modern Shipbuilding Technology basis by prorating the 
proceeds of the sale of Obligations, within the meaning of the proviso 
in section 1108(a) of the Act, based on the ratio of the Vessel's Actual 
Cost or Depreciated Actual Cost, to the total Actual Cost and 
Depreciated Actual Cost of all Vessels or Advanced or Modern 
Shipbuilding Technology which are security for the Guarantees less 75 or 
87\1/2\ percent (whichever is applicable under section 1104(b)(2) of the 
Act) of the amount of Actual Cost or Depreciated Actual Cost determined 
by the Secretary to have been paid, as of the date of deposit, by or for 
the account of the Obligor for the construction, reconstruction or 
reconditioning of the Vessel or Advanced or Modern Shipbuilding 
Technology for which the deposit is being computed or by allocating 
portions of the proceeds (up to 75 or 87\1/2\ percent, whichever is 
applicable under section 1104(b) of the Act) from the sale of the 
Obligations to specific Vessels or Advanced or Modern Shipbuilding 
Technology and computing the deposit based on the Actual Cost or 
Depreciated Actual Cost of such Vessels or Advanced or Modern 
Shipbuilding Technology paid, as of the date of deposit, by or for the 
account of the Obligor. In the event that Obligations are issued and 
sold on a date subsequent to the initial issuance and sale of 
Obligations, a deposit shall be calculated in the same manner as for the 
first sale of Obligations. The foregoing allocations are for the purpose 
of calculating the deposits only and are not applicable or controlling 
with respect to disbursements from the Escrow Fund.
    (d) Interest deposit. Interest on the aggregate principal amount 
deposited pursuant to paragraphs (b) and (c) of this section, shall be 
computed at the same rate borne by the Obligations, for one interest 
payment period, unless the Secretary shall find the existence of 
adequate consideration or accept other

[[Page 189]]

consideration in lieu of the interest deposit. If the Obligations issued 
and sold bear more than one rate of interest, the amount of interest 
required to be deposited shall be based upon the weighted average of 
such interest rates. The calculation of the amount of interest to be 
deposited shall take into account the principal and interest, if any, 
remaining on deposit in the Escrow Fund.
    (e) Disbursements prior to Termination Date. Unless the Guarantees 
shall become payable prior to the Termination Date (described in 
paragraph (h) of this section) of the Escrow Fund, the Secretary shall, 
subject to the satisfaction of any applicable conditions contained in 
the Security Agreement, and within a reasonable time after written 
request from the Obligor, make disbursements from the fund directly to 
the Indenture Trustee or any Paying Agent for the payment of interest on 
the Obligations, for periods prior to Vessel or Advanced or Modern 
Shipbuilding Technology delivery or redelivery, and to the shipbuilder, 
the Obligor or to any other Person entitled thereto, with respect to 
costs included in Actual Cost. Also, the Secretary may disburse to the 
Obligor, upon request made at least 10 business days prior to, and no 
later than 30 days after the date on which the payment of interest on 
the Obligations is due, any excess, as determined by the Secretary, of 
required interest on deposit in the Escrow Fund on the date of 
disbursement. However, no payment or reimbursement shall be made from 
the Escrow Fund to any Person until:
    (1) The Construction Fund (described in Sec. 298.34 of this part), 
where provided for in the Security Agreement, has been exhausted;
    (2) At least 12\1/2\ or 25 percent (whichever is applicable) of the 
Actual Cost or Depreciated Actual Cost of the Vessel or Advanced or 
Modern Shipbuilding Technology for which the disbursement is requested 
has been paid by or for the account of the Obligor from sources other 
than the proceeds of the Obligations, except that where the Obligor is 
required to pay in 25 percent of the Actual Cost or Depreciated Actual 
Cost, and demonstrates to the Secretary's satisfaction the ability to 
pay in such 25 percent, after the Obligor has paid the first 12\1/2\ 
percent of the Actual Cost or Depreciated Actual Cost, the Obligor may 
be permitted to withdraw moneys from the Escrow Fund, for payment of the 
next 37\1/2\ percent of such Actual Cost or Depreciated Actual Cost, and 
withdraw the remainder of the Escrow Fund moneys after paying in the 
next 12\1/2\ percent of Actual Cost or Depreciated Actual Cost; and
    (3) The Secretary has approved the Actual Cost items and has 
determined that the amounts for which reimbursement is requested have 
been paid and that there has been satisfactory certification as to the 
percentage of completion of the Vessel or Vessels or Advanced or Modern 
Shipbuilding Technology, at least equal to that amount of Actual Cost 
paid, except where the Secretary has specifically consented to an 
alternative procedure.
    (f) Where Guarantees become payable. If, prior to the Termination 
Date of the Escrow Fund, the Guarantees shall become payable by the 
Secretary, all amounts in the Escrow Fund at such time (including 
interest and realized income which have not yet been paid to the 
Obligor) shall be paid into the Federal Ship Financing Fund, created by 
section 1102 of the Act, and be credited against any amounts due or to 
become due to the Secretary from the Obligor with respect to all 
Guarantees, and to the extent not so required, be paid to the Obligor.
    (g) Requisition of title, termination of construction contract or 
total loss of Vessel or Advanced or Modern Shipbuilding Technology. In 
the event of requisition of title to or seizure or forfeiture of the 
Vessel or Advanced or Modern Shipbuilding Technology, termination of the 
construction contract (unless the Obligor and the Secretary elect to 
have the Vessel or Advanced or Modern Shipbuilding Technology completed) 
or the construction-differential subsidy contract (where applicable), or 
the actual or constructive total loss of the Vessel or Advanced or 
Modern Shipbuilding Technology, all moneys remaining on deposit in the 
Escrow Fund may be disbursed by the Secretary for any of the following 
purposes:
    (1) Redemption or payment of Obligations and accrued interest 
thereon to the date of redemption or payment, in

[[Page 190]]

accordance with the applicable provisions of the Documentation relating 
to such redemption or payment, where there is no existing default;
    (2) Payment to the Obligor, if all outstanding Obligations are 
retired and paid other than by payment of the Guarantees, and all 
amounts payable to the Secretary and secured by the Mortgage have been 
paid; and
    (3) Payment in accordance with the priorities set forth in 
Sec. 298.41 of this part, if a default has occurred and if the Secretary 
shall have paid the Guarantees.
    (h) Disbursement upon Termination Date. The Escrow Fund shall 
terminate on a date agreed upon by the Obligor and the Secretary as set 
forth in the Security Agreement (Termination Date). If on such 
Termination Date the full amount of Actual Cost of the Vessel or 
Advanced or Modern Shipbuilding Technology has not been paid by or for 
the account of the Obligor, or is not then due and payable, the Obligor 
and the Secretary may extend the Termination Date by agreement. When the 
Secretary makes a final determination of Actual Cost at the written 
request of the Obligor, or at the instance of the Secretary if the 
Termination Date has occurred without such a request, the Termination 
Date shall be deemed to be the date of such final determination of 
Actual Cost. If payments under the Guarantees have not become due prior 
to the Termination Date, then on or immediately after said Termination 
Date, any balance in the Escrow Fund shall be disbursed by the Secretary 
in the following manner:
    (1) Where the principal amount of the Obligations issued less the 
principal amount of Obligations which have been retired or paid on or 
before such Termination Date, and not availed of as a credit against any 
mandatory redemptions otherwise required to be made on or before such 
Termination Date, shall be in excess of 75 or 87\1/2\ percent (whichever 
is applicable) of the Actual Cost or Depreciated Actual Cost of the 
Vessel or Advanced or Modern Shipbuilding Technology as finally 
determined by the Secretary as of the Termination Date, the Secretary 
shall pay such excess to the Indenture Trustee in accordance with the 
provisions of the Documentation relating to such payment. A written 
notice from the Secretary and the Obligor shall accompany such payment, 
stating the Termination Date and directing the Indenture Trustee to 
redeem an equal amount of Obligations;
    (2) From the balance remaining after the deduction of the principal 
amount of the Obligations to be redeemed, an amount equal to interest 
accrued to the date fixed for redemption of the principal amount of 
Obligations to be redeemed shall be simultaneously paid from the Escrow 
Fund by the Secretary to the Indenture Trustee to be applied to the 
payment of interest to the date to be fixed for redemption. In the event 
the balance remaining in the Escrow Fund, after giving effect to 
paragraph (h)(1) of this section, is insufficient to pay the interest 
accrued to the date fixed for redemption, such balance shall be paid 
from the Escrow Fund to the Indenture Trustee and the Obligor shall 
simultaneously deposit with the Indenture Trustee an amount equal to the 
difference between the balance being paid to the Indenture Trustee from 
the Escrow Fund and the total amount required for the payment of accrued 
interest; and
    (3) Any balance of the Escrow Fund shall be paid to the Obligor.
    (i) Investment and liquidation of the Escrow Fund. The Secretary may 
invest and reinvest deposits to the Escrow Fund in securities which are 
obligations of the United States and with maturities such that 
sufficient cash will be reasonably available to the Escrow Fund as 
required to make periodic authorized disbursements. The Secretary shall 
deposit the Escrow Fund into a special Treasury Department account with 
instructions, pursuant to an agreement with the Obligor, for the 
investment, reinvestment and liquidation of the Escrow Fund.
    (j) Income Earned on the Escrow Fund. If the Guarantees shall not 
have become due, after receiving notice that the Treasury Department has 
deposited income earned on the Escrow Fund into the special account, the 
Secretary shall direct the payment of such income to the Obligor. Income 
shall include the excess of the cash received

[[Page 191]]

from the sale of securities or the payment of securities at maturity 
(less any losses from the sale of securities not made up by payments by 
the Obligor pursuant to provisions of the Security Agreement) over the 
cost thereof, and interest received with respect to the securities.
    (k) Redeposit. If, at any time, the Secretary shall have determined 
that there has been an improper disbursement from the Escrow Fund, the 
Secretary shall give written notice to the Obligor of the amount 
improperly disbursed, the amount to be redeposited into the Escrow Fund 
on account thereof and the reasons for such determination. The Obligor 
shall thereafter promptly redeposit such amount into the Escrow Fund.



Sec. 298.34  Construction fund.

    (a) Deposit. Where the Security Agreement provides for an Escrow 
Fund deposit, usually a provision shall also be included therein for 
establishing Construction Fund deposits. Under the terms of this 
provision, at the time of each sale of Obligations the Obligor shall 
deposit with a Depository, in a special account subject to the joint 
control of the Obligor and the Secretary, cash equal to the principal 
amount of the Obligations issued at such time less the sum of the 
aggregate principal amount then required to be in the Escrow Fund and 
the amount in excess of 12\1/2\ or 25 percent of Actual Cost or 
Depreciated Actual Cost, as applicable (whichever is payable under 
Sec. 298.33(e) of this part) which the Secretary determines has been 
paid by or for the account of the Obligor. The balance of the proceeds 
from the sale of the Obligations, after depositing the amounts required 
to be deposited in the Escrow Fund and/or the Construction Fund, shall 
be retained by the Obligor.
    (b) Withdrawals. The Secretary shall, subject to the satisfaction of 
any applicable conditions contained in the Security Agreement, 
periodically approve disbursements from the Construction Fund directly 
to the Indenture Trustee or any Paying Agent for the payment of interest 
on the Obligations, for periods prior to Vessel or Advanced or Modern 
Shipbuilding Technology delivery, and to the shipbuilder, the Obligor, 
or to any other Person entitled thereto with respect to costs included 
in Actual Cost. The Secretary shall not authorize any disbursement from 
the Construction Fund unless payments have been made by or for the 
account of the Obligor from sources other than the Obligations, in 
accordance with the requirements of paragraphs (e) (2) and (3) of 
Sec. 298.33.
    (c) Redeposit. If, at any time, the Secretary shall have determined 
that there has been an improper disbursement from the Construction Fund, 
the Secretary shall give written notice to the Obligor of the amount 
improperly disbursed, the amount to be redeposited into the Construction 
Fund on account thereof and the reasons for such determination. The 
Obligor shall thereafter promptly redeposit such amount into the 
Construction Fund.



Sec. 298.35  Reserve Fund and Financial Agreement.

    (a) Purpose. In order to provide further security to the Secretary 
and to insure payment of the interest and principal due on the 
Obligations, the Company shall be required to enter into a Title XI 
Reserve Fund and Financial Agreement (Agreement) at the first Closing at 
which Obligations are issued. The Secretary may waive or modify 
provisions of the Agreement based on an evaluation of the aggregate 
security for the Guarantees.
    (b) Financial Covenants for Companies meeting primary financial 
requirements. Covenants shall be imposed on the Company which is subject 
to compliance with the primary financial requirements at Closing, set 
forth in Sec. 298.13(d), as follows:
    (1) Continuous covenants. So long as Guarantees are in effect the 
Company shall not, without the prior written consent of the Secretary, 
undertake any actions prohibited by the Documentation, which actions 
include but are not limited to those of the following nature:
    (i) Enter into a service, management or operating agreement with 
respect to a Vessel or Advanced or Modern Shipbuilding Technology 
financed with the assistance of Title XI Guarantees;

[[Page 192]]

    (ii) Sell, transfer or demise charter the Vessel or transfer the 
Vessel to a Related Party under any form of charter or contract,
    (iii) Sell or transfer a substantial part of its assets, enter into 
a merger or consolidation, engage in new business activities not 
directly connected with marine operations or guarantee (or otherwise be 
liable for) debts of other Persons.
    (iv) Pay any dividend except as may be permitted by paragraph 
(b)(1)(iv) (A) or (B) of this section. If the Company is party to an 
operating-differential subsidy contract, the payment of dividends is 
subject to the provisions of Sec. 298.35(g).
    (v) Sell, transfer, or lease any Modern or Advanced Shipbuilding 
Technology financed with the assistance of Title XI guarantees or 
transfer such technology to a Related Party under any form of contract.
    (A) From retained earnings in an amount specified in paragraph 
(b)(1)(iv)(C) of this section providing that the year in which the 
dividend is paid there is no operating loss in the current fiscal year 
to the date of the payment of the dividend and
    (1) There was no operating loss in the immediate preceding three 
fiscal years, or
    (2) There was a one year operating loss during the immediate 
preceding three fiscal years and
    (i) Such loss was not in the immediate preceding fiscal year, and
    (ii) There was positive net income for the three year period.
    (B) If dividends are not payable under paragraph (b)(1)(iv)(A) of 
this section, a dividend can be paid in an amount equal to the total 
operating net income for the immediate preceding three fiscal year 
period provided that
    (1) There were no two successive years of losses,
    (2) In the year in which the dividend is paid there is no operating 
loss in such fiscal year to the date of payment of the dividend, and
    (3) The dividend paid would not exceed an amount specified in 
paragraph (b)(1)(iv)(C) of this section.
    (C) Dividends may be paid from earnings of prior years in an 
aggregate amount equal to:
    (1) 40 percent of the Company's total net income after tax for each 
of the prior years, less any dividends that were paid in such years; or
    (2) The aggregate of the Company's total net income after tax for 
such prior years, providing that after the payment of such dividend, the 
Company's long term debt does not exceed its net worth. In computing net 
income extraordinary gains, such as gains from the sale of assets, etc., 
shall be excluded.
    (2) Additional Covenants which may become applicable. If the Company 
shall at any time no longer satisfy the primary financial requirements, 
or such condition would occur after giving effect to any of the proposed 
transactions set forth below, the Company shall not, without the prior 
written consent of the Secretary, undertake any actions prohibited by 
the Documentation, which actions include but are not limited to those of 
the following nature:
    (i) Withdraw or redeem capital, covert capital into debt, make 
distributions, or pay any dividends, provided, however, if the Company 
is subject to an operating-differential subsidy contract, the dividend 
restriction shall be governed by Sec. 298.35(g);
    (ii) Make loans, advances, investments in or repayments of existing 
debts to a Related Party, stockholders, officers or directors;
    (iii) Incur indebtedness or become subject to any liens (except if 
necessary in the ordinary course of existing business); acquire fixed 
assets or become liable (directly or indirectly) under charters or 
leases (having a term of six months or more) for the payment of charter 
hire or rent on all such charters or leases which have annual payments 
aggregating in excess of an amount specified by the Secretary in the 
Agreement;
    (iv) Pay salaries in excess of amounts specified in the Agreement, 
pay subordinated indebtedness or make loans; or
    (v) Invest in securities other than those that qualify as eligible 
investments under the Agreement.
    (c) Financial Covenants for Companies meeting the special financial 
requirements. Covenants shall be imposed on the Company which is subject 
to the

[[Page 193]]

special financial requirements at Closing, set forth in Sec. 298.13(e), 
as follows:
    (1) Continuous covenants. So long as the Guarantees are in effect 
the Company shall not, without the prior written consent of the 
Secretary, undertake any actions, prohibited by the Documentation, which 
actions include but are not limited to those of the following nature.
    (i) Enter into a service, management or operating agreement for a 
Vessel or Advanced or Modern Shipbuilding Technology financed with the 
assistance of Title XI Guarantees;
    (ii) Sell, transfer or demise charter the Vessel or transfer the 
Vessel to a Related Party under any form of Charter or Contract.
    (iii) Sell or transfer a substantial part of its assets, enter into 
a merger or consolidation, engage in any new business activities not 
directly connected with marine operations or guarantee (or otherwise 
become liable for) debts of other Persons;
    (iv) Incur indebtedness or become subject to any liens (except if 
necessary in the ordinary course of existing business); acquire fixed 
assets or become liable (directly or indirectly) under charters or 
leases (having a term of six months or more) for the payment of charter 
hire or rent on all such charters or leases which have annual payments 
aggregating in excess of an amount specified for the Secretary in the 
Agreement;
    (v) Make any loans or invest in any securities other than Eligible 
Investments for Title XI Reserve Fund;
    (vi) Pay any subordinated indebtedness other than in accordance with 
a subordination agreement approved by the Secretary; or
    (vii) Sell, transfer, or lease any Advanced or Modern Shipbuilding 
Technology financed with the assistance of Title XI guarantees or 
transfer such technology to a Related Party under any form of contract.
    (2) Additional covenants which may become applicable. If the Company 
shall at any time no longer satisfy the special financial requirement 
(after including the annual financial liability relating to the 
Obligations as a current liability in computing Working Capital), or 
such condition would occur after giving effect to any proposed 
transaction set forth below, the Company shall not, without the prior 
written consent of the Secretary, undertake any actions prohibited by 
the Documentation, which actions include but are not limited to those of 
the following nature:
    (i) Withdraw or redeem capital, convert capital into debt, make 
distributions, or pay any dividend, provided however, if the Company is 
subject to an operating-differential subsidy contract, the dividend 
restriction shall be governed by Sec. 298.35(g);
    (ii) Make loans, advances, investments or prepayments of existing 
debts to a Related Party, stockholders, officers or directors, or invest 
in the securities of any Related Party; or
    (iii) Pay salaries in excess of amounts specified in the Agreement.
    (3) Covenants where Company's financial condition improves to meet 
primary financial requirements. Whenever the Company, based on a review 
of its financial position, determines that it meets the primary 
financial requirements set forth in Sec. 298.13(d), it may inform the 
Secretary of this fact, and submit such financial statements and all 
additional information which the Secretary shall consider necessary to 
verify compliance with such financial requirements. With the consent of 
the Secretary, the Company may elect thereafter to be subject to 
covenants applicable to a Company which had satisfied the primary 
financial requirements at Closing.
    (d) Title XI Reserve Fund Net Income. The Agreement shall provide 
that within 105 days after the end of its accounting year, the Company 
shall compute its net income attributable to the operation of one or 
more Vessels that were constructed, reconstructed, reconditioned or 
refinanced with Title XI financing assistance (Title XI Reserve Fund Net 
Income). The computation utilizes a ratio expressed as a percentage, and 
applies this percentage to the Company's total net income after taxes. 
The numerator of the ratio shall be the total original capitalized cost 
of all Company Vessels (whether leased or owned) which were constructed, 
reconstructed, reconditioned or refinanced with the assistance of 
Guarantees. The denominator shall be the total original

[[Page 194]]

capitalized cost of all the Company's fixed assets. In the case of 
Advanced or Modern Shipbuilding Technology, the Agreement shall provide 
that within 105 days after the end of its accounting year, the Company 
shall submit its audited financial statements showing its net cash flow 
in a manner acceptable to the Secretary, in lieu of any other 
computation of Reserve Fund Net Income specified herein for Vessels. The 
net income after taxes, computed in accordance with generally accepted 
accounting principles, shall be adjusted as follows:
    (1) The depreciation expense applicable to the accounting year shall 
be added back.
    (2) There shall be subtracted:
    (i) An amount equal to the principal amount of debt required to be 
paid or redeemed, and actually paid or redeemed by the Company (other 
than from the Title XI Reserve Fund) during the year; and
    (ii) The principal amount of Obligations retired or paid (as defined 
in the Security Agreement), prepaid or redeemed, in excess of the 
required redemptions or payments which may be used by the Company as a 
credit against future required redemptions or other required payments 
with respect to the Obligations.
    (e) Deposits. Unless the Company, as of the close of its accounting 
year, was subject to and in compliance with the primary financial 
requirements set forth in Sec. 298.13(d), the Company shall make one or 
more deposits to a special joint depository account with the Secretary 
(the Title XI Reserve Fund) to be established pursuant to an agreement 
in writing (Depository Agreement) at the time the first deposit is 
required to be made. The amount of deposit as to any year, or period 
less than a full year, where applicable, shall be determined as follows:
    (1) If the Company is the owner of the Vessel or Advanced or Modern 
Shipbuilding Technology, an amount (pro rated for a period of less than 
a full year) that is equal to 10 percent of the Company's aggregate 
original equity investment in the Vessel or Vessels or Advanced or 
Modern Shipbuilding Technology shall be deducted from Title XI Reserve 
Fund Net Income.
    (2) Fifty percent of the Title XI Reserve Fund Net Income adjusted 
where applicable, in accordance with paragraph (e)(1) of this section 
shall be deposited into the Title XI Reserve Fund.
    (3) There shall also be deposited any additional amounts that may be 
required, pursuant to provisions of the Security Agreement or any other 
agreement in the documentation to which the Company is a party.
    (4) Irrespective of the Company's deposit requirement, as stated in 
preceding paragraphs (e) (1) through (3) of this section, the Company 
shall not be required to make any deposits into the Title XI Reserve 
Fund if any of the following events shall have occurred:
    (i) The Company shall have discharged the Obligations and related 
Secretary's Note and shall have paid other sums secured under the 
Security Agreement and Preferred Mortgage;
    (ii) All Guarantees with respect to outstanding Obligations shall 
have terminated pursuant to the provisions of the Security Agreements, 
other than by reason of payment of the Guarantees; or
    (iii) The amount in the Title XI Reserve Fund, (including any 
securities at market value), is equal to, or in excess of 50 percent of 
the principal amount of outstanding Obligations.
    (5) In the case of Advanced or Modern Shipbuilding Technology, 
unless the shipyard as of the close of its accounting year was subject 
to and in compliance with the primary financial requirements, the 
shipyard shall make a deposit at two percent of its net cash flow, as 
defined by GAAP, and as shown on its audited financial statements.
    (f) Fund in lieu of Title XI Reserve Fund. If the Company has 
established a Capital Construction Fund (CCF), pursuant to section 607 
of the Act, whether interim or permanent, at any time when a deposit 
would otherwise be required to be made into the Title XI Reserve Fund, 
and the Company elects to make such deposits to the CCF, the Company 
shall enter into an agreement, satisfactory to the Secretary, providing 
that all such deposits of assets therein shall be security (CCF Security 
Amount) to the United States in lieu of the Title XI Reserve Fund. The 
deposit requirements of the Title XI

[[Page 195]]

Reserve Fund and Financial Agreement shall be deemed satisfied by 
deposits of equal amounts in the CCF, and withdrawal of the CCF Security 
Amount shall be subject to the Secretary's prior written consent. If, 
for any reason, the CCF terminates prior to the payment of the 
Obligations, the Secretary's Note and all other amounts due under or 
secured by the Security Agreement or Mortgage, the CCF Security Amount 
shall be deposited or redeposited in the Title XI Reserve Fund.
    (g) Dividend restrictions applicable to companies who are parties to 
an operating-differential subsidy contract. [Reserved]



Sec. 298.36  Annual Guarantee Fee.

    (a) Rates in general. For annual periods, beginning with the date of 
the Security Agreement and prior to the delivery date of a Vessel or 
Advanced or Modern Shipbuilding Technology, the Secretary shall charge 
the Obligor an annual fee (Guarantee Fee) at a rate of not less than \1/
4\ of 1 percent and not more than \1/2\ of 1 percent of the excess of 
the average principal amount of the Obligations estimated to be 
outstanding during the annual period covered by said Guarantee Fee over 
the average principal amount, if any, on deposit in the Escrow Fund 
during said annual period (Average Principal Amount of Obligations 
Outstanding). For annual periods beginning with the delivery date of a 
Vessel or Advanced or Modern Shipbuilding Technology, the Guarantee Fee 
shall be imposed at an annual rate of not less than \1/2\ of 1 percent 
and not more than 1 percent of the Average Principal Amount of 
Obligations Outstanding during the annual period covered by the 
Guarantee Fee. The Obligor shall be responsible for payment of the 
Guarantee Fee.
    (b) Rate calculation. The Guarantee Fee rate generally shall vary 
inversely with the ratio of Equity to Long Term Debt of the Person 
considered by the Secretary to be the primary source of credit in the 
transaction (Credit Source), e.g., the long term time charterer (where 
the charter hire represents the source of payment of interest and 
principal with respect to the Obligations), the guarantor of the 
Obligations, Obligor or the bareboat charterer. Where the ratio of 
Equity to Long Term Debt (Variable Rate) is used, the Secretary may make 
such adjustments to the computation of Equity and Long Term Debt 
considered necessary to reflect more accurately the financial condition 
of the Credit Source. The determination of Equity and Long Term Debt 
shall be based on information contained in forms or statements on file 
with the Secretary prior to the date on which the Guarantee Fee is to be 
paid. With the consent of the Secretary, there shall be included in 
equity, but excluded from Long Term Debt, any subordinated indebtedness 
representing loans to the credit source, evidence of which has been 
delivered to the Secretary. The Secretary may establish a fixed rate or 
other method of calculation of the Guarantee Fee, upon an evaluation of 
the aggregate security for the Guarantees.
    (c) Variable Rate prior to Vessel or Advanced or Modern Shipbuilding 
Technology delivery. For annual periods beginning prior to the delivery 
date of a Vessel or Advanced or Modern Shipbuilding Technology being 
constructed, reconstructed, or reconditioned, the Guarantee Fee shall be 
determined as follows:
    (1) If the Equity is less than 15 percent of the Long Term Debt, the 
annual Guarantee Fee rate shall be \1/2\ of 1 percent of the Average 
Principal Amount of Obligations Outstanding during the annual period 
covered by the Guarantee Fee.
    (2) If the Equity is at least 15 percent of the Long Term Debt, but 
less than the Long Term Debt, the annual Guarantee Fee rate shall be \3/
8\ of 1 percent of the Average Principal Amount of Obligations 
Outstanding during the annual period covered by the Guarantee Fee.
    (3) If the Equity is equal to or exceeds the Long Term Debt, the 
annual Guarantee Fee rate shall be \1/4\ of 1 percent of the Average 
Principal Amount of Obligations Outstanding during the annual period 
covered by the Guarantee Fee.

[[Page 196]]

    (d) Variable Rate after Vessel or Advanced or Modern Shipbuilding 
Technology delivery. For annual periods beginning on or after the Vessel 
or Advanced or Modern Shipbuilding Technology delivery date, the 
Guarantee Fee shall be determined as follows:
    (1) If the Equity is less than 15 percent of the Long Term Debt, the 
annual Guarantee Fee rate shall be 1 percent of the Average Principal 
Amount of Obligations Outstanding during the annual period covered by 
the Guarantee Fee.
    (2) If the Equity is at least 15 percent of the Long Term Debt but 
less than 60 percent of the Long Term Debt, the annual Guarantee Fee 
rate shall be \3/4\ of 1 percent of the Average Principal Amount of 
Obligations Outstanding during the annual period covered by the 
Guarantee Fee.
    (3) If the Equity is at least 60 percent of the Long Term Debt, but 
less than the Long Term Debt, the annual Guarantee Fee rate shall be \5/
8\ of 1 percent of the Average Principal Amount of Obligations 
Outstanding during the annual period covered by the Guarantee Fee.
    (4) If the Equity shall equal or exceed the Long Term Debt, the 
Guarantee Fee rate shall be \1/2\ of 1 percent of the Average Principal 
Amount of Obligations Outstanding during the annual period covered by 
the Guarantee Fee.
    (e) Payment of Guarantee Fee. The Guarantee Fee covering the full 
period of the stated maturity of the Obligations commencing with the 
date of the Security Agreement shall be paid to the Secretary 
concurrently with the execution and delivery of said Agreement. The 
project's entire Guarantee Fee payment shall be made by the Obligor to 
the Secretary in an amount equal to the sum of the present value of the 
separate products obtained by applying the Guarantee Fee rate to the 
projected amount of the Obligations Outstanding for each year of the 
stated maturity of the Obligations. In calculating the present value 
used in determining the amount of the Guarantee Fee to be paid, MARAD 
will use a discount rate based on information contained in the 
Department of Commerce's Economic Bulletin Board quarterly rates. Under 
no circumstances will the Secretary refund the Guarantee Fee to the 
Obligor. A Guarantee Fee paid pursuant to this section may be included 
in Actual Cost and is eligible to be financed.
    (f) Proration of Guarantee Fee. The Guarantee Fee shall be prorated 
where a Vessel delivery is scheduled to occur during the annual period 
with respect to which payment of said Guarantee Fee is being made, as 
follows:
    (1) Undelivered Vessel. If the Guarantee Fee relates to an 
undelivered Vessel, the predelivery rate is applicable to the Average 
Principal Amount of Obligations Outstanding for the period from the date 
of the Security Agreement to the delivery date, and the delivered Vessel 
rate is applicable for the balance of the annual period in which the 
delivery occurs.
    (2) Multiple Vessels. If the Guarantee Fee relates to more than one 
Vessel, the amount of outstanding Obligations shall be allocated to each 
Vessel in the manner prescribed in Sec. 298.33(d), and an amount shall 
be determined for each Vessel by using the rate that is applicable under 
paragraph (c) or (d) of this section and the proration as set forth 
above. The Guarantee Fee shall be the aggregate of the amounts 
calculated for each Vessel.



Sec. 298.37  Examination and audit.

    The Secretary shall have the right to examine and audit the books, 
records (including original logs, cargo manifests and similar records) 
and books of account, which pertain directly to the project, of the 
Obligor, bareboat charterer, time charterer or any other Person who has 
control of or a financial interest in a Vessel or Advanced or Modern 
Shipbuilding Technology, as well as records of a Related Party and 
domestic agents connected with such Persons, and shall have full, free 
and complete access thereto at all reasonable times. Also, the Secretary 
shall have full, free and complete access at all reasonable times to 
each Vessel or Advanced or Modern Shipbuilding Technology with respect 
to which Guarantees or an insurance contract is in force. When a Vessel 
is in port or undergoing repairs, the Secretary may make photostatic or 
other copies of any books, records and other relevant

[[Page 197]]

documents or papers being examined or audited. Adequate office space and 
other facilities reasonably required by any representatives of the 
Secretary engaged in an examination, audit or inspection shall be 
furnished without charge by the Person in control of the premises where 
the examination or audit is being conducted.



Sec. 298.38  Partnership agreements.

    Partnership agreements shall be in form and substance satisfactory 
to the Secretary prior to any Guarantee closing, especially relating, 
but not limited to, four basis areas:
    (a) Duration of the partnership,
    (b) adequate partnership funding requirements and mechanisms,
    (c) dissolution of the partnership and the withdrawal of a general 
partner and
    (d) the termination, amendment, or other modification of the 
partnership agreement without the prior written consent of the 
Secretary.



Sec. 298.39  Exemptions.

    The Secretary may exempt an applicant from any requirement of this 
Part not required by law, in exceptional cases, on written findings 
that:
    (a) The case materially involves factors not considered in the 
promulgation of this part;
    (b)(1) a national emergency makes it necessary to approve the 
exemption or
    (2) the financial liability of the United States will be 
substantially relieved;
    (c) the exemption will not substantially affect effective regulation 
of the Title XI program, consistent with the objectives of this part; 
and
    (d) exemption will not be unjustly discriminatory. In the case of 
Eligible Export Vessels, the Secretary may also exempt an applicant from 
any requirement of this part not required by law if the Secretary makes 
a written determination that such exemption would assist in creating 
financing terms that would be compatible with export credit terms for 
the sale of vessels built in shipyards other than those in the United 
States.



Subpart E--Defaults and Remedies, Reporting Requirements, Applicability 
                             of Regulations



Sec. 298.40  Defaults.

    (a) In General. Provisions concerning the existence and declaration 
of a default and demand for payment of the Obligations (described in 
paragraphs (b) and (c) of this section) shall be included in the 
Security Agreement and in other parts of the Documentation.
    (b) Payment Default. In the case of any default in the payment of 
principal or interest with respect to the Obligations (provided that the 
Secretary shall not have, upon such terms as may be provided in the 
Obligation or related agreements, prior to that demand, assumed the 
obligor's rights and duties under the Obligation and agreements and 
shall have made any payments in default), the following procedures shall 
be applicable:
    (1) No demand shall be made for payment under the Guarantees unless 
the default shall have continued for 30 days (Payment Default).
    (2) After the expiration of said 30-day period, demand for payment 
of all amounts due under the Guarantees must be made no later than 60 
days thereafter.
    (3) After demand for payment is made by or on behalf of the 
Obligees, the Secretary shall make payment under the Guarantees, except 
if the Secretary determines that a Payment Default has not occurred or 
that such Payment Default has been remedied prior to demand being made.
    (c) Security Default. If a default occurs under the Security 
Agreement which is other than a Payment Default (Security Default), the 
Secretary, as provided in section 1105(b) of the Act, shall have the 
sole discretion to declare such default a Security Default and may 
notify the Obligee or agent of the Obligee of such Security Default, 
stating that demand for payment under the Guarantees must be made no 
later than 60 days after the date of such notification.
    (d) Payment of Guarantees. If demand for payment of the Guarantees 
is made, the Secretary shall, no later than 30 days after the date of 
such demand

[[Page 198]]

(provided that the Secretary shall not have, upon such terms as may be 
provided in the Obligations or related agreements, prior to that demand, 
assumed the Obligor's rights and duties under the Obligation and 
agreements and shall have made any payments in default), make payment to 
the Obligees, Indenture Trustee or any other agent of the unpaid 
principal amount of Obligations and unpaid interest accrued and accruing 
thereon up to, but not including, the date of payment.



Sec. 298.41  Remedies after default.

    (a) In general. Provisions governing remedies after a default, which 
relate to rights and duties of the Obligor, the Secretary and other 
Persons (where appropriate), shall be included in the Security Agreement 
or in other parts of the Documentation.
    (b) Action by Secretary. After a default has occurred and is 
continuing and before making payment required under the Guarantees, the 
Secretary may take the Vessel or Advanced or Modern Shipbuilding 
Technology and hold, lease, charter, operate or use the Vessel or 
Advanced or Modern Shipbuilding Technology, accounting only for the net 
profits to the Obligor. After making payment required under the 
Guarantees, the Secretary may initiate or otherwise participate in legal 
proceedings of every type, or take any other action considered 
appropriate, to protect rights and interests granted to the Secretary by 
sections 1105(c), 1105(e) and 1108(b) of the Act, the Security Agreement 
or other applicable provisions of law and of the Documentation.
    (c) Security proceeds to Secretary. The Secretary's interest in 
proceeds realized from the disposition of or collection with respect to 
security granted to the Secretary in consideration for the Guarantees 
(except all proceeds from the sale, requisition, charter or other 
disposition of property purchased by the Secretary at a foreclosure or 
other public sale, which proceeds shall belong to and vest exclusively 
in the Secretary), shall be an amount equal to, but not in excess of, 
the sum of (in order of priority of application of the proceeds):
    (1) Guarantee Fees, if any, due the Secretary under the Security 
Agreements;
    (2) All moneys due and unpaid and secured by the Mortgage or 
Security Agreement;
    (3) All advances, including interest thereon, by the Secretary, 
pursuant to the Security Agreement and all reasonable charges and 
expenses of the Secretary;
    (4) The accrued and unpaid interest on the Secretary's Note;
    (5) The accrued and unpaid balance of the principal of the 
Secretary's Note; and
    (6) To the extent of any collaterization by the Obligor of other 
debt due to the Secretary from the Obligor under other Title XI 
financings, such other Title XI debt.
    (d) Security proceeds to Obligor. The Obligor shall be entitled to 
the proceeds from the sale or other disposition of security, described 
in paragraph (c) of this section, if and to the extent that the proceeds 
realized are in excess of the amounts described in paragraphs (c) (1) 
through (6) of this section.



Sec. 298.42  Reporting requirements--financial statements.

    The financial statements of the Company shall be audited at least 
annually, in accordance with generally accepted auditing standards, by 
independent certified public accountants licensed to practice by the 
regulatory authority of a State or other political subdivision of the 
United States or, licensed public accountants licensed to practice by 
the regulatory authority or other political subdivision of the United 
States on or before December 31, 1970. In the case of Eligible Export 
Vessels, the accounts of the Company shall be audited at least annually, 
and the Secretary may require that the financial statements be in 
accordance with generally accepted accounting principles, by accountants 
as described in the first sentence of this section or by independent 
public accountants licensed to practice by the regulatory authority or 
other political subdivision of a foreign country, provided such 
accountants are satisfactory to the Secretary. The accountants 
performing such audits may be the regular auditors of the Company.

[[Page 199]]

    (a) Reports of Company and other Persons. Except as otherwise 
required by the Secretary, the Company shall file a semiannual financial 
report and an annual financial report, prepared in accordance with 
generally accepted accounting principles, with the Maritime 
Administration as specified in the Documentation. Included shall be the 
balance sheet and a statement of paid-in-capital and retained earnings 
at the close of the required reporting period, a statement of income for 
the period and any other statement that the Secretary shall consider 
necessary to accurately reflect the Company's financial condition and 
the results of its operations. By letter to the Company, the Secretary 
shall specify the form required for reporting and the number of copies 
to be submitted. The Secretary may, by notice to the Company, also 
require the Company to submit financial statements of any other Person, 
directly or indirectly participating in the project, if the financial 
condition of that Person affects the Secretary's security for the 
Guarantees. The required financial report for the annual period shall be 
due within 105 days after the close of each fiscal year of the Company, 
commencing with the first fiscal year ending after the date of the 
Security Agreement. The required semiannual report shall be due within 
105 days after each semiannual period, commencing with the first 
semiannual period ending after the date of the Security Agreement. The 
annual report shall be accompanied by the public accountant's report 
based on an audit of the company's financial statements. An audit by the 
public accountants of the financial statements contained in the 
company's semiannual report may be required by the Secretary. 
Certification of the semiannual report by the accountants may be 
required by the Secretary. Where independent certification is not 
required, a responsible corporate officer shall attach a certification 
that such report is based on the accounting records and, to the best of 
that officer's knowledge and belief, is accurate and complete.
    (b) Leveraged lease financing. If the method of financing involved 
is a leveraged lease financing, or a trust is the owner of the Vessels, 
the requirements for annual and semiannual accounting reports of the 
Obligor may be modified accordingly by the Secretary.
    (c) The Company shall furnish, along with its semi-annual report, a 
letter of confirmation issued by its insurance underwriter(s) or 
broker(s) that the Company has paid premiums on insurance applicable to 
the preservation, protection and operation of the asset, which 
information shall state the term for which the insurance is in force.



Sec. 298.43  Applicability of the regulations.

    The regulations in this part shall be in effect as to all Letter 
Commitments, commitments to guarantee Obligations and Guarantees of 
Obligations made, issued or entered into after the effective date hereof 
pursuant to section 1104(a) of the Act, and all mortgages and loans 
covered thereby. These regulations supersede those issued under part 298 
of this title (43 FR 60912) as of the effective date hereof, but shall 
not affect any Letter Commitments, commitment for Guarantees, Guarantees 
or contracts of insurance in existence on the effective date of these 
regulations. The regulations in this part may be amended, but said 
amendments shall have no effect upon any existing Letter Commitments, 
guarantees, insurance contracts, commitments for Guarantees or 
Documentation.



                  Subpart F--Administration [Reserved]

[[Page 200]]



                        SUBCHAPTER E  [RESERVED]





                 SUBCHAPTER F--POSITION REPORTING SYSTEM





PART 307--ESTABLISHMENT OF MANDATORY POSITION REPORTING SYSTEM FOR VESSELS--Table of Contents




Sec.
307.1  Purpose.
307.3  Definitions.
307.5  Provisions of general applicability.
307.7  Information required in report.
307.9  When to report.
307.11  Report changes.
307.13  Where to report.
307.15  Release of information from reports.
307.17  Distress messages and hostile action reports.
307.19  Penalties.

    Authority: Secs. 204(b), 212(A), 1203(a), Merchant Marine Act, 1936, 
as amended (46 U.S.C. 1114(b), 1122(a), 1283)); Pub. L. 97-31; 46 CFR 
1.66.

    Source: 51 FR 18329, May 19, 1986, unless otherwise noted.



Sec. 307.1  Purpose.

    This part establishes that operators of U.S.-flag oceangoing vessels 
in U.S. foreign trade and certain foreign-flag vessels as described in 
46 U.S.C. 1283 must report on their locations according to the 
provisions of this regulation to enhance the safety of vessel operations 
at sea and provide a contingency for events of national emergency.



Sec. 307.3  Definitions.

    As used in this part:
    (a) Administrator means the Maritime Administrator of the Department 
of Transportation.
    (b) MARAD means the Maritime Administration, Department of 
Transportation.
    (c) Coast Guard means the United States Coast Guard, Department of 
Transportation.
    (d) AMVER means the Automated Mutual-Assistance Vessel Rescue System 
operated by the U.S. Coast Guard as it applies to U.S.-flag ships and 
certain non-U.S.-flag ships in U.S. foreign commerce under this 
regulation.



Sec. 307.5  Provisions of general applicability.

    (a) The following operators must comply with the reporting 
requirements contained in this part:
    (1) Operators of United States-flag vessels of one thousand gross 
tons or more, operating in the foreign commerce of the United States.
    (2) Operators of foreign-flag vessels of one thousand gross tons, or 
more, for which an Interim War Risk Insurance Binder has been issued 
under the provisions of Title XII, Merchant Marine Act, 1936, as amended 
(46 U.S.C. 1281 et seq.).
    (b) Operators of other merchant vessels may choose to submit reports 
and have voyage information forwarded to MARAD, when approved by the 
Coast Guard and MARAD. Information voluntarily provided by them will be 
released by Coast Guard only for safety purposes or to satisfy certain 
advance notification requirements of 33 CFR part 160. Requests should be 
addressed to the Maritime Administration, 400 Seventh Street, SW., 
Washington, DC 20590, Attn: MAR-742.



Sec. 307.7  Information required in report.

    (a) Types of Reports. Reports on vessel departure, arrival, position 
and deviation are required under this part. Sailing plans are optional, 
and may be sent prior to departure, or may be combined with departure 
reports.
    (b) Report Content. Content of each type of required report are 
specified below. Note that the word ``MAREP'' must be included in the 
text of each message if MARAD is to receive the information.
    (1) Sailing Plan Report. Sailing plan reports, though optional, must 
contain the following:
    (i) Vessel name,
    (ii) International Radio Call Sign,
    (iii) Intended time of departure,
    (iv) Port of departure and latitude/longitude,
    (v) Port of destination and latitude/longitude,
    (vi) Estimated time of arrival,

[[Page 201]]

    (vii) Route information, and
    (viii) The keyword ``MAREP''.

If optional remarks are included, they must follow at the end of the 
text.
    (2) Departure Report. Departure reports must contain the following:
    (i) Vessel name,
    (ii) International Radio Call Sign,
    (iii) Time of departure,
    (iv) Port of departure,
    (v) Latitude and longitude, and
    (vi) The keyword ``MAREP''.

If optional remarks are included, they must follow at the end of the 
text.
    (3) Position Report. Position reports must contain the following:
    (i) Vessel name,
    (ii) International Radio Call Sign,
    (iii) Time at reported position,
    (iv) Latitude and longitude, and
    (v) The keyword ``MAREP''.

If optional remarks are included, they must follow at the end of the 
text.
    (4) Deviation Report. Deviation reports are necessary to report 
sailing plan changes or other changes and must contain the following:
    (i) Vessel name,
    (ii) International Radio Call Sign,
    (iii) The changes to prior reports, and
    (iv) The keyword ``MAREP''.

If optional remarks are included, they must follow at the end of the 
text.
    (5) Arrival Report. Arrival reports must contain the following:
    (i) Vessel name,
    (ii) International Radio Call Sign,
    (iii) Port name,
    (iv) Latitude and longitude,
    (v) Time of arrival, and
    (vi) The keyword ``MAREP''.

If optional remarks are included, they must follow at the end of the 
text.



Sec. 307.9  When to report.

    (a) Operators required to report under this regulation shall send 
reports during the Radio Officer's normal duty hours.
    (b) Operators shall send reports as follows:
    (1) Departure Reports must be sent as soon as practicable upon 
leaving the Port of Departure.
    (2) Position Reports must be sent within twenty-four hours of 
departure, and subsequently, no less frequently that every forty-eight 
hours until arrival.
    (3) Arrival Reports must be sent immediately prior to or upon 
arrival at the Port of Destination.
    (4) Deviation Reports may be sent at the discretion of the vessel 
operator. Reports may be sent more frequently than the above schedule, 
as, for example, in heavy weather or under other adverse conditions.



Sec. 307.11  Report changes.

    The Administrator, through MARAD advisory or special warning, may 
direct changes in reporting frequency and specify particular information 
to be included in the comments section of AMVER messages.



Sec. 307.13  Where to report.

    To ensure that no charge is applied, all AMVER reports must be 
passed through specified radio stations. Those stations which currently 
accept AMVER reports and apply no coastal station, ship station, or 
landline charge are listed in each issue of the ``AMVER Bulletin'' 
publication, together with respective International Radio Call Sign, 
location, frequency bands, and hours of operation. The ``AMVER 
Bulletin'' is available for Commander (As), Atlantic Area, U.S. Coast 
Guard, AMVER Center, Governors Island, New York, NY 10004. Although 
AMVER reports may be sent through other stations, the Coast Guard cannot 
reimburse the sender for any charges applied.



Sec. 307.15  Release of information from reports.

    (a) The information collected under these instructions will be 
released to recognized search-and-rescue authorities, to make advance 
notice to the U.S. Coast Guard of arrival in U.S. ports as required by 
certain sections of 33 CFR. The information collected will also be 
forwarded to the MARAD.
    (b) AMVER reports will remain voluntary for foreign ships unless 
otherwise directed by their governments, and will be kept strictly 
confidential by the U.S. Coast Guard. Information collected from such 
foreign ships will not be forwarded to MARAD.

[[Page 202]]

    (c) any information provided in the remarks line will be stored in 
AMVER's automatic data processing system for later review. However, no 
immediate action will be taken, nor will the information be routinely 
passed to other organizations. The remarks line cannot be used as a 
substitute for sending information to other search-and-rescue 
authorities or organizations. However, AMVER will, at the request of 
other SAR authorities, forward remarks line information to the 
requesting agencies.



Sec. 307.17  Distress messages and hostile action reports.

    (a) AWVER reports shall not replace distress messages and hostile 
action reports prescribed by Chapter 5, Defense Mapping Agency (DMA) 
Publication 117.
    (b) Vessel owners or operators subject to this part shall summarize 
distress messages or hostile action reports in the comments sections of 
AMVER reports.



Sec. 307.19  Penalties.

    The owner or operator of a vessel in the waterborne foreign commerce 
of the United States is subject to a penalty of $50 for each day of 
failure to file an AMVER report required by this part. Such penalty 
shall constitute a lien upon the vessel, and such vessel may be libeled 
in the district court of the United States in which the vessel may be 
found.

[[Page 203]]



                   SUBCHAPTER G--EMERGENCY OPERATIONS





PART 308--WAR RISK INSURANCE--Table of Contents




                           Subpart A--General

Sec.
308.1  Eligibility for vessel insurance.
308.2  Requirements for eligible vessels.
308.3  Applications for insurance; warranties; supporting documents; 
          payment of binder fees.
308.4  [Reserved]
308.5  Voluntary contract of commitment.
308.6  Period of interim binders, updating application information and 
          new applications.
308.7  Premiums and payment thereof.
308.8  War risk insurance underwriting agency agreement.

          Subpart B--War Risk Hull and Disbursements Insurance

308.100  Insured amount.
308.101  [Reserved]
308.102  Issuance of interim binder; terms and conditions; fees.
308.103  Insured amounts under interim binder.
308.104  Additional war risk insurance.
308.105  Reporting casualties and filing claims.
308.106  [Reserved]
308.107  War risk hull insurance policy.

         Subpart C--War Risk Protection and Indemnity Insurance

308.200  Insured amount--application.
308.201  [Reserved]
308.202  Issuance of interim binder; terms and conditions.
308.203  Amount insured under interim binder.
308.204  Additional war risk protection and indemnity insurance.
308.205  Reporting casualties and filing claims.
308.206  [Reserved]
308.207  War risk protection and indemnity insurance policy.

              Subpart D--Second Seamen's War Risk Insurance

308.300  Insured amount--application.
308.301  [Reserved]
308.302  Issuance of interim binder; terms and conditions.
308.303  Amounts insured under interim binder.
308.304  Reporting casualties and filing claims.
308.305  [Reserved]
308.306  Second Seamen's War Risk Policy, Form MA-242.

              Subpart E--War Risk Builder's Risk Insurance

308.400  Authority.
308.401  Eligibility for insurance.
308.402  Insurance during vessel construction period.
308.403  Insured amounts.
308.404  Application for insurance.
308.405  Form of application.
308.406  Issuance of policies; terms and conditions.
308.407  Premiums and payment.
308.408  Right of Maritime Administrator to change rate of premium.
308.409  Standard form of War Risk Builder's Risk Insurance Policy, Form 
          MA-283.
308.410  Reporting casualties and filing claims.

                   Subpart F--War Risk Cargo Insurance

                             I--Introduction

308.500  Authority.
308.501  Cargoes on which coverage is available.
308.502  Additional insurance.
308.503  Rate schedules.
308.504  Definition of territories and possessions.

                II--Open Policy War Risk Cargo Insurance

308.505  General.
308.506  Application for an Open Cargo Policy.
308.507  Security for payment of premiums.
308.508  Issuance of an Open Cargo Policy.
308.509  Collateral deposit fund.
308.510  Surety bond.
308.511  Cancellation of Open Cargo Policy.
308.512  Declaration of shipments under Open Cargo Policy.
308.513  Payment of premiums and fees.
308.514  Return premium.
308.515  Payment in event of loss.
308.516  Failure to comply with Clause 21.
308.517  Open Cargo Policy, Form MA-300.
308.518  Standard optional endorsement No. 1, Form MA-300-A.
308.519  Standard optional endorsement No. 2, Form MA-300-B.
308.520  Standard optional endorsement No. 3, Form MA-300-C.
308.521  Application for Open Cargo Policy, Form MA-301.
308.522  Collateral deposit fund, letter of transmittal, Form MA-302.
308.523  Application for revision of Open Cargo Policy, Form MA-303.

[[Page 204]]

308.524  Application for cancellation of Open Cargo Policy, Form MA-304.
308.525  Application for decrease in amount of cash collateral fund, 
          Form MA-305.
308.526  Certificate for repayment of decrease of collateral deposit 
          fund, Form MA-306.
308.527  Application for return premium, Form MA-307.
308.528  Surety Bond A, Form MA-308.
308.529  Surety Bond B, Form MA-309.
308.530  Letter requesting increase or decrease in amount of surety 
          bond, Form MA-310.
308.531  Endorsement of surety bond increasing or decreasing amount of 
          coverage, Form MA-311.
308.532  Release of surety bond, Form MA-312.
308.533  Closing report, Form MA-313.
308.534  Certificate to be attached to closing report, Form MA-313-A.
308.535  Certificate to be attached to final closing report, Form MA-
          313-B.
308.536  Declaration where failure to comply with Clause 21 was 
          inadvertent, Form MA-314.

                III--Facultative War Risk Cargo Insurance

308.538  General.
308.539  Application.
308.540  Premiums.
308.541  Issuance.
308.542  Warranty re thirty-day shipments.
308.543  Cancellation.
308.544  Facultative binder, Form MA-315.
308.545  Facultative cargo policy, Form MA-316.
308.546  Standard optional endorsement No. 1-A, Form MA-316-A.
308.547  Application for return premium, Form MA-317.

                               IV--General

308.548  Standard form of underwriting agency agreement for cargo, Form 
          MA-318.
308.549  Application for appointment of Cargo Underwriting Agent, Form 
          MA-319.
308.550  Certificate, Form MA-320.
308.551  War risk insurance clearing agency agreement for cargo, Form 
          MA-321.
308.552  Effective date.

                      Subpart G--Records Retention

308.600  Records retention requirement.

    Authority: Secs. 204, 1202, 1203, 1209, Merchant Marine Act of 1936, 
as amended (46 App. U.S.C. 1114, 1282, 1283, 1289; 49 CFR 1.66).

    Source: 61 FR 1131, Jan. 16, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 308.1  Eligibility for vessel insurance.

    Any vessel within one of the following categories shall be eligible 
for insurance, but shall remain eligible only while meeting the 
qualifications criteria in one of said categories. An eligible vessel is 
not insured unless and until an application is submitted as required in 
subpart B, C, or D of this part 308 and the Maritime Administrator, 
Department of Transportation, (Maritime Administrator) Maritime 
Administration (MARAD), approves said application.
    (a) A vessel registered, enrolled, or licensed under the laws of the 
United States of America (United States); any undocumented vessel owned 
or chartered by or made available to the United States or any department 
or agency thereof; any tug or barge or other watercraft (documented 
under the laws of the United States, or undocumented) owned by a citizen 
of the United States and used in essential water transportation; and 
United States citizen-owned watercraft used in the fishing trade or 
industry, except when used exclusively in or for sport fishing.
    (b) Any vessel, other than a vessel described in paragraph (a) of 
this section determined by the Maritime Administrator to be engaged in 
the national defense or the national economy of the United States and 
subject to an unqualified Contract of Commitment with the United States 
in a form required by the Maritime Administrator, and which is:
    (1) Owned by a United States corporation, or a foreign corporation 
in which a majority of the stock is owned and controlled by a citizen or 
citizens of the United States, whether direct or through intervening 
corporations, foreign or domestic. Where such intervening corporations 
are foreign, the ultimate majority ownership and control of the stock of 
such corporations must be vested in a citizen or citizens of the United 
States as defined in section 1201(d), Merchant Marine Act, 1936, as 
amended (46 App. U.S.C. 1281(d));
    (2) Owned by a foreign corporation which is not directly or 
beneficially owned by a citizen or citizens of the

[[Page 205]]

United States, but which vessel is under a long-term charter or other 
long-term contract covering the use of the vessel on terms deemed by the 
Maritime Administrator to subject the vessel to United States control in 
the event of an emergency. The charterer of such vessel must be either a 
citizen or citizens of the United States or a foreign corporation in 
which a majority of the stock is owned and controlled by a citizen or 
citizens of the United States, whether direct or indirect through 
intervening corporations, foreign or domestic. Where such intervening 
corporations are foreign, ultimate majority ownership and control of the 
stock of such corporations must be vested in a citizen or citizens of 
the United States, as defined in 46 App. U.S.C. 1281(d).
    (c) Any other vessel, at the sole discretion of the Maritime 
Administrator, but only while engaged in a service which has been 
determined by the Maritime Administrator to be in the interest of the 
national defense or the national economy of the United States. Vessels 
in this category are not eligible for war risk insurance interim 
binders.



Sec. 308.2  Requirements for eligible vessels.

    (a) Restrictions--foreign-flag vessels. Interim insurance is 
available on any vessel described in Sec. 308.1 (a) and (b) of this 
part, provided application for interim insurance is submitted as 
required in subparts B, C, or D of this part 308, and the Maritime 
Administrator approves said application: Provided, That only vessels of 
Panamanian, Honduran, Bahamian, Republic of the Marshall Islands or 
Liberian registry not more than 20 years old will be considered eligible 
under Sec. 308.1 (b) of this part for interim insurance, subject at all 
times to the determination specified in paragraph (b) of this section.
    (b) Special rules--foreign-flag vessels. For the purpose of 
providing interim insurance on vessels described in Sec. 308.1(b), the 
Maritime Administrator shall consider the characteristics, employment, 
and general management of the vessel. The Maritime Administrator 
formally determines that the following vessels are engaged in a service 
in the interest of the national defense or the national economy of the 
United States and qualify for an interim binder:
    (1) Vessels substantially engaged in the foreign commerce of the 
United States or which would be required in the event of war or national 
emergency;
    (2) Tankers of not less than 2,000 deadweight tons;
    (3) Dry cargo vessels, including containerships, breakbulk, and dry 
bulk vessels;
    (4) Heavy lift vessels;
    (5) Refrigerated vessels and other classes of ships in short supply 
in the United States-flag fleet;
    (6) Passenger vessels; and
    (7) Other vessels with special capabilities, as determined by the 
Maritime Administrator.
    (c) Vessel Position Reports. All vessels for which war risk 
insurance interim binders have been issued shall file a Vessel Position 
Report. The purpose of this report is to inform cognizant U.S. agencies 
of vessel arrivals, departures and at-sea locations. Failure to make 
required regular reports will cause MARAD to issue a one-time notice of 
default. If failure to report continues, MARAD shall cancel the interim 
binder for the subject vessel and any insurance attaching thereunder. 
MARAD will issue reporting instructions and formats with the binders.
    (d) Notice of change in status of vessel after binder issued. Any 
breach of the warranty prescribed hereunder as to vessels in all 
categories with respect to Department of Commerce Transportation Orders 
T-1 and T-2 (44 CFR Parts 401, 402 and 403), as well as the additional 
warranties as to vessels in categories (b)(1) and (b)(2) of this 
section, with respect to maintenance of eligibility for insurance and 
availability of the insured vessels to the U.S. Government in time of 
emergency, shall terminate the binders and any insurance attaching 
thereunder. In the event of the sale, demise charter, requisition, 
confiscation, change of flag, total loss, or any other change in status 
which, by the terms of the binder causes the binder to terminate, prompt 
notice shall be given in writing to the American War Risk Agency, 14 
Wall Street, New York, NY 10005.

[[Page 206]]

    (e) Nature of change in status of other vessels. It is the intention 
of the parties that any breach of the warranty as to operation in the 
approved service of vessels described in Sec. 308.1(c) shall terminate 
the insurance. In the event of the sale, demise charter, requisition, 
confiscation, change of flag, total loss, any other change in status or 
change in operation of the vessel in the approved service prompt notice 
shall be given to the American War Risk Agency, 14 Wall Street, New 
York, NY 10005.



Sec. 308.3  Applications for insurance; warranties; supporting documents; payment of binder fees.

    (a) Application, binder forms. A single application for War Risk 
Insurance shall be filed on Form MA-528, specifying the types of 
insurance coverages for which the applicant is applying. A single 
application may be submitted for several vessels, if the application 
identifies each vessel to be insured and the coverage(s) required, by 
completing appendices A and B to that form. An interim binder for war 
risk insurance coverage, of the types described in subparts B, C and D 
of this part, shall be on Form MA-942, which may be obtained from the 
American War Risk Agency or from the Office of Subsidy and Insurance.
    (b) Warranties--(1) In general. Applications for war risk hull and 
protection and indemnity insurance in any eligible category of this Part 
308 shall include a warranty that, at all times during the effective 
period of the binder and any insurance attaching thereunder, the insured 
vessel, regardless of its nation of registry, will comply with 
Department of Commerce Transportation Orders T-1 and T-2 (44 CFR parts 
401, 402, and 403), or any modifications thereof so long as they remain 
in force and that the vessel will not be chartered, unless in accordance 
with the provisions of Sec. 221.11 and 221.13 of this chapter, which 
requirement is applicable to any charter in existence at the time the 
applicant applies for insurance.
    (2) Vessels described in Sec. 308.1(a). Applications for war risk 
insurance on a vessel described in Sec. 308.1(a) shall contain the 
warranty that at, and from the date of issuance of the interim binder, 
and for and during the term of any insurance attaching thereunder, such 
vessel will remain eligible within its category.
    (3) Vessels described in Sec. 308.1(b). Applications for war risk 
insurance on a vessel described in Sec. 308.1(b) shall contain the 
warranties that at all times the vessel will remain eligible within its 
applicable category; that the vessel will be made available for use by 
the United States pursuant to the signed Contract of Commitment 
submitted with the insurance applications, as required by the Maritime 
Administration; that the vessel will remain in the approved service; and 
that no controlling interest in the vessel shall be transferred by a 
subsequent sale or long-term charter, except on the condition that the 
successor in interest agrees to be bound by the terms of the applicant's 
Contract of Commitment. All instruments transferring any controlling 
interest in the vessel, including long-term charter or merger 
agreements, shall be submitted to the Maritime Administration for prior 
approval.
    (4) Vessels described in Sec. 308.1(c). Applications for war risk 
insurance on a vessel described in Sec. 308.1(c) shall contain 
warranties that the vessel will remain in the approved service and that 
any change in flag or service will be reported in advance to the 
Maritime Administration for a new determination as to whether the 
vessel's service is in the interest of the national defense or the 
national economy of the United States. Vessels in this category are not 
eligible for war risk insurance interim binders.
    (5) Vessel locator filing requirements. Applications for insurance 
on vessels in all categories, except tugs and barges and vessels used 
exclusively in the fishing trade or industry, described in 
Sec. 308.1(a), shall contain a warranty that at all times the vessel 
will file reports as required under the U.S. Merchant Vessel Locator 
Filing System (USMER) as prescribed in Sec. 308.2(c) of this section.
    (c) Filing applications for insurance. All applications for 
insurance on a vessel shall be made to the American War Risk Agency, 14 
Wall Street, New York, New York 10005, underwriting

[[Page 207]]

agent for the Maritime Administration.
    (d) Required submissions with--(1) In general. An application for 
insurance on a vessel described in Sec. 308.1(b) shall be accompanied 
by:
    (i) A contract of commitment, in the form prescribed in Sec. 308.5 
of this part. In the event the vessel is determined to be ineligible 
under the terms of this part 308, the applicant will be so advised and 
the executed contract of commitment and any official foreign government 
action or approval will be returned to the applicant by the Maritime 
Administration.
    (ii) An executed agreement contained in the application for 
insurance that any charter or other contract covering the use of the 
vessel during the period of the binder or any insurance attaching 
thereunder shall be subject to termination or suspension without notice 
in the event the United States requires the use of the vessel under the 
voluntary contract of commitment submitted by the applicant.
    (2) Certification of citizenship. An application for insurance on 
such a vessel shall be supported by execution of the citizenship 
certification, in the format set out in appendix C to Form MA-528, as 
described in paragraph (a) of this section. That certification shall be 
required to establish the U.S. citizenship of the majority ownership and 
control of the vessel-owning corporation, whether that ownership is 
direct or through intervening corporations.
    (3) Existing long-term charters. An application for a vessel in this 
category which is at the time of application under long-term charter or 
other long-term contract, either to the applicant or from the applicant 
to a third party, shall be jointly submitted by the owner and the 
charterer, and in addition to the other materials required under this 
paragraph, shall be accompanied by a copy of the long-term contract 
covering the use of the vessel and all addenda thereto, certified to be 
full and complete copies (except as to rate of hire or freight) and a 
completed appendix C to Form MA-528, establishing the U.S. citizenship 
of the majority of the shareholders and control of the charterer. The 
charterer shall also furnish to MARAD a certified copy of any amendment 
to such charter which may be issued subsequent to the issuance of any 
binder of insurance under this Part 308.
    (4) Foreign government action or approval. An application for a 
vessel in this category also shall be accompanied by a certified copy of 
the evidence of any official action or approval required by the 
government of the country of registry as a prerequisite to the execution 
of a contract of commitment with the United States.
    (5) Additional materials. With respect to a vessel in this category, 
the applicant shall submit the following additional materials:
    (i) A statement describing the service in which the vessel is 
engaged, including a listing of the vessel's voyages and ports of call 
during the immediately preceding six (6) month period, indicating the 
tonnage and type of cargo carried on such voyages and the reasons why 
such service should be deemed to be in the interest of the national 
defense or the national economy of the United States;
    (ii) Material demonstrating the management and financial 
capabilities of the applicant; and
    (iii) In the case of a new vessel or a vessel which has not for the 
six (6) months immediately prior to the date of the application been 
engaged in the foreign commerce of the United States, a statement, 
signed by a responsible company official, certifying the extent to which 
the vessel will be engaged in the foreign commerce of the United States 
for the six (6) months immediately following the issuance of any interim 
binder of insurance under this part 308.
    (e) Requests for changes in binders. All requests for changes in 
binders and inquiries relative to the insurance after the interim 
binders have been issued shall be directed to the American War Risk 
Agency, 14 Wall Street, New York, NY 10005.
    (f) Fees. A check payable in U.S. funds to the ``Maritime 
Administration, Department of Transportation'' for the total amount of 
all binder fees payable by such applicant shall accompany each 
application. Binder fees are not returnable.

[[Page 208]]

    (g) Availability of Application Forms. Form MA-528 may be obtained 
from either the American War Risk Agency (Underwriting Agent), at the 
address in paragraph (e) of this section, or the Maritime 
Administration, Attention: Director, Office of Subsidy and Insurance, 
400 Seventh Street, SW., Washington, DC 20590.

(Approved by the Office of Management and Budget under control number 
2133-0011)



Sec. 308.4  [Reserved]



Sec. 308.5  Voluntary contract of commitment.

    Applications for insurance on vessels described in Sec. 308.1(b) 
shall be accompanied by a contract of commitment, in triplicate 
originals, executed by the owner (or by the owner and the charterer 
where required by Sec. 308.3). Contracts of commitment to make the 
vessel available to the United States during any period in which vessels 
may be requisitioned under section 902 of the Act (46 App. U.S.C. 1242) 
shall be submitted on standard contract form which may be obtained from 
the American War Risk Agency or MARAD. The effective date of the 
contract of commitment will be the effective date of the binder and will 
be inserted in the contract of commitment by MARAD.



Sec. 308.6  Period of interim binders, updating application information and new applications.

    (a) All existing interim binders remain in full force and effect 
without the necessity of re-application or the payment of additional 
fees so long as the Secretary of Transportation's authority to provide 
such insurance has been extended and is continuous.
    (b) Assureds under interim binders are required to notify the 
American War Risk Agency annually, by June 30th, of any change in the 
information provided in their original binder applications including, 
but not limited to, change of address, vessel name or vessel 
characteristics.
    (c) New applications for interim binders on U.S.-flag vessels, with 
necessary attachments (as specified in S 308.3), as well as checks for 
the binder fees prescribed made payable to ``Maritime Administration, 
Department of Transportation,'' shall be filed with the American War 
Risk Agency, 14 Wall Street, New York, New York 10005. All interim 
binders on U.S.-flag vessels shall become effective as of the date of 
determination of eligibility by the Maritime Administration.
    (d) New applications for interim binders on U.S. citizen-owned or 
controlled foreign-flag vessels, with necessary attachments (as 
specified in Sec. 308.3), as well as checks for the binder fees 
prescribed made payable to ``Maritime Administration, Department of 
Transportation,'' shall be filed for review in accordance with 
eligibility requirements specified in Sec. 308.2, and mailed to the 
American War Risk Agency, 14 Wall Street, New York, New York 10005. All 
interim binders on foreign-flag vessels will become effective on the 
date the owner's contract of commitment is executed by the Maritime 
Administration.

(Approved by the Office of Management and Budget under control number 
2133-0011)



Sec. 308.7  Premiums and payment thereof.

    Rate to be fixed promptly upon the happening of the event causing 
the American Institute Hull War Risks and Strikes Clauses dated December 
1, 1977 (including Automatic Termination and Cancellation Provisions) 
for attachment to American Institute Hull Clauses dated June 2, 1977 of 
any war risk policies to become operative and premium shall be payable 
within ten days after receipt of notice of the amount thereof by the 
assured. Premiums shall be paid to the Underwriting Agent that issued 
the binders by check payable to the order of ``Maritime Administration, 
Department of Transportation.'' In the event that it is subsequently 
determined that insurance under interim binders did not attach, premiums 
paid will be refunded by the Maritime Administrator.



Sec. 308.8  War risk insurance underwriting agency agreement.

    Standard form MA-355 of underwriting agency agreement applicable 
shall be executed by the Maritime Administrator and domestic insurance 
companies or groups of domestic insurance companies authorized to do a 
marine

[[Page 209]]

insurance business in any States of the United States, appointing such 
companies or groups of companies as Underwriting Agents to issue binders 
and policies covering hull, protection and indemnity, and Second 
Seamen's war risk insurance under subparts B, C, and D of this part. It 
shall contain provisions including, but not limited to the appointment 
of the agent, duties of the agent, books and records, compensation, 
standard of performance, indemnification effective date, amendment and 
termination, and nondiscrimination.



          Subpart B--War Risk Hull and Disbursements Insurance



Sec. 308.100  Insured amount.

    An applicant for war risk hull insurance shall state the amount of 
insurance desired but any payment of claim for damage to or actual or 
constructive total loss of the vessel insured shall be made as provided 
in Sec. 308.103(a). An applicant desiring disbursements insurance may at 
his option obtain such additional insurance but any claim for loss of 
disbursements as a consequence of the actual or constructive total loss 
of the vessel insured shall be made as provided in Sec. 308.103(c).



Sec. 308.101  [Reserved]



Sec. 308.102  Issuance of interim binder; terms and conditions; fees.

    Upon acceptance of an application, an interim binder in the form set 
forth in Sec. 308.106, will be issued and there shall be deemed to be 
incorporated therein by references all the terms, conditions, and 
warranties contained in the application for war risk hull and 
disbursements insurance and the standard war risk hull insurance policy 
(set forth in Sec. 308.107), to the same extent as if such application 
and policy were made a part of the binder. The binder fee (not 
refundable) for U.S.-flag vessels shall be $25 per application for 
vessels under 500 gross tons; $100 per application for vessels 500 gross 
tons or over; and $100 per LASH or similar type barge application. The 
binder fee (not refundable) for foreign-flag vessels shall be $50 per 
application for vessels under 500 gross tons; $200 per application for 
vessels 500 tons or over; and $200 per LASH or similar type barge 
application. All fees are payable in U.S. funds by check to order of the 
``Maritime Administration, Department of Transportation.''



Sec. 308.103  Insured amounts under interim binder.

    (a) Valuation. The valuation in the policy for damage to, or actual 
or constructive total loss of the vessel insured shall be a stated 
valuation (exclusive of National Defense features paid for by the 
Government) determined by the Secretary of Transportation which shall 
not exceed the amount that would be payable if the vessel had been 
requisitioned for title under section 902(a) of the Merchant Marine Act, 
1936, as amended (46 App. U.S.C. 1242(a)) at the time of the attachment 
of the insurance under said policy: Provided, however, That in the case 
of a construction subsidized vessel, for the period of insurance prior 
to requisition for title or use, the valuation so determined shall be 
reduced by such proportion as the amount of construction subsidy paid 
with respect to the vessel bears to the entire construction cost and 
capital improvements thereof (excluding the cost of national defense 
features), and for the period of insurance after requisition for use the 
valuation so determined shall not exceed the amount which would be 
payable under 46 App. U.S.C. 1242(a) in the case of requisition for 
title or use: Provided, further, that the insured shall have the right 
within sixty days after the attachment of the insurance under said 
policy, or within sixty days after determination of such valuation by 
the Secretary of Transportation, whichever is later, to reject such 
valuation, and shall pay, at the rate provided for in said policy, 
premiums upon such asserted valuation as the insured shall specify at 
the time of rejection, but such asserted valuation shall not operate to 
the prejudice of the Government in any subsequent action on the policy. 
In the event of the actual or constructive total loss of the vessel, if 
the insured has not rejected such valuation the amount of any claim 
therefor which is adjusted, compromised, settled, adjudged, or paid 
shall not exceed

[[Page 210]]

such stated amount, but if the insured has so rejected such valuation, 
the insured shall be paid as a tentative advance only, 75 per centum of 
such valuation so determined by the Secretary of Transportation and 
shall be entitled to sue the United States in a court having 
jurisdiction of such claims to recover such valuation as would be equal 
to the just compensation which such court determines would have been 
payable if the vessel had been requisitioned for title under 46 App. 
U.S.C. 1242(a) at the time of the attachment of the insurance under said 
policy: Provided, however, That in the case of a construction-subsidized 
vessel, the valuation determined by the court as such just compensation 
for any period of insurance prior to actual requisition for title or use 
of the vessel shall be reduced by such proportion as the amount of 
construction subsidy paid with respect to the vessel bears to the entire 
construction cost and capital improvements thereof (excluding the cost 
of national defense features), and for any period of insurance after 
actual requisition for use, the valuation determined by the court shall 
be the amount which would have been payable under 46 App. U.S.C. 1212 in 
the case of requisition for title: And provided further, that in the 
event of an election by the insured to reject the stated valuation fixed 
by the Secretary of Transportation and to sue in the courts, the amount 
of the judgment will be payable without regard to any limitations 
provided by statute, although the excess of any amounts advanced on 
account of just compensation that is over the amount of the court 
judgment shall be required to be refunded by the insured. In the event 
of such court determination, premiums under the policy shall be adjusted 
on the basis of the valuation as finally determined and of the rate 
provided for in said policy. The ``stated valuation'' of the vessel 
insured refers to the vessel as described in Sec. 309.5 of this chapter.
    (b) Insurance risks. Insurance risks covered by the terms of the 
standard form of war risk hull insurance policy (Sec. 308.107), except 
damage to or actual or constructive total loss of the vessel insured as 
set forth in paragraph (a) of this section and loss of disbursements 
(limited to consumable and subsistence stores, slop chests, bar stock 
and bunker fuel lost as a consequence of the actual or constructive 
total loss of the vessel insured) as set forth in paragraph (c) of this 
section and identified as disbursements, shall be insured for an amount 
not in excess of the ``sum insured'' as referred to in said policy.
    (c) Disbursements. Disbursements shall be insured as authorized 
under section 1203(c), Title XII, Merchant Marine Act, 1936, as amended, 
(46 App. U.S.C. 1283(c)) and shall be limited to consumable and 
subsistence stores, slop chests, bar stock and bunker fuel. 
Disbursements insurance shall be optional and is insurance additional to 
the war risk hull insurance provided under this subpart, and payment of 
claim shall be limited to the actual value of the disbursements lost as 
a consequence of the actual or constructive total loss of the vessel 
insured.



Sec. 308.104  Additional war risk insurance.

    Owners or charterers may obtain, on an excess basis, additional war 
risk insurance in such amounts as desired and such insurance shall not 
inure to the benefit of the Maritime Administrator as underwriter.



Sec. 308.105  Reporting casualties and filing claims.

    All casualties occurring after insurance under a binder has attached 
shall be reported promptly to the Underwriting Agent that issued the 
binder and all claim documents shall likewise be filed with such 
Underwriting Agent, but payment of the amounts due in settlement of 
claims will be made by the Maritime Administrator.



Sec. 308.106  [Reserved]



Sec. 308.107  War risk hull insurance policy.

    Standard Form MA-240, issued by the Maritime Administrator, acting 
for the United States, through authority delegated by the Secretary of 
Transportation, may be obtained from the American War Risk Agency or 
MARAD.

[[Page 211]]



         Subpart C--War Risk Protection and Indemnity Insurance



Sec. 308.200  Insured amount--application.

    An applicant for war risk protection and indemnity insurance shall 
state the amount of insurance desired but such amount shall not exceed 
$750 per gross ton of the Vessel.



Sec. 308.201  [Reserved]



Sec. 308.202  Issuance of interim binder; terms and conditions.

    Upon acceptance of an application, an interim binder in form as set 
forth in Sec. 308.3 will be issued and there shall be deemed to be 
incorporated therein by reference all the terms, conditions, and 
warranties contained in the application for war risk protection and 
indemnity insurance (set forth in Sec. 308.3) and the standard war risk 
protection and indemnity insurance policy (set forth in Sec. 308.207) to 
the same extent as if such application and policy were made a part of 
the binder. The binder fee (not refundable) shall be $100 per 
application for U.S.-flag LASH or similar type barges; $25 per 
application for all other U.S.-flag vessels; $200 per application for 
foreign-flag LASH or similar type barges; and $50 per application for 
all other foreign-flag vessels. All fees are payable in U.S. funds by 
check to the order of ``Maritime Administration, Department of 
Transportation.''



Sec. 308.203  Amount insured under interim binder.

    The amount insured shall be the amount stated in the application, 
but not in excess of $750 per gross ton of the vessel.



Sec. 308.204  Additional war risk protection and indemnity insurance.

    Owners or charterers may obtain, on an excess basis, additional war 
risk protection and indemnity insurance in such amounts as desired and 
such insurance shall not inure to the benefit of the Maritime 
Administrator, as underwriter.



Sec. 308.205  Reporting casualties and filing claims.

    All casualties occurring after insurance under a binder has attached 
shall be reported promptly to, and all claim documents filed with the 
Office of Subsidy and Insurance, Maritime Administration, Department of 
Transportation, Washington, DC, 20590.



Sec. 308.206  [Reserved]



Sec. 308.207  War risk protection and indemnity insurance policy.

    The standard form of war risk protection and indemnity insurance 
policy, Form MA-241, may be obtained from the American War Risk Agency 
or MARAD.



              Subpart D--Second Seamen's War Risk Insurance



Sec. 308.300  Insured amount--application.

    An applicant for Second Seamen's war risk insurance shall not state 
the amount of insurance desired, which shall be as provided in 
Sec. 308.303.



Sec. 308.301  [Reserved]



Sec. 308.302  Issuance of interim binder; terms and conditions.

    Upon acceptance of an application, an interim binder in form as set 
forth in Sec. 308.3 will be issued and there shall be deemed to be 
incorporated therein by reference all the terms, conditions, and 
warranties contained in the application for Second Seamen's war risk 
insurance (set forth in Sec. 308.3) and the Second Seamen's War Risk 
Policy (1955) (set forth in Sec. 308.306) to the same extent as if such 
application and policy were made a part of the binder. The binder fee 
(not refundable) shall be $75 per application for U.S.-flag vessels and 
$150 per application for foreign-flag vessels. All fees are payable in 
U.S. funds by check to the order of ``Maritime Administration, 
Department of Transportation.''



Sec. 308.303  Amounts insured under interim binder.

    The amounts insured are the amounts specified in the Second Seamen's 
War Risk Policy (1955) or as

[[Page 212]]

modified by shipping articles, collective bargaining agreements or other 
applicable employment agreements which are in effect as of the date of a 
casualty involving the subject vessel. Upon the attachment of this 
binder, the number of crew members and modified benefits payable as of 
that date shall be declared immediately to the Underwriting Agent that 
issued the binder. Any subsequent changes shall be likewise declared.



Sec. 308.304  Reporting casualties and filing claims.

    All casualties occurring after insurance under a binder has attached 
shall be reported promptly to, and all claim documents filed with, the 
Maritime Administration, Attention: Director, Office of Subsidy and 
Insurance, Washington, DC 20590.



Sec. 308.305  [Reserved]



Sec. 308.306  Second Seamen's War Risk Policy, Form MA-242.

    (a) The standard form of Second Seamen's War Risk Policy Form MA-
242, may be obtained from the American War Risk Agency or MARAD.
    (b) [Reserved]



              Subpart E--War Risk Builder's Risk Insurance



Sec. 308.400  Authority.

    The Secretary of Transportation has delegated authority to the 
Maritime Administrator to perform the functions vested in the Secretary 
of Transportation by Title XII of the Merchant Marine Act, 1936, as 
amended. The Maritime Administrator, pursuant to a finding by the 
Secretary under section 1202(a) of the Act authorized, (46 App. U.S.C. 
1982(a)) has authorized the issuance of war risk insurance on American 
vessels under construction in shipyards in the United States.



Sec. 308.401  Eligibility for insurance.

    A vessel is eligible for insurance if it is an American vessel as 
defined in section 1201(a), Title XII of Merchant Marine Act, 1936, as 
amended, (46 App. U.S.C. 1281) being constructed in a shipyard within 
the United States.



Sec. 308.402  Insurance during vessel construction period.

    (a) Prelaunching period. This period is from the date and time the 
first material destined for inclusion as part of the vessel becomes at 
risk at the shipyard of the builder to the date and time the vessel 
first becomes water-borne after launching.
    (b) Postlaunching period. This period is from the date and time the 
vessel first becomes water-borne after launching to the date and time of 
delivery of the vessel by the builder.
    (c) Portions of periods. A vessel may be insured for a portion of 
either period as cited in paragraph (a) or (b) of this section at the 
sole discretion of the Maritime Administrator.



Sec. 308.403  Insured amounts.

    (a) Prelaunching period. The amount insured during this period will 
be the cost of material destined for inclusion as a part of the vessel 
at risk at the shipyard of the builder, plus the cost of labor, other 
direct charges, overhead, and profit not exceeding 10 percent, all as 
determined from the builder's records.
    (b) Postlaunching period. The amount insured during this period will 
be: (1) An amount not in excess of the difference in amount between the 
total amount of war risk insurance obtainable from companies authorized 
to do an insurance business in a State of the United States and the 
contract price of the vessel plus the cost of the materials and 
equipment furnished by the owner and not included in such contract 
price, or (2) an amount not in excess of the contract price of the 
vessel plus the cost of materials and equipment furnished by the owner 
and not included in the contract price: Provided, That no war risk 
insurance is obtainable from companies authorized to do an insurance 
business in a State of the United States.
    (c) Maximum liability. The amount of any claim for damage to or the 
total or constructive total loss of the vessel adjusted, compromised, 
settled, adjudged or paid shall not exceed the amount insured: Provided, 
That the amount payable hereunder shall not exceed the

[[Page 213]]

maximum sum which the Maritime Administrator, as Underwriter, is 
authorized to pay under any applicable Acts of Congress: Provided, 
further, That where MARAD is an Excess Underwriter, the amount payable 
under this insurance for damage to or the total or constructive total 
loss of the vessel, after all sums due and payable under primary and 
excess insurance written by commercial Underwriters have been exhausted, 
shall be the balance, if any, of said claims.



Sec. 308.404  Application for insurance.

    Application for insurance shall be made to the Maritime 
Administration, Attention: Director, Office of Subsidy and Insurance, 
Washington, DC 20590. The applications shall be signed by all parties to 
be named as assureds, unless they have filed with the Director, Office 
of Subsidy and Insurance, written designations of a broker or brokers to 
act for them, in which case the applications may be signed by such 
broker or brokers.



Sec. 308.405  Form of application.

    Applications shall be submitted in duplicate and may be obtained 
from the American War Risk Agency or MARAD.



Sec. 308.406  Issuance of policies; terms and conditions.

    Upon acceptance of an application, a policy in the form specified in 
Sec. 308.409 will be issued with endorsements MA-283(A) and MA-283(D), 
or MA-283(B) and MA-283(D), or MA-283(C), and MA-283(D), as appropriate.



Sec. 308.407  Premiums and payment.

    For the prelaunching period premium will be charged on the average 
value at risk during each calendar month or the daily pro rata part 
thereof for periods of less than one calendar month. For the 
postlaunching period premium will be charged on the amount insured for 
the full period. Premiums shall be due and payable within thirty days 
after receipt by the Assured of notice of the amount thereof and if not 
paid within that period the insurance shall become null and void and of 
no effect from the beginning of the period for which the premium charge 
is made unless the Maritime Administrator agrees otherwise. Payment 
shall be made to the Maritime Administration, Department of 
Transportation, Washington, DC 20590, by check payable to the order of 
``Maritime Administration, Department of Transportation.''



Sec. 308.408  Right of Maritime Administrator to change rate of premium.

    The Maritime Administrator, acting for the Secretary of 
Transportation, shall have the right to change the rate of premium at 
any time, and unless the revised rate of premium is accepted in writing 
by the Assured within fifteen days after receipt by the Assured of 
notice of the revised rate, the policy shall become null and void and of 
no effect as of midnight, Standard Time, at the location of the shipyard 
on the fifteenth day after receipt of said notice. Premium at the 
revised rate shall be payable for the fifteen-day period during which 
the insurance remained in force unless the Assured, within such period, 
dispatches notice to the Maritime Administration by telegraph of his 
refusal to accept such revised rate of premium, in which event premium 
at the revised rate shall be payable for that portion of the fifteen-day 
period prior to dispatch of such notice. Upon the dispatch of such 
notice of non-acceptance the insurance shall terminate.



Sec. 308.409  Standard form of War Risk Builder's Risk Insurance Policy, Form MA-283.

    The standard form of War Risk Builder's Risk Insurance Policy, Form 
MA-283 may be obtained from the American War Risk Agency or MARAD.



Sec. 308.410  Reporting casualties and filing claims.

    Casualties shall be reported promptly to, and all claims documents 
filed with MARAD, Attention, Director, Office of Subsidy and Insurance, 
Washington, DC 20590.

[[Page 214]]



                   Subpart F--War Risk Cargo Insurance

                             I--Introduction



Sec. 308.500  Authority.

    The Secretary of Transportation has delegated authority to the 
Maritime Administrator to perform the functions vested in the Secretary 
by Title XII of the Merchant Marine Act, 1936, as amended, which 
authority includes the insurance set forth in this Subpart, as provided 
under section 1203(b) of the Act (46 App. U.S.C. 1283(b)). For the 
purposes of this Subpart F--War Risk Cargo Insurance, the terms 
``cargo'' and ``cargoes'' as used herein shall include loaded or empty 
containers located aboard U.S.-flag and foreign-flag vessels insured 
under Title XII, Merchant Marine Act, 1936, as amended. Cargo war risk 
insurance will be written under either an open policy or a facultative 
policy in accordance with the provisions of this subpart.



Sec. 308.501  Cargoes on which coverage is available.

    The Maritime Administrator will be prepared to provide marine 
insurance against loss or damage by the risks of war under approved 
clauses on shipments of cargoes coming within one or more of the 
following categories:
    (a) Shipped or to be shipped on any American vessel, as defined in 
section 1201(a) of the Merchant Marine Act, 1936, as amended (46 App. 
U.S.C. 1281(a));
    (b) Shipped or to be shipped on any foreign flag vessels owned by 
citizens of the United States;
    (c) Owned by citizens or residents of the United States, its 
Territories or possessions;
    (d) Imported to, or exported from, the United States, its 
Territories or possessions, under contracts of sale or purchase by the 
terms of which the risk of loss by war risks or the obligation to 
provide insurance against such risks is assumed by or falls upon a 
citizen or resident of the United States, its Territories or 
possessions;
    (e) Sold or purchased by citizens or residents of the United States, 
its Territories or possessions, under contracts of sale or purchase by 
the terms of which the risk of loss by war risks or the obligation to 
provide insurance against such risks is assumed by or falls upon a 
citizen or resident of the United States, its Territories or 
possessions;
    (f) Shipped between ports in the United States, or between ports in 
the United States and its Territories and possessions, or between ports 
in such Territories or possessions; and
    (g) Shipped or to be shipped on any foreign flag vessels, whether or 
not owned by citizens of the United States, if such vessels are engaged 
in transportation in the water-borne commerce of the United States or in 
such other transportation by water or such other services as may be 
deemed by the Maritime Administrator to be in the interest of the 
national defense or the national economy of the United States, when so 
engaged.



Sec. 308.502  Additional insurance.

    The assured may place increased value or additional insurance in 
other markets beyond the amount of insurance provided by the Maritime 
Administrator, but such insurance must be non-participating with the 
Maritime Administrator's coverage, and without benefit of salvage or 
right of contribution.



Sec. 308.503  Rate schedules.

    Rate schedules published by the Maritime Administrator may be 
obtained from an underwriting agent. All rate schedules are subject to 
change by the Maritime Administrator at any time without notice. If no 
rate is published for a voyage on which war risk coverage is available, 
the Maritime Administrator will name a rate through an underwriting 
agent upon application.



Sec. 308.504  Definition of territories and possessions.

    Whenever reference is made to the territories and possessions of the 
United States in this subpart or in any supplement thereto or any policy 
of insurance issued pursuant to the provisions thereof, said territories 
and possessions shall be deemed to include only the Virgin Islands of 
the United States, the Commonwealth of Puerto

[[Page 215]]

Rico, American Samoa, Guam, Wake Island, Midway Islands, and the Panama 
Canal Zone.

                II--Open Policy War Risk Cargo Insurance



Sec. 308.505  General.

    The Maritime Administrator is prepared to provide an open cargo war 
risk insurance policy covering any cargoes described in Sec. 308.501. 
The policy will be in the standard form of War Risk Open Cargo Policy, 
Form MA-300, prescribed in Sec. 308.517. All policies will be issued by 
underwriting agents appointed by the Maritime Administrator. All 
underwriting agents will be domestic insurance companies authorized to 
do a marine insurance business in a State of the United States.



Sec. 308.506  Application for an Open Cargo Policy.

    Application for an Open Cargo Policy shall be made by filing Form 
MA-301, prescribed in Sec. 308.521, with an underwriting agent of the 
Maritime Administration. The application shall state the applicant's 
name and address; the person or persons to whom loss shall be payable; 
the nature and geographic scope of the shipments to be covered under the 
policy which shall not be broader than the coverage authorized in 
Sec. 308.501; the requested effective date, which shall not be earlier 
than the date of the completion of the requirements for the issuance of 
the policy; and the basis of valuation to be incorporated in the policy. 
An applicant may specify one basis of valuation for imports and another 
for exports, and he may specify different bases of valuation for 
different commodities or voyages, provided that each basis of valuation 
specified by the applicant shall define the value by the use of facts 
which existed prior to the date of the shipment and which are readily 
ascertainable by either party after the safe arrival or loss of the 
shipment.



Sec. 308.507  Security for payment of premiums.

    Clause 21 of the policy requires the assured to maintain with the 
Maritime Administrator a collateral deposit fund or a surety bond, to 
secure the payment of the premiums, in an amount which shall at all 
times exceed the unpaid premiums on all risks which have attached under 
the policy. The minimum amount of the fund or of the surety bond shall 
be $1,000. Clause 21 also provides that, within seven (7) days from the 
time knowledge comes to the assured that the amount of the deposit or 
the surety bond is insufficient to meet the requirements of Clause 21, 
the assured shall deposit additional collateral or increase the surety 
bond in an amount not less than double the amount of such insufficiency, 
and for a sum which shall be a multiple of $500. If the assured fails to 
increase the deposit or the surety bond within the seven (7) day period, 
the policy automatically becomes void at the end of the seven (7) day 
period except as to risks which have attached prior to that date. The 
procedure for establishing a collateral deposit fund is prescribed in 
Sec. 308.509, and the procedure for posting and maintaining a surety 
bond is prescribed in Sec. 308.510. An application for the issuance of 
an open cargo policy shall be ineffective unless a collateral deposit 
fund is established and maintained, or a surety bond is posted and 
maintained, in accordance with the provisions of this section and 
Secs. 308.509 and 308.510.



Sec. 308.508  Issuance of an Open Cargo Policy.

    (a) Time. The underwriting agent will issue an Open Cargo Policy 
within (15) days after the completion by the applicant of the 
requirements set forth in Secs. 308.506 and 308.507 unless the time for 
issuance is extended by the Maritime Administrator in writing. The 
underwriting agent may not make any Open Cargo Policy effective with 
respect to shipments attaching on a date earlier than the date when the 
application was completed, but he may make it effective on the date of 
the completion of the application or any date thereafter requested by 
the applicant.
    (b) Numbering. Each Open Cargo Policy supplied to the underwriting 
agent by the Maritime Administrator shall be numbered by the Maritime 
Administration before it is supplied to the underwriting agent. No two 
numbers shall be the same. The underwriting

[[Page 216]]

agent when issuing the policy shall add at the end of the policy number 
the agency number assigned to that underwriting agent, and where 
policies are issued by more than one office of an underwriting agent, 
the issuing office shall also be identified in the policy number. For 
example, policies issued by an office in New York will be designated by 
``NY'' and policies issued in San Francisco will be designated by ``SF'' 
prefixed to the underwriting agent's agency number.



Sec. 308.509  Collateral deposit fund.

    (a) Requirements. An assured electing to use a cash collateral 
deposit fund pursuant to Sec. 308.507 shall comply with the provisions 
of this section and Clause 21 of the Open Cargo Policy, Form MA-300, 
prescribed in Sec. 308.517.
    (b) Cash or Government bonds. To establish a collateral deposit fund 
the applicant shall deposit with the underwriting agent a check payable 
to the order of the ``Maritime Administration, Department of 
Transportation'' for the amount of the fund, or United States Government 
bonds having a par value at the time of deposit of the amount of the 
fund, which shall be a multiple of $500 but not less than $1,000, 
together with a letter of transmittal executed by the applicant on Form 
MA-302, prescribed in Sec. 308.522. Upon receipt of the deposit, the 
underwriting agent shall assign it a serial number and transmit it to 
the Maritime Administration, Attention: Director, Office of Financial 
Management, Washington, DC 20590. It is the responsibility of the 
assured to make sure that this deposit fund is sufficient at all times 
to cover the premiums payable on all risks which have attached under the 
policy, so as to prevent the termination of the insurance under the 
provisions of Clause 21.
    (c) Overdue premiums. Pursuant to Clause 20, if the assured fails to 
pay any premium when it becomes due and payable, he thereby breaches the 
policy and it automatically ceases to insure any shipments which would 
otherwise have attached after the expiration of fifteen (15) days 
following the due date of the premium, unless within the fifteen (15) 
day period the premium has been paid and the assured has otherwise 
complied with the requirements of the policy, including the filing of 
the closing report required by Clause 19 and the payment of the 
reinstatement fee of $25 required by Clause 20. If the assured fails to 
pay the premium within the fifteen (15) day period, the Maritime 
Administrator may deduct from the assured's collateral deposit fund all 
amounts due.
    (d) Increase in amount of collateral as required by Clause 21. If 
the assured fails to deposit additional collateral in the fund within 
seven (7) days from the time knowledge comes to the assured that the 
amount of collateral is insufficient to meet the requirements of Clause 
21, the policy shall be void except as to risks which have attached 
prior to the expiration of the seven (7) day period.
    (e) Changes in amount of collateral. The assured may increase or 
decrease the amount of the collateral deposit fund by amounts of not 
less than $500 or multiples thereof, provided that the amount of the 
fund shall not be less than the amount required by Clause 21, or the 
required minimum of $1,000, whichever is greater. The effect of any 
change in the amount of the collateral deposit shall be the sole 
responsibility of the assured, and the permission granted by this 
paragraph to change the amount of collateral in the fund shall in no 
manner relieve the assured of the responsibility imposed by Clause 21.
    (f) Increase of collateral. To increase the amount of the collateral 
on deposit in the fund, the assured shall transmit to the underwriting 
agent on Form MA-302, prescribed in Sec. 308.522, a check payable to the 
order of the ``Maritime Administration, Department of Transportation'' 
or United States Government bonds having a par value at the time of 
deposit of not less than the amount of the requested increase. The 
increase shall become effective upon the date of the receipt of the 
application and check or bonds by the underwriting agent, as shown on 
Form MA-302.
    (g) Decrease of collateral. To decrease the collateral deposit fund, 
the assured shall file with the underwriting agent an application on 
Form MA-305, prescribed in Sec. 308.525. The decrease shall

[[Page 217]]

become effective upon the date of the receipt of the application by the 
underwriting agent as shown on Form MA-305.
    (h) Refund of collateral. Whenever the assured becomes entitled to a 
refund of the collateral deposit, in whole or in part, by reason of a 
request for a partial return of such collateral, or the cancellation of 
the policy and the payment in full of all premiums then or thereafter 
due, or the waiver by the Maritime Administrator of the requirements of 
maintaining the collateral deposit fund because the assured is a 
department or agency of the United States or is acting on behalf of such 
a department or agency, or the substitution of a surety bond in the 
place and stead of the collateral deposit fund, as provided in 
Sec. 308.510(j), the Maritime Administrator will refund to the assured 
the amount of the collateral deposit to which the assured is entitled; 
provided, however, that the repayment of such collateral shall not be 
made by the Maritime Administrator until the assured has filed a closing 
report and paid in full all premiums with respect to all shipments which 
had attached at the time of the receipt by the underwriting agent of the 
application for the refund, Form MA-305, and a certificate executed in 
duplicate on Form MA-306, prescribed in Sec. 308.526, and, in the event 
of the substitution of a surety bond for the collateral deposit fund, 
the receipt by the underwriting agent of the surety bond properly 
executed, in accordance with Sec. 308.510.



Sec. 308.510  Surety bond.

    (a) Requirements. An assured electing to post a surety bond pursuant 
to Sec. 308.507 shall comply with the provisions of this section and 
Clause 21 of the Open Cargo Policy, Form MA-300, prescribed in 
Sec. 308.517.
    (b) Amount of bond. An applicant who wishes to post a surety bond 
shall deliver to the underwriting agent a surety bond on Form MA-308, 
prescribed in Sec. 308.528, executed by the assured as principal, and by 
the surety, in such amount as the assured determines to be necessary to 
comply with Clause 21. Such amount shall be a multiple of $500 but shall 
not be less than $1,000. Upon receipt of the surety bond, the 
underwriting agent shall assign a serial number to it and transmit it to 
the Maritime Administration, Attention: Director, Office of Financial 
Approvals, Washington, DC 20590. It shall be the responsibility of the 
assured to provide that the amount of the bond is sufficient at all 
times to cover the premium payable on all risks which have attached 
under the policy, so as to prevent the termination of the insurance 
under the provisions of Clause 21.
    (c) Surety. The sufficiency of the surety executing the bond shall 
be subject to approval by the Maritime Administrator. The underwriting 
agent may accept on behalf of the Maritime Administrator a surety bond 
executed by a surety named on the United States Treasury Department's 
approved list of sureties whose bonds are acceptable to the United 
States Treasury Department to secure obligations due the United States, 
provided the bond is within the maximum amount for which the surety is 
so authorized to write bonds as shown by the approved list.
    (d) Overdue premiums. Pursuant to Clause 20, if the assured fails to 
pay any premium when it becomes due and payable, he thereby breaches the 
policy and it automatically ceases to insure any shipments which would 
otherwise have attached after the expiration of fifteen (15) days 
following the due date of the premium, unless within the fifteen (15) 
day period the premium has been paid and the assured has otherwise 
complied with the requirements of the policy, including the filing of 
the closing report required by Clause 19 and the payment of the 
reinstatement fee of $25 required by Clause 20. If the assured fails to 
pay the premium within the fifteen (15) day period, all amounts due 
shall become a liability collectible under the surety bond and from the 
assured.
    (e) Increase in amount of bond as required by Clause 21. If the 
assured fails to increase the amount of the surety bond within seven (7) 
days from the time knowledge comes to the assured that the amount of the 
bond is insufficient to meet the requirements of Clause 21, the policy 
shall be void except as to risks which have attached prior to the 
expiration of the seven (7) day period.

[[Page 218]]

    (f) Changes in amount of bond. The assured may increase or decrease 
the amount of the surety bond by amounts of not less than $500 or 
multiples thereof, provided that the amount of the bond shall not be 
less than the amount required by Clause 21, or the required minimum of 
$1,000, whichever is greater. The effect of any change in the amount of 
the bond shall be the sole responsibility of the assured, and the 
permission granted by this paragraph to change the amount of the bond 
shall in no manner relieve the assured of the responsibility imposed by 
Clause 21.
    (g) Increase in amount of bond. To increase the surety bond the 
assured shall transmit to the underwriting agent, on Form MA-310, 
prescribed in Sec. 308.530, an endorsement duly executed by the assured 
and the surety company on Form MA-311, prescribed in Sec. 308.531. The 
increase shall become effective upon the date of the receipt of the 
endorsement by the underwriting agent as shown on Form MA-311.
    (h) Decrease in amount of bond. To decrease the amount of the bond, 
the assured shall transmit to the underwriting agent, on Form MA-310, 
prescribed in Sec. 308.530, an endorsement duly executed by the assured 
and the surety on Form MA-311, prescribed in Sec. 308.531. The decrease 
shall become effective upon the date of the receipt of the endorsement 
by the underwriting agent as shown on Form MA-311, except as to 
shipments which on that date are known or reported to the assured to be 
in transit and which have attached under the policy and upon which 
premium has not been paid in full.
    (i) Termination of bond. Whenever the assured becomes entitled to a 
termination of a surety bond by reason of the cancellation of the policy 
and the payment in full of all premiums then or thereafter due, or the 
waiver by the Maritime Administrator of the requirements of maintaining 
the surety bond by an assured which is a department or agency of the 
United States or is acting on behalf of such a department or agency, or 
the substitution of a collateral deposit fund in the place or stead of 
the surety bond, the underwriting agent shall execute a release on Form 
MA-312, prescribed in Sec. 308.532. The release shall be made effective 
as of:
    (1) The effective date of the cancellation of the policy when the 
bond is terminated for that reason, or
    (2) The date of the Maritime Administrator's directive waiving the 
requirement of a surety bond when the bond is terminated for that 
reason, or
    (3) The effective date of the establishment of a collateral deposit 
fund when the bond is terminated for that reason.
    (j) Substitution of bond for collateral deposit. An assured may 
substitute a surety bond for a collateral deposit fund by delivering to 
the underwriting agent a surety bond on Form MA-309, prescribed in 
Sec. 308.529, executed by the assured as principal, and by the surety, 
in such amount as the assured determines to be necessary to comply with 
Clause 21. Such amount shall be a multiple of $500, but shall not be 
less than $1,000. The collateral deposit fund will be refunded to the 
assured after the bond has been posted, in accordance with the 
provisions of Sec. 308.509(h).



Sec. 308.511  Cancellation of Open Cargo Policy.

    An assured may cancel an Open Cargo Policy by delivering to the 
underwriting agent, at least fifteen (15) days prior to the requested 
date of cancellation, an application for cancellation executed by the 
assured on Form MA-304, prescribed in Sec. 308.524, together with the 
original policy. The policy shall be cancelled as of the effective date 
requested in the application, which, unless otherwise agreed by the 
Maritime Administrator in writing, shall not be a date earlier than 
fifteen (15) days following the date of the receipt of the application 
as acknowledged by the underwriting agent on Form MA-304, with respect 
to all risks that have not attached prior to said effective date. Such 
cancellation shall not relieve the assured of the obligation to file 
closing reports with respect to all risks which attached prior to the 
effective date of the cancellation and to pay all unpaid premiums. 
Within four (4) months of the effective date of cancellation, unless 
otherwise agreed by the Maritime Administrator in writing, the assured 
must file a closing report in duplicate on Form MA-313, prescribed in 
Sec. 308.533, of all shipments

[[Page 219]]

covered by the policy for which closing reports have not been previously 
filed. The assured shall mark this closing report ``Final Closing Report 
on Cancellation of Policy'', and file a certificate on Form MA-313-B, 
prescribed in Sec. 308.535, executed by the assured in duplicate. 
Thereafter, when all unpaid premiums have been paid, the assured will 
become entitled to a refund of the collateral deposit, or cancellation 
of the surety bond in accordance with Secs. 308.509 and 308.510. If the 
assured has lost or mislaid the original policy and is unable to produce 
it for cancellation, the assured shall execute a letter of indemnity and 
such other documents as may be required by the Maritime Administrator.



Sec. 308.512  Declaration of shipments under Open Cargo Policy.

    (a) Closing report. (1) The assured shall file with the underwriting 
agent, not later than the twenty-fifth day of each month, a closing 
report for all inward shipments and a closing report for all outward 
shipments, and pay the premium and fees, for all shipments covered 
during the preceding calendar month, as required by Clause 19. Each 
closing report shall be filed in duplicate on Form MA-313, prescribed in 
Sec. 308.533, supported by a certificate executed by the assured on Form 
MA-313-A, prescribed in Sec. 308.534. If the assured has no shipments to 
report during any calendar month, the closing report, Form MA-313, 
shall, nevertheless, be filed with one or both of the following 
statements, depending upon their applicability, noted thereon certifying 
that:
    (i) No inward shipment coming within the scope of this policy 
arrived at destination during the preceding calendar month, and that 
during the preceding calendar month no knowledge has come to the assured 
of an inward shipment covered under the terms of the policy which will 
not arrive by reason of loss, frustration or other similar cause,
    (ii) No outward shipment coming within the scope of this policy was 
made during the preceding calendar month, and
    (iii) Whenever a sea passage is made with respect to cargo covered 
under the policy by a barge or sailing vessel the assured shall note 
that fact upon the closing report, unless the Maritime Administrator 
otherwise agrees.
    (2) An assured reporting for one calendar month shall not include 
therein a report of a shipment due to be reported in the report for the 
next succeeding calendar month. Thus, the report of January closing 
shipments filed in February does not include February closings.
    (b) Inward shipments. The closing report covering inward shipments 
shall include:
    (1) All such shipments which have arrived at the port of destination 
during the preceding calendar month, and
    (2) All such shipments with respect to which inability to so arrive 
by reason of loss, frustration, or other similar causes has come to the 
knowledge of the assured during the preceding calendar month.
    (c) Outward shipments. The closing report covering outward shipments 
shall include all such shipments which attached under the policy during 
the preceding calendar month.
    (d) Definition of inward and outward shipments. A shipment will be 
classified as an inward shipment or as an outward shipment by reference 
to the geographical location of the assured with respect to the movement 
of the shipment. The address of the assured as stated in the application 
filed by him for the policy shall be deemed to be the assured's 
geographical location for the purpose of determining whether the 
shipment is inward or outward. To illustrate, if an assured has stated 
in his application that his address is in Hawaii, the assured's 
shipments of goods from the United States to Hawaii would be classified 
as inward, and his shipments from Hawaii to the United States would be 
classified as outward. Any shipments that cannot be classified as inward 
or outward under this definition shall be treated as inward shipments 
for the purposes of the declaration.
    (e) Supplemental closing report. If an assured files a closing 
report and thereafter discovers that one or more additional shipments 
should have been included in the report, then, even though

[[Page 220]]

the assured has executed the certificate on Form MA-313-A, prescribed in 
Sec. 308.534, or Form MA-313-B, prescribed in Sec. 308.535, in 
connection with the closing report, the assured must nevertheless amend 
the closing report by filing a supplemental closing report supported by 
an appropriate certificate. The supplemental closing report must be 
accompanied by a statement in writing signed by the assured giving the 
reasons for the omission of such shipments from the original closing 
report. If the Maritime Administrator finds that the failure to file the 
complete closing report was either inadvertent or unintentional or arose 
by reason of causes beyond the control of the assured, the otherwise 
automatic termination of the policy by reason of a breach of the 
warranty embodied in Clause 20 shall be avoided pursuant to the 
provisions of Clause 23.



Sec. 308.513  Payment of premiums and fees.

    The assured shall pay the premium, when his closing report is filed, 
for all shipments shown on his closing report for the preceding month, 
at the rates prescribed by the Maritime Administrator and in effect on 
the date of the ocean bill of lading, or if an ocean bill of lading was 
not issued, on the date of the equivalent shipping document, or if no 
ocean bill of lading or equivalent shipping document was issued, or if 
such documents were undated, on the date the goods were laden on the 
overseas vessel, as required by Clause 19. All payments of premium or 
fees must be made by check or money order payable to the order of the 
``Maritime Administration, Department of Transportation.''



Sec. 308.514  Return premium.

    No premium will be returned to the assured with respect to a 
shipment of goods that attached under the policy except where there was 
a declaration of value at variance with Clause 8, or an error in the 
application of a rate or in the computation of a premium, or the insured 
goods were short-shipped. An application for the return of a premium 
shall be made on Form MA-307, prescribed in Sec. 308.527, filed in 
duplicate with the Underwriting Agent who will transmit it to the 
Maritime Administrator for payment.



Sec. 308.515  Payment in event of loss.

    All claims for losses shall be filed by the assured with the 
Underwriting Agent who issued the policy. Such claims must be supported 
by the customary documents required in connection with war risk 
insurance claims, together with appropriate declarations as required by 
Clause 9, and such further data as may now or hereafter be required by 
the Maritime Administrator.



Sec. 308.516  Failure to comply with Clause 21.

    (a) If the assured willfully fails to maintain a collateral deposit 
fund or a surety bond in an amount sufficient to meet the requirements 
of Clause 21, the policy becomes void from the date the fund or bond was 
first insufficient, but, if the assured's failure was inadvertent, the 
policy may be reinstated when the assured complies with Clause 21, and 
shows to the satisfaction of the Maritime Administrator that his failure 
was inadvertent and not willful. If the failure was in fact inadvertent, 
the assured shall file a declaration on Form MA-314, prescribed in 
Sec. 308.536, executed in duplicate, with the Underwriting Agent within 
seven (7) days from the time knowledge comes to the assured of the 
insufficiency of the collateral deposit fund or surety bond unless the 
time for filing such declaration is extended by permission of the 
Maritime Administrator. If the space provided in the declaration, Form 
MA-314, for an explanation of the circumstances whereby the assured 
first had knowledge that the collateral was not sufficient, the assured 
shall attach to the declaration a detailed statement and include the 
same by reference in the declaration.
    (b) If any policy becomes void by reason of the failure of the 
assured to deposit additional collateral or increase the amount of its 
surety bond under the provisions of Clause 21, the Maritime 
Administrator reserves the right to refuse to issue another policy to 
such assured for a period of 90 days.

[[Page 221]]



Sec. 308.517  Open Cargo Policy, Form MA-300.

    The standard form of War Risk Open Cargo, Form MA-300, may be 
obtained from the American War Risk Agency or MARAD.



Sec. 308.518  Standard optional endorsement No. 1, Form MA-300-A.

    Standard Optional Endorsement No. 1, which may be obtained from the 
American War Risk Agency or MARAD, limits the amount payable for the 
loss of goods to the actual bona fide pecuniary loss to the Assured, 
exclusive of any allowance for anticipated or accrued profit arising out 
of the insured venture. An Assured may elect to have his Open Cargo 
Policy endorsed with Standard Optional Endorsement No. 1 applicable on 
all shipments, or on all outward shipments, or on all inward shipments, 
or on named commodities except goods sold by the Assured prior to 
loading on board the overseas vessel and shipped for the account and at 
the risk of third persons other than a branch subsidiary or affiliate of 
the Assured. When an Assured has elected to have Standard Optional 
Endorsement No. 1 made applicable to certain named commodities he may 
not change to a different basis of valuation for those commodities until 
after he has given ninety (90) days written notice to the Maritime 
Administrator through the Underwriting Agent of his election to make the 
change. Application for Standard Optional Endorsement No. 1 may be made 
to the Underwriting Agent which is authorized to issue the endorsement 
without prior approval of the Maritime Administrator.



Sec. 308.519  Standard optional endorsement No. 2, Form MA-300-B.

    Standard Optional Endorsement No. 2, which may be obtained from the 
American War Risk Agency or MARAD, amends the policy to cover shipments 
made to the Assured or shipped by the Assured as agent for the account 
and risk of a principal. Application for Standard Optional Endorsement 
No. 2 may be made to the Underwriting Agent, which is authorized to 
issue the endorsement without prior approval of the Maritime 
Administrator.



Sec. 308.520  Standard optional endorsement No. 3, Form MA-300-C.

    Standard Optional Endorsement No. 3, which may be obtained from the 
American War Risk Agency or MARAD, amends the policy to include 
shipments of diamonds for industrial purposes, or rubies or sapphires, 
natural or synthetic, used for instruments or watch jewels imported to 
the Continental United States (excluding Alaska). Application for 
Standard Optional Endorsement No. 3 may be made to the Underwriting 
Agent, which shall transmit it to the Maritime Administrator for 
approval or disapproval of the issuance of the endorsement.



Sec. 308.521  Application for Open Cargo Policy, Form MA-301.

    The standard form of application for a War Risk Open Cargo Policy 
may be obtained from the American War Risk Agency or MARAD.



Sec. 308.522  Collateral deposit fund, letter of transmittal, Form MA-302.

    The standard form of letter of transmittal for use in establishing a 
collateral deposit fund, may be obtained from the American War Risk 
Agency or MARAD.



Sec. 308.523  Application for revision of Open Cargo Policy, Form MA-303.

    An application for the revision of an Open Cargo Policy shall be 
filed in duplicate with the Underwriting Agent on a form which may be 
obtained from the American War Risk Agency or MARAD.



Sec. 308.524  Application for cancellation of Open Cargo Policy, Form MA-304.

    The standard form of application for cancellation of an Open Cargo 
Policy Form MA-304 may be obtained from the American War Risk Agency or 
MARAD.



Sec. 308.525  Application for decrease in amount of cash collateral fund, Form MA-305.

    Application for decrease in the amount of the cash collateral 
deposit

[[Page 222]]

fund shall be made on Form MA-305, which may be obtained from the 
American War Risk Agency or MARAD.



Sec. 308.526  Certificate for repayment of decrease of collateral deposit fund, Form MA-306.

    The standard form of certificate for repayment of the amount of the 
decrease of the collateral deposit fund, Form MA-306, may be obtained 
from the American War Risk Agency or MARAD.



Sec. 308.527  Application for return premium, Form MA-307.

    An application for the return of premium, which may be obtained from 
the American War Risk Agency or MARAD, shall be filed in duplicate with 
the Underwriting Agent on Form MA-307.



Sec. 308.528  Surety Bond A, Form MA-308.

    The Standard Form of Surety Bond A, Form MA-308, which may be 
obtained from the American War Risk Agency or MARAD, shall be used by an 
Assured who elects to post a surety bond as security for payment of the 
premiums pursuant to Clause 21 of the policy:



Sec. 308.529  Surety Bond B, Form MA-309.

    An Assured who elects to substitute a surety bond for a collateral 
deposit fund shall submit Form MA-309, which may be obtained form the 
American War Risk Agency or MARAD.



Sec. 308.530  Letter requesting increase or decrease in amount of surety bond, Form MA-310.

    An endorsement increasing or decreasing the amount of the surety 
bond, Form MA-310, shall be transmitted to the underwriting agent and 
may be obtained from the American War Risk Agency or MARAD.



Sec. 308.531  Endorsement of surety bond increasing or decreasing amount of coverage, Form MA-311.

    The Standard Form of Endorsement which shall be used in increasing 
or decreasing the amount of a surety bond, Form MA-311, may be obtained 
from the American War Risk Agency or MARAD.



Sec. 308.532  Release of surety bond, Form MA-312.

    The Standard Form of Release of Surety bond, Form MA-312, may be 
obtained from the American War Risk Agency or MARAD.



Sec. 308.533  Closing report, Form MA-313.

    This form, which may be obtained from the American War Risk Agency 
or MARAD, shall be filed in duplicate with the Underwriting Agent not 
later than the 25th day of each month.



Sec. 308.534  Certificate to be attached to closing report, Form MA-313-A.

    The standard form of Certificate to be attached to the closing 
report, Form MA-313-A, may be obtained from the American War Risk Agency 
or MARAD and shall be filed each month.



Sec. 308.535  Certificate to be attached to final closing report, Form MA-313-B.

    The Standard Form of Certificate, Form MA-313-B, shall be attached 
to the final closing report after cancellation of the policy, and may be 
obtained from the American War Risk Agency or MARAD.



Sec. 308.536  Declaration where failure to comply with Clause 21 was inadvertent, Form MA-314.

    An Assured that fails inadvertently to maintain a collateral deposit 
fund or surety bond in an amount sufficient to meet the requirements of 
Clause 21 of the Policy shall file this Declaration, Form MA-314, which 
may be obtained from the American War Risk Agency or MARAD.

                III--Facultative War Risk Cargo Insurance



Sec. 308.538  General.

    The Maritime Administrator is prepared to provide facultative war 
risk insurance policies covering any cargoes described in Sec. 308.501 
which are designated by an applicant prior to the attachment of risks, 
if the applicant does not have an Open Cargo Policy issued by the 
Maritime Administrator, or if

[[Page 223]]

he has a shipment which is not covered by his Open Cargo Policy. 
However, a person with regular shipments is urged to avail himself of 
the advantages of the automatic coverage of an Open Cargo Policy. The 
Maritime Administrator reserves the right to decline to quote rates or 
bind insurance on shipments of cargo that could be covered by an Open 
Cargo Policy unless the applicant can show to the satisfaction of the 
Maritime Administrator that the risk is not one of a series of similar 
risks forming part of a continual flow of business for the applicant. 
The policy will be in the standard form of War Risk Facultative Cargo 
Policy, Form MA-316, prescribed in Sec. 308.545. All policies shall be 
issued by Underwriting Agents appointed by the Maritime Administrator. 
All Underwriting Agents shall be domestic insurance companies authorized 
to do a marine insurance business in a State of the United States.



Sec. 308.539  Application.

    (a) Preliminary request. Application for a Facultative Cargo Policy 
shall be made by filing a preliminary request in writing (including 
telegram) with an Underwriting Agent of the Maritime Administration, 
setting forth the following information:
    (1) The name and address of the applicant;
    (2) The amount of insurance requested;
    (3) The commodity and quantity to be insured;
    (4) The voyage to be covered;
    (5) The name of the vessel upon which the cargo will be shipped, if 
known, the name of the steamship line, if known, and the date of 
shipment, if the applicant is submitting the request to bind war risk in 
writing; for security reasons, if the applicant is submitting the order 
to bind war risk insurance by telefax, neither the name of the vessel 
nor the name of the steamship line nor the anticipated date of sailing, 
should be mentioned. Mentioning such information in a telefax may result 
in a denial of insurance to the applicant. Any envelope transmitting a 
letter containing such information shall be marked ``confidential.''
    (b) Binder. Before the insurance can be bound, the applicant shall 
provide the Underwriting Agent with a properly prepared binder on Form 
MA-315 prescribed in Sec. 308.544. The binder must be submitted in 
duplicate, accompanied by check or Money Order payable to the order of 
the Maritime Administration, Department of Transportation'' for the full 
amount of the premium computed on the amount to be insured at the rate 
set by the Maritime Administrator. Any application for facultative cargo 
war risk insurance received by an Underwriting Agent later than 4 p.m. 
(Local War Time) shall be considered the next day's business.
    (c) Optional loss limits clause. Clause 9 of the standard form of 
facultative cargo policy, Form MA-316, prescribed in Sec. 308.545, 
limits the amount payable for loss to the fair market value at the place 
and approximate time of the attachment of risk, plus the cost of marine 
insurance, transportation and expenses incident thereto, and war risk 
insurance with respect to the lost or damaged goods, or if it is 
impossible to determine the fair market value at place and time of 
attachment of risk, the fair market value at the designated port of 
arrival on the date of the attachment of the risk, plus the cost of 
marine insurance, transportation and expenses incidental thereto, and 
war risk insurance with respect to the lost or damaged goods, or if the 
goods had been purchased prior to loading, the actual amount paid or 
payable to the seller for the goods less all discounts, plus the cost of 
marine insurance, transportation and expenses incidental thereto, and 
war risk insurance with respect to the lost or damaged goods. In lieu of 
these loss limits, the Assured by so specifying in his application, and 
the binder may have attached to the policy when issued Standard Optional 
Endorsement No. 1-A, Form MA-316, prescribed in Sec. 308.546, which 
limits the amount payable for loss to the actual bona fide pecuniary 
loss to the Assured, exclusive of any allowance for anticipated or 
accrued profits arising out of the insured venture.



Sec. 308.540  Premiums.

    (a) Rates. Rate Schedules for war risk facultative cargo insurance 
will be

[[Page 224]]

published by the Maritime Administrator from time to time, and may be 
obtained from an Underwriting Agent. All Rate Schedules are subject to 
change by the Maritime Administrator without notice. If no rate is 
published for a voyage on which war risk facultative cargo insurance is 
available, the Maritime Administrator will name a rate through an 
Underwriting Agent upon application. Whenever an applicant for war risk 
facultative cargo insurance receives a definite rate quotation and 
desires to bind insurance at the quoted rate, an order to bind the 
insurance in accordance with the procedure set forth in this subpart 
should be submitted within two business days following the day of 
quotation accompanied by check or Money Order payable to the order of 
``Maritime Administration, Department of Transportation'' for the full 
amount of the premium thereon computed on the amount to be insured at 
the rate set by the Maritime Administrator, or the quotation will 
expire.
    (b) Return premium. Where goods are short-shipped, the amount of 
insurance may be reduced by an amount computed by applying to the 
original amount of insurance the proportion which the quantity of 
merchandise short-shipped (i.e., bales, barrels, tons, and other 
designations of quantity) bears to the total quantity of merchandise 
originally declared for insurance. Where more than one class of 
merchandise is insured under one policy (e.g., fuel, oil and gasoline) 
the reduced amount of insurance must be computed separately on each 
item. Where the amount of insurance is reduced, the Maritime 
Administrator will give consideration to requests for proportionate 
returns of premium. An application for the return of a premium must be 
submitted to the Underwriting Agent in quadruplicate on Form MA-317, 
prescribed in Sec. 308.547.



Sec. 308.541  Issuance.

    (a) Binder. The Underwriting Agent is authorized to issue a 
facultative policy in Form MA-316, prescribed in Sec. 308.545, when 
there has been presented to him a properly prepared binder on Form MA-
315, prescribed in Sec. 308.544, together with the payment of the 
premium as required, and such policy shall be issued as soon as possible 
after the binder form has been presented to the Underwriting Agent. 
Prior to the issuance of the policy, the Underwriting Agent is 
authorized to accept the risk on behalf of the Maritime Administrator by 
signing the binder. The Maritime Administrator will provide each 
Underwriting Agent with a supply of facultative policies which shall not 
be valid until countersigned by the Underwriting Agent. The Underwriting 
Agent shall keep a permanent record of all such policies and the Assured 
to whom the policy is issued.
    (b) Numbering. Each Facultative Cargo Policy supplied to the 
Underwriting Agent by the Maritime Administrator shall be numbered by 
the Maritime Administration before it is supplied to the Underwriting 
Agent. No two numbers shall be the same. The Underwriting Agent when 
issuing the policy shall add at the end of the Policy number the agency 
number assigned to that Underwriting Agent, and where policies are 
issued by more than one office of an Underwriting Agent the issuing 
office shall also be identified in the policy number. For example, the 
policies issued by an office in New York will be designated ``NY'' and 
policies issued in San Francisco will be designated by ``SF'' prefixed 
to the Underwriting Agent's agency number.



Sec. 308.542  Warranty re thirty-day shipments.

    If, after an effective binding of war risk insurance on a shipment 
of cargo, the assured believes that it will be impossible to comply with 
the warranty requiring the goods to be shipped and in transit within 
thirty days from the effective date of binding, such an assured may 
apply to the Maritime Administrator, through the Underwriting Agent, to 
modify the warranty. If the Maritime Administrator is satisfied that an 
extension of time within which the goods are warranted to be shipped and 
in transit should be granted, he will do so, but additional premium may 
be charged in the discretion of the Maritime Administrator.

[[Page 225]]



Sec. 308.543  Cancellation.

    Facultative war risk insurance is not subject to cancellation by the 
Assured unless the goods are not shipped within thirty days following 
the effective date of binding, and then only if the policy is returned 
for cancellation.



Sec. 308.544  Facultative binder, Form MA-315.

    The standard form of War Risk Facultative Cargo Binder, which may be 
obtained from the American War Risk Agency of MARAD, shall be completed 
by the applicant and submitted, in duplicate, to an Underwriting Agent 
before the insurance can be bound.



Sec. 308.545  Facultative cargo policy, Form MA-316.

    The standard form of War Risk Facultative Cargo Policy, Form MA-316, 
may be obtained from the American War Risk Agency or MARAD.



Sec. 308.546  Standard optional endorsement No. 1-A, Form MA-316-A.

    Standard Optional Endorsement No. 1-A limits the amount payable for 
the loss of goods to the actual bona fide pecuniary loss to the Assured, 
exclusive of any allowance for anticipated or accrued profit arising out 
of the insured venture. (Similar provisions for Open Cargo Policies are 
contained in Standard Optional Endorsement No. 1, Form MA-300-A, 
prescribed in Sec. 308.518.) Application for Standard Optional 
Endorsement No. 1-A shall be made to the Underwriting Agent at the time 
application is made for the policy. The Underwriting Agent is authorized 
to issue the endorsement without prior approval of the Maritime 
Administrator. This form may be obtained from the American War Risk 
Agency or MARAD.



Sec. 308.547  Application for return premium, Form MA-317.

    An application for the return of premium must be filed in duplicate 
with the Underwriting Agent on Form MA-317, which may be obtained from 
the American War Risk Agency or MARAD.

                               IV--General



Sec. 308.548  Standard form of underwriting agency agreement for cargo, Form MA-318.

    This form, which may be obtained from the American War Risk Agency 
or MARAD, is the standard form of underwriting agency agreement 
applicable with respect to agreements executed by the Maritime 
Administrator and domestic insurance companies authorized to do a marine 
insurance business in any State of the United States, appointing such 
companies as Underwriting Agents to issue war risk cargo policies in 
accordance with the provision of the agreement and this subpart.



Sec. 308.549  Application for appointment of Cargo Underwriting Agent, Form MA-319.

    Any domestic insurance company authorized to do a marine insurance 
business in any State of the United States may apply for appointment as 
a Cargo Underwriting Agent by submitting to the Maritime Administrator a 
letter and Form MA-399, which may be obtained from the American War Risk 
Agency or MARAD.



Sec. 308.550  Certificate, Form MA-320.

    Wherever any provision of this subpart, or any amendment thereto, 
requires the Assured to make a declaration or certification under the 
penalties of perjury, and the form of the declaration or certificate is 
not prescribed, the Assured may execute a certificate on Form MA-320-A 
for an individual, on Form MA-320-B for a partnership, or on Form MA-
320-C for a corporation, which forms may be obtained from the American 
War Risk Agency or MARAD.



Sec. 308.551  War risk insurance clearing agency agreement for cargo, Form MA-321.

    The standard form of clearing agency agreement, Form MA-321, shall 
be executed by the Maritime Administrator and domestic insurance 
companies, or groups of domestic insurance companies authorized to do a 
marine insurance business in any State of the United States, appointing 
such companies or groups of companies as clearing

[[Page 226]]

agents, which form may be obtained from the American War Risk Agency or 
MARAD.



Sec. 308.552  Effective date.

    This subpart shall be effective as and when the Maritime 
Administrator finds that war risk cargo insurance adequate for the needs 
of the waterborne commerce of the United States cannot be obtained on 
reasonable terms and conditions from companies authorized to do an 
insurance business in a State of the United States.



                      Subpart G--Records Retention



Sec. 308.600  Records retention requirement.

    The records specified in Secs. 308.8, 308.517, and 308.548 of this 
part shall be retained until a release is granted by the MARAD, at which 
time MARAD will take custody of the records.



PART 309--VALUES FOR WAR RISK INSURANCE--Table of Contents




Sec.
309.1  Procedure.
309.2  Definitions.
309.3  Stated valuation.
309.4  Maximum amount insured.
309.5  Condition of vessel.
309.6  Adjustments for condition, equipment, and other considerations.
309.7  Modifications.
309.8  Vessel data forms.
309.101  Amendment of interim binders.

                           Stores and Supplies

309.201  Purpose.
309.202  Definitions.
309.203  Value at time of loss.
309.204  Proof of loss.

    Authority: Secs. 204, 1209, Merchant Marine Act, 1936, as amended 
(46 U.S.C. 1114, 1289); Reorganization Plans No. 21 of 1950 (64 Stat. 
1273), No. 7 of 1961 (75 Stat. 840) as amended by Pub. L. 91-469 (84 
Stat. 1036); Department of Commerce Organization Order 10-8 (38 FR 
19707, July 23, 1973); Maritime Administrative Order 440-3 (December 6, 
1973).

    Source: 39 FR 30487, Aug. 23, 1974, unless otherwise noted.



Sec. 309.1  Procedure.

    The Ship Valuation Committee, Maritime Administration, shall publish 
bianually in the notice section of the Federal Register a general notice 
which shall set forth the stated valuations of individual vessels upon 
which interim binders for war risk hull insurance have been issued. Such 
values shall be effective with respect to a six-month period commencing 
on January 1 and ending on June 30, or a six-month period commencing on 
July 1 and ending on December 31 of each calendar year; Provided, 
however, That if there is a substantial change in market values during 
the effective period of a state valuation, the Maritime Administration 
reserves the right to revise such valuations at any time during such 
period.



Sec. 309.2  Definitions.

    (a) Ship Valuation Committee means the Ship Valuation Committee 
referred to in Maritime Administrative Order 440-3.
    (b) The date a vessel is built is the date the vessel is delivered 
by the shipbuilder.
    (c) The deadweight tonnage of a vessel means her deadweight capacity 
established in accordance with normal Summer Freeboard as assigned 
pursuant to the International Load Line Convention, 1966, and shall be 
her capacity (in tons of 2,240 pounds) for cargo, fuel, fresh water, 
spare parts, and stores, but exclusive of permanent ballast.
    (d) The speed of a vessel means the speed determined in accordance 
with the formulae provided in part 246 of this chapter.
    (e) A passenger vessel is a vessel which carries more than twelve 
passengers.



Sec. 309.3  Stated valuation.

    A stated valuation represents just compensation for the vessel to 
which it applies computed by the Ship Valuation Committee in accordance 
with sections 902(a) and 1209(a)(2) of the Merchant Marine Act, 1936, as 
amended (46 U.S.C. 1242(a), 1289(a)(2)). The stated valuation of a 
vessel does not include vessel stores and supplies, which consist of (a) 
consumable stores, (b) subsistence stores, (c) slop chest, (d) bar 
stock, and (e) fuel, as defined in Maritime Administration Inventory 
Book Forms MA-4736, A through K, which will be valued separately.

[[Page 227]]



Sec. 309.4  Maximum amount insured.

    A stated valuation is the maximum amount for which the Maritime 
Administration will provide war risk hull insurance for damage to or 
actual or constructive total loss of the vessel to which such valuation 
applies and for which claims for damage to or actual or constructive 
total loss of such insured vessel may be adjusted, compromised, settled, 
adjudged, or paid by the Maritime Administration with respect to 
insurance attaching during the effective period of such valuation under 
the standard forms of war risk hull insurance interim binder or policy 
prescribed by Secs. 308.106 and 308.107 of this chapter.



Sec. 309.5  Condition of vessel.

    If the true condition of a vessel is not known, the Ship Valuation 
Committee, in determining the stated valuation of the vessel, may assume 
that it is in a condition that would entitle it to the highest 
classification of the American Bureau of Shipping, or the equivalent if 
the vessel is a foreign-flag vessel, with all required certificates, 
including but not limited to, marine inspection certificates of the 
United States Coast Guard, the United States Public Health Service, and 
the Federal Communications Commission, with all outstanding requirements 
and recommendations necessary for retention of class accomplished, 
without regard to any grace period; and, so far as due diligence can 
make her so, the vessel is tight, staunch, strong, and well and 
sufficiently tacked, appareled, furnished, and equipped, and in every 
respect seaworthy and in good running condition and repair, with clean 
swept holds and in all respects fit for service. The stated valuation of 
a vessel in substandard condition is subject to downward adjustment as 
provided in Sec. 309.6(a).



Sec. 309.6  Adjustments for condition, equipment, and other considerations.

    (a) Adjustment for a vessel in substandard condition. If the 
Maritime Administration determines that a vessel is in substandard 
condition from that assumed by the Committee as provided in Sec. 309.5, 
there shall be subtracted from the stated valuation of such vessel an 
amount estimated by the Maritime Administration as the cost of putting 
the vessel in the condition assumed by the Committee when determining 
its stated valuation.
    (b) Special equipment. If the depreciated reproduction cost less 
construction subsidy, if any, of any special equipment of material 
utility in the handling of cargo or utilization of a vessel, not 
otherwise taken into account in determining the stated valuation of such 
vessel, is in excess of $50,000, an amount estimated by the Maritime 
Administration as the fair and reasonable value of such equipment shall 
be added to the stated valuation of such vessel.
    (c) Government installations. A stated valuation determined pursuant 
to this part shall not include any allowance for any special 
installations or equipment to the extent that their cost was borne by 
the United States.



Sec. 309.7  Modifications.

    The Maritime Administration reserves the right to exempt any vessel 
from the scope of this part, or to amend, modify, or terminate the 
provisions hereof.



Sec. 309.8  Vessel data forms.

    (a) To accompany application for insurance. Each application for war 
risk insurance, submitted in accordance with Sec. 308.3 of this chapter, 
shall be accompanied by a completed Form MA-828, Vessel Data. Copies of 
this form may be obtained from either the American War Risk Agency, 14 
Wall Street, New York, N.Y. 10005, or the Director, Office of Marine 
Insurance (MAR-540) Maritime Administration 400 Seventh Street SW., 
Washington, DC 20590.
    (b) Modification to vessels. Revised vessel data shall be submitted 
on the appropriate form prescribed in paragraph (a) of this section 
whenever a vessel undergoes a physical change which increases or 
decreases its value by five percent or more.

(Approved by the Office of Management and Budget under control number 
2133-0011)

[39 FR 30487, Aug. 23, 1974, as amended at 47 FR 25330, June 14, 1982; 
50 FR 50167, Dec. 9, 1985]

[[Page 228]]



Sec. 309.101  Amendment of interim binders.

    The interim binder for a vessel whose stated valuation is 
established pursuant to this part shall be deemed to have been amended 
on the first day of the effective period of such valuation, as provided 
in the notice publishing such valuation, by inserting in the space 
provided therefor, or in substitution for any value appearing in such 
space, the stated valuation of the vessel set forth in such notice. A 
stated valuation shall apply with respect to insurance attaching during 
the effective period of such valuation; Provided, however, That if there 
is a substantial change in market values during such period, the 
Maritime Administration reserves the right to revise the valuations 
provided for therein at any time during said period; And provided 
further, That the assured shall have the right within 60 days after the 
date of publication of a stated valuation or within 60 days after the 
attachment of the insurance under the interim binder to which such 
valuation applies, whichever is later, to reject such valuation and 
proceed as authorized by section 1209(a)(2), Merchant Marine Act, 1936, 
as amended (46 U.S.C. 1289(a)(2)).

                           Stores and Supplies

    Authority: Sections 309.201 through 309.204 issued under sec. 204, 
49 Stat. 1987, as amended, sec. 1209, 64 Stat. 775, as amended, 70 Stat. 
984; 46 U.S.C. 1114, 1289.

    Source: Sections 309.201 to 309.204 contained in G.O. 100, 29 FR 
2944, Mar. 4, 1964; 29 FR 3706, Mar. 25, 1964, unless otherwise noted.



Sec. 309.201  Purpose.

    It is the purpose of Secs. 309.201 through 309.204 to prescribe the 
method for determining the values of stores and supplies on board a 
vessel when lost, for which claims for loss will be paid, and to 
prescribe the procedure for payment of claims for such loss, when stores 
and supplies are covered under a disbursements clause of a War Risk Hull 
Insurance Binder or a War Risk Hull Insurance Policy issued by the 
United States on forms prescribed by Secs. 308.106 and 308.107 of this 
chapter, or when stores and supplies are covered by a War Risk 
Disbursements Policy issued by the United States pursuant to section 
1203(c) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 
1283(c)). The vessel values established by Secs. 309.1 through 309.8 
(General Order 82) do not include any allowance for the loss of stores 
and supplies, as distinguished from equipment and spare parts which are 
included in such vessel values.



Sec. 309.202  Definitions.

    Stores and supplies are those articles and commodities used and 
consumed in the day-to-day operation of a vessel by the operation and 
maintenance of machinery and equipment; the maintenance of clean and 
sanitary conditions; the feeding of passengers, officers, and crew; and 
stocked for the use and convenience of passengers, officers, and crew. 
Vessel stores and supplies include (a) consumable stores, (b) 
subsistence stores, (c) slop chest, (d) bar stock, and (e) fuel, as 
defined in Maritime Administration Inventory Books, Forms MA-4736, A 
through K.



Sec. 309.203  Value at time of loss.

    The value of unused stores and supplies on board a vessel at the 
time of loss, and for which claims for loss will be paid equals:
    (a) The value of such stores and supplies on board at the completion 
of the previous voyage, plus
    (b) The value of stores and supplies purchased and placed on board 
the vessel before the commencement of the voyage during which the loss 
occurred, plus
    (c) The value of stores and supplies purchased and placed on board 
the vessel after the commencement of such voyage, less
    (d) That portion of the sum of paragraphs (a), (b), and (c) of this 
section which was sold, transferred, used or consumed to, but not 
including, the date of the loss.



Sec. 309.204  Proof of loss.

    Claims for reimbursement for total loss of stores and supplies may 
be submitted by the owner to the Chief, Division of Insurance, Maritime 
Administration, Washington, DC 20590, based on one of two alternative 
methods of

[[Page 229]]

proof, as provided in paragraphs (a) and (b) of this section. Owners may 
use either method for each category of stores and supplies.
    (a) Formula. In cases where the owner and the Chief, Division of 
Insurance, Maritime Administration, have agreed, in advance of the loss, 
upon amounts representing, or the method for determining, the average 
daily consumption costs of stores and supplies for the owner's vessel, 
claims for total loss of such stores and supplies may be submitted by 
the owner on Affidavit in Proof of Claim for the loss of stores and 
supplies, Exhibit A. In such cases, the value of the consumable stores 
at time of loss is determined as follows:
    (1) The value of consumable stores on board at the time the vessel 
was ready to sail, determined by multiplying the number of days for 
which the vessel is stored by the average daily consumption cost in 
dollars, plus
    (2) The cost of consumable stores, if any, purchased in foreign 
ports for the homeward voyage, less
    (3) The average daily consumption cost times the number of days from 
the date the vessel was ready to sail to, but not including, the date of 
loss, plus the actual amount of consumable stores transferred or sold. 
The values of slop chest stores, bar stock and fuel, at the time of loss 
are determined in the same manner by using the applicable daily 
consumption costs for such stores. The value of subsistence stores at 
the time of loss is determined as follows:
    (i) The value of subsistence stores on board at the time the vessel 
was ready to sail, determined by multiplying the agreed cost for one man 
per day by the number of crew signed on and the number of passengers, if 
any, and multiplying that product by the number of days for which the 
vessel is stored, plus
    (ii) The cost of subsistence stores, if any, purchased in foreign 
ports for the homeward voyage, less
    (iii) The number of crew signed on and the average number of 
passengers, if any, times the agreed cost of one man per day times the 
number of days from the date the vessel was ready to sail to, but not 
including, the date of loss, plus the actual amount of subsistence 
stores transferred or sold.
    (b) Verified costs. In cases where the owner and the Chief, Division 
of Insurance, Maritime Administration, have not agreed in advance of the 
loss upon amounts representing, or the method for determining, the 
average daily consumption costs of Stores and Supplies for the owner's 
vessel, claims for total loss of such Stores and Supplies must be 
submitted by the owner on Affidavit in Proof of Claims for the Loss of 
Stores and Supplies, Exhibit B. In such cases, the value of the 
consumable stores will be determined as follows:
    (1) The value of consumable stores on board the vessel at the time 
the vessel was ready to sail, determined by certified inventories of the 
owner of amounts on board the vessel at the termination of the preceding 
voyage or date of last inventory, less actual consumption to date of 
sailing, plus a certified statement by the owner of actual additional 
purchases made from date of termination of the preceding voyage or date 
or last inventory to date vessel was lost, subject to audit by the 
Maritime Administration, less
    (2) The average daily consumption cost determined by dividing the 
amount determined as in paragraph (b)(1) of this section by the number 
of days for which the vessel was stored, times the number of days from 
the date the vessel was ready to sail to, but not including, the date of 
loss, plus actual amount of consumable stores transferred or sold.
    The values of subsistence stores, slop chest, bar stock, and fuel, 
at the time of loss are determined in the same manner, supported by 
certified inventories of the owner and invoices.

                                Exhibit A

affidavit in proof of claim for the loss of unused stores and supplies 
on board the ss______________

State of

        ss:

County of

    I am the ______ of ______, the Owner of the SS ______, which was 
lost as a result of enemy action on or about the ______ day of ______, 
______. I make this affidavit in support of the above-named Owner's 
claim for the loss of the actual value of the said vessel's unused 
Stores and Supplies. The statements herein contained are based upon the

[[Page 230]]

personal knowledge of deponent or upon the books of records of the Owner 
or its agent which deponent believes are true and accurate.
    (A) ``Stores and Supplies'', for loss of which claim is being made, 
are limited to consumable and subsistence stores as defined in Maritime 
Administration Inventory Manual, Vessel Inventories, Part I, and do not 
include radio supplies, expendable equipment, scrap, junk and spare 
parts.\1\
---------------------------------------------------------------------------

    \1\ Strike out either paragraph (A) or (B).
---------------------------------------------------------------------------

    (B) It has been the consistent accounting practice of the Owner to 
group together Consumable Stores as defined in the Maritime 
Administration Inventory Manual, Vessel Inventories, Part I, and 
Expendable Equipment, but the amount herein stated to be the value of 
consumable stores for the purpose of making this claim does not exceed 
______ \2\ percent of the aggregate of such consumable stores and 
expendable equipment.\1\ I am familiar with the insurance carried on the 
Stores and Supplies on the SS ______; and, from the effective date of 
War Risk Insurance Binder No______ Policy No______ issued by the United 
States of America, which covers the total loss of Stores and Supplies in 
the amount of $______, to the date of such vessel's loss on ______, 
there was no war risk insurance on such Stores and Supplies other than 
that provided by said Binder or Policy.
---------------------------------------------------------------------------

    \2\ Insert percentage agreed upon with Chief, Division of Insurance, 
Maritime Administration.
---------------------------------------------------------------------------

    The period for which the vessel was stored with Stores and Supplies 
for use on the voyage on which she was lost, beginning with the last day 
of storing, was ______ days for Consumable Stores, ______ days for 
Subsistence Stores, ______ days for Slop Chest, ______ days for Bar 
Stock and ______ days for Fuel. The number of days from the last day of 
storing to, but not including, the date on which the vessel was lost, 
was ______ days for Consumable Stores, ______ days for Subsistence 
Stores, ______ days for Slop Chest, ______ days for Bar Stock and ______ 
days for Fuel.
    I. Consumable (Excluding Subsistence) Stores: \3\
---------------------------------------------------------------------------

    \3\ If the figure needed to fill the blank in paragraph (A) or (B) 
is not available, the formula cannot be used; the Owner must submit 
actual inventories and a record of purchases on Affidavit Exhibit B.
---------------------------------------------------------------------------

    (A) The average daily consumption cost of Consumable Stores for this 
vessel for the year prior to the voyage on which she was lost was \4\ 
$______.
---------------------------------------------------------------------------

    \4\ Strike out paragraph (A) or (B).
---------------------------------------------------------------------------

    (B) The figure required for (A) is not readily available, and the 
average daily cost of Consumable Stores for this vessel for the last 
calendar year set up on the Owner's books was \4\ $______.
    The amount of Consumable Stores on board at the time this vessel was 
ready to sail (the number of days for which the vessel was stored times 
the average daily consumption cost, as above) was $______.
    To this amount is added the actual cost of Consumable Stores 
purchased in Foreign Ports for the homeward voyage (as per statement 
attached) \5\ $______, making the total amount on board at date of 
sailing $______.
---------------------------------------------------------------------------

    \5\ Strike out this sentence if vessel was lost on outward leg of 
voyage.
---------------------------------------------------------------------------

    The average daily consumption cost, as above, times the number of 
days from the date the vessel was ready to sail to, but not including, 
the date of loss, as above, is $______.
    To this amount is added the actual amount of Consumable Stores 
transferred or sold (as per statement attached) $______, making $______, 
which, subtracted from the amount of Consumable Stores on board at date 
of sailing, as above, is $______, which sum is claimed to be the actual 
value of the vessel's unused Consumable Stores at the time of the loss, 
according to the best of deponent's knowledge, information and belief.
    II. Subsistence Stores:
    The amount of Subsistence Stores on board, that is the number of the 
crew signed on (  ) and the average number of passengers, if any (  ), 
times the number of days for which the vessel was stored as above (  ), 
times the applicable factor \6\ of cost for one man per day (  ) was 
$______.
---------------------------------------------------------------------------

    \6\ The factor of cost per man per day, as prescribed by the 
Maritime Administration for voyages beginning in 19  , is $______.
---------------------------------------------------------------------------

    To this amount is added the actual cost of Subsistence Stores 
purchased in Foreign Ports for the homeward voyage (as per statement 
attached) \5\ $______, making the amount on board on date of sailing 
$______.
    The amount of Subsistence Stores consumed, that is the number of 
crew signed on (  ) and the average number of passengers, if any (  ) 
times the number of days between the last day of storing the vessel and 
the date on which the vessel was lost (    ) times the applicable factor 
\6\ of cost for one man per day was $______.
    To this amount is added the actual amount of Subsistence Stores 
transferred or sold (as per statement attached), $______, making 
$______, which, subtracted from the amount of Subsistence Stores on 
board at date of sailing, as above, is $______, which sum is claimed to 
be the actual value of the unused Subsistence Stores at the time of the 
loss, according to the best of deponent's knowledge, information and 
belief.

[[Page 231]]

    III. Slop Chest: \7\
---------------------------------------------------------------------------

    \7\ If the figure needed to fill the blank in paragraph (A) or (B) 
is not available, the formula cannot be used; the Owner must submit 
actual inventories and a record of purchases on Affidavit Exhibit B.
---------------------------------------------------------------------------

    (A) The average daily consumption cost of Slop Chest Stores for this 
vessel for the year prior to the voyage on which she was lost was \8\ 
$______.
---------------------------------------------------------------------------

    \8\ Strike out paragraph (A) or (B).
---------------------------------------------------------------------------

    (B) The figure required for (A) is not readily available, and the 
average daily cost of Slop Chest Stores for this vessel for the last 
calendar year set up on the Owner's books was \8\ $______.
    The amount of Slop Chest Stores on board at the time this vessel was 
ready to sail (the number of days for which the vessel was stored times 
the average daily consumption cost, as above) was $______.
    To this amount is added the actual cost of Slop Chest Stores 
purchased in Foreign Ports for the homeward voyage (as per statement 
attached) \5\ $______, making the total amount on hand at date of 
sailing $______.
    The average daily consumption cost, as above times the number of 
days from the date the vessel was ready to sail to, but not including, 
the date of loss, as above, is $______.
    To this is added the actual amount of Slop Chest Stores transferred 
or sold (as per statement attached) $______, making $______, which, 
subtracted from the amount of Slop Chest Stores on board at date of 
sailing, as above, is $______, which sum is claimed to be the actual 
value of the vessel's unsold Slop Chest Stores at the time of the loss 
according to the best of deponent's knowledge, information and belief.
    IV. Bar Stock: \9\
---------------------------------------------------------------------------

    \9\ If the figure needed to fill the blank in paragraph (A) or (B) 
is not available, the formula cannot be used; the Owner must submit 
actual inventories and a record of purchases on Affidavit Exhibit B.
---------------------------------------------------------------------------

    (A) The average daily consumption cost of Bar Stock for this vessel 
for the year prior to the voyage on which she was lost was \10\ $______.
---------------------------------------------------------------------------

    \10\ Strike out paragraph (A) or (B).
---------------------------------------------------------------------------

    (B) The figure required for (A) is not readily available, and the 
average daily cost of Bar Stock for this vessel for the last calendar 
year set up on the Owner's books was \10\ $______.
    The amount of Bar Stock on board at the time this vessel was ready 
to sail (the number of days for which the vessel was stored times the 
average daily consumption cost, as above) was $______.
    To this amount is added the actual cost of Bar Stock purchased in 
Foreign Ports for the homeward voyage (as per statement attached) \5\ 
$______, making the total amount on hand at date of sailing $______.
    The average daily consumption cost, as above, times the number of 
days from the date the vessel was ready to sail to, but not including, 
the date of loss, as above, is $______.
    To this amount is added the actual amount of Bar Stock transferred 
or sold (as per statement attached) $______, making $______, which, 
subtracted from the amount of Bar Stock on board at the time of sailing, 
as above, is $______, which sum is claimed to be the actual value of the 
vessel's unused Bar Stock at the time of the loss according to the best 
of deponent's knowledge, information and belief.
    V. Fuel: \11\
---------------------------------------------------------------------------

    \11\ If the figure needed to fill the blank in paragraph (A) or (B) 
is not available, the formula cannot be used; the Owner must submit 
actual inventories and a record of purchases on Affidavit Exhibit B.
---------------------------------------------------------------------------

    (A) The average daily consumption cost of Fuel for this vessel for 
the year prior to the voyage on which she was lost was \11\ $______.
    (B) The figure required for (A) is not readily available, and the 
average daily cost of Fuel for this vessel for the last calendar year 
set up on the Owner's books was \12\ $______.
---------------------------------------------------------------------------

    \12\ Strike out paragraph (A) or (B).
---------------------------------------------------------------------------

    The amount of Fuel on board at the time this vessel was ready to 
sail (the number of days for which the vessel was stored times the 
average daily consumption cost, as above) was $______.
    To this amount is added the actual cost of Fuel purchased in Foreign 
Ports for homeward voyage (as per statement attached) \5\ $______, 
making the total amount on hand at date of sailing $______.
    The average daily consumption cost, as above, times the number of 
days from the date the vessel was ready to sail to, but not including, 
the date of loss, as above, is $______.
    To this amount is added the actual amount of Fuel transferred or 
sold (as per statement attached) $______, making $______, which, 
subtracted from the amount of Fuel on board at the time of sailing, as 
above, is $______, which sum is claimed to be the actual value of the 
vessel's unused Fuel at the time of the loss according to the best of 
deponent's knowledge, information and belief.

Unused Consumable Stores, other than--                                  
  Subsistence Stores.......................  $______                    
  Subsistence Stores.......................  ______                     
  Slop Chest...............................  ______                     
  Bar Stock................................  ______                     
  Fuel.....................................  ______                     
                                            ----------------------------
    Total..................................  $______                    
                                                                        

      
                                              By: ______________________

[[Page 232]]

    Sworn to before me this __ day of ________, 19__.

                                                       Notary Public    

                                Exhibit B

affidavit in proof of claim for the loss of unused stores and supplies 
on board the ss______________

State of

        ss:

County of

    I am the ______ of ______, the Owner of the SS ______, which was 
lost as a result of enemy action on or about the ______ day of ______, 
______. I make this affidavit in support of the above-named Owner's 
claim for the loss of the actual value of the said vessel's unused 
Stores and Supplies. The statements herein contained are based upon the 
personal knowledge of deponent or upon the books of records of the Owner 
or its agent which deponent believes are true and accurate.
    ``Stores and
      Supplies'', for loss of which claim is being made, are limited to 
consumable and subsistence stores as defined in Maritime Administration 
Inventory Manual, Vessel Inventories, Part I, and do not include radio 
supplies, expendable equipment, scrap, junk and spare parts.
    I am familiar with the insurance carried on the Stores and Supplies, 
on the SS ______; and, from the effective date of War Risk Insurance 
Binder No. ______ Policy No. ______ issued by the United States of 
America, which covers the total loss of Stores and Supplies in the 
amount of $______, to the date of such vessel's loss on ______, there 
was no war risk insurance on such Stores and Supplies other than that 
provided by said Binder or Policy.
    The period for which the vessel was stored with Stores and Supplies 
for use on the voyage on which she was lost, beginning with the last day 
of storing, was ______ days for Consumable Stores, ______ days for 
Subsistence Stores, ______ days for Slop Chest, ______ days for Bar 
Stock and ______ days for Fuel. The number of days from the last day of 
storing to, but not including, the date on which the vessel was lost, 
was ______ days for Consumable Stores, ______ days for Subsistence 
Stores, ______ days for Slop Chest, ______ days for Bar Stock and ______ 
days for Fuel.
    I. Consumable (excluding Subsistence) Stores:
    (1) The value of Consumable Stores on board the vessel at the time 
the vessel was ready to sail, as shown by the attached certified 
inventory of amounts on board the vessel at the termination of the 
preceding voyage or date of last inventory on ______, less actual 
consumption to date of sailing, amounting to $______, plus the actual 
additional purchases made for the voyage on which the vessel was lost, 
as shown by the attached invoices, amounting to $______, was $______.
    (2) The average daily consumption factor of $______ (determined by 
dividing the amount determined as in (1) by the number of days for which 
the vessel was stored) times the number of days from the date the vessel 
was ready to sail to, but not including, the date of loss (      ) is 
$______.
    To this amount is added the actual amount of Consumable Stores 
transferred or sold (as per statement attached) $______, making $______, 
which, subtracted from the amount of Consumable Stores on board at the 
time the vessel was ready to sail, as shown in (1) above, is $______, 
which sum is claimed to be the actual value of the vessel's unused 
Consumable Stores at the time of the loss according to the best of 
deponent's knowledge, information and belief.
    II. Subsistence Stores:
    (1) The value of Subsistence Stores on board the vessel at the time 
the vessel was ready to sail, as shown by the attached certified 
inventory of amounts on board the vessel at the termination of the 
preceding voyage or date of last inventory on ______ less actual 
consumption to date of sailing, amounting to $______, plus the actual 
additional purchases made for the voyage on which the vessel was lost, 
as shown by the attached invoices, amounting to $______, was $______.
    (2) The average daily consumption factor of $______ (as determined 
by dividing the amount determined as in (1) by the number of days for 
which the vessel was stored) times the number of days from the date the 
vessel was ready to sail to, but not including, the date of loss (      
) is $______.
    To this amount is added to the actual amount of Subsistence Stores 
transferred or sold (as per statement attached) $______, making $______, 
which, subtracted from the amount of Subsistence Stores on board at the 
time the vessel was ready to sail, as shown in (1) above, is $______, 
which sum is claimed to be the actual value of the vessel's unused 
Subsistence Stores at the time of the loss according to the best of 
deponent's knowledge, information and belief.
    III. Slop Chest Stores:
    (1) The value of Slop Chest Stores on board the vessel at the time 
the vessel was ready to sail, as shown by the attached certified 
inventory of amounts on board the vessel at the termination of the 
preceding voyage or date of last inventory on ______ less actual 
consumption to date of sailing, amounting to $______, plus the actual 
additional purchases made for the voyage on which the vessel was lost, 
as shown by the attached invoices, amounting to $______, was $______.

[[Page 233]]

    (2) The average daily consumption factor of $______ (determined by 
dividing the amount determined as in (1) by the number of days for which 
the vessel was stored) times the number of days from the date the vessel 
was ready to sail to, but not including, the date of loss (      ) is 
$______.
    To this amount is added the actual amount of Slop Chest Stores 
transferred or sold (as per statement attached) $______, making $______, 
which, subtracted from the amount of Slop Chest Stores on board at the 
time the vessel was ready to sail, as shown in (1) above, is $______, 
which sum is claimed to be the actual value of the vessel's unused Slop 
Chest Stores at the time of the loss according to the best of deponent's 
knowledge, information and belief.
    IV. Bar Stock:
    (1) The value of Bar Stock on board the vessel at the time the 
vessel was ready to sail, as shown by the attached certified inventory 
of amounts on board the vessel at the termination of the preceding 
voyage or date of last inventory on ______ less actual consumption to 
date of sailing, amounting to $______, plus the actual additional 
purchases made for the voyage on which the vessel was lost, as shown by 
the attached invoices, amounting to $______, was $______.
    (2) The average daily consumption factor of $______ (determined by 
dividing the amount determined as in (1) by the number of days for which 
the vessel was stored) times the number of days from the date the vessel 
was ready to sail to, but not including, the date of loss (      ) is 
$______.
    To this amount is added the actual amount of Bar Stock transferred 
or sold (as per statement attached) $______, making $______, which, 
subtracted from the amount of Bar Stock on board at the time the vessel 
was ready to sail, as shown in (1) above, is $______, which sum is 
claimed to be the actual value of the vessel's unused Bar Stock at the 
time of the loss according to the best of deponent's knowledge, 
information and belief.
    V. Fuel:
    (1) The value of Fuel on board the vessel at the time the vessel was 
ready to sail, as shown by the attached certified inventory of amounts 
on board the vessel at the termination of the preceding voyage or date 
of last inventory on ______ less actual consumption to date of sailing, 
amounting to $______, plus the actual additional purchase made for the 
voyage on which the vessel was lost, as shown by the attached invoices, 
amounting to $______, was $______.
    (2) The average daily consumptions factor of $______ (determined by 
dividing the amount determined as in (1) by the number of days for which 
the vessel was stored) times the number of days from the date the vessel 
was ready to sail to, but not including, the date of loss (      ) is 
$______.
    To this amount is added the actual amount of Fuel transferred or 
sold (as per statement attached) $______, making $______, which, 
subtracted from the amount of Fuel on board at the time the vessel was 
ready to sail, as shown in (1) above, is $______, which sum is claimed 
to be the actual value of the vessel's unused Fuel at the time of the 
loss according to the best of deponent's knowledge, information and 
belief.

Claim is hereby made for:                                               
  Unused Consumable Stores, other than--                                
    Subsistence Stores........................................   $______
    Subsistence Stores........................................   $______
    Slop Chest................................................   $______
    Bar Stock.................................................   $______
    Fuel......................................................   $______
                                                               ---------
        Total.................................................   $______
                                                                        

      
          By:______________

    Sworn to before me this __ day of ______, 19__.

                                                       Notary Public    

[[Page 234]]



                         SUBCHAPTER H--TRAINING





PART 310--MERCHANT MARINE TRAINING--Table of Contents




 Subpart A--Regulations and Minimum Standards for State, Territorial or 
                Regional Maritime Academies and Colleges

Sec.
310.1  Definitions.
310.2  Federal assistance.
310.3  Schools and courses.
310.4  Training Ship.
310.5  Personnel.
310.6  Entrance requirements.
310.7  Federal student subsistence allowances and student incentive 
          payments.
310.8  Leave.
310.9  Medical attention and injury claims.
310.10  Discipline and dismissal.
310.11  Cadet uniforms.
310.12  Scope and effect.
310.12-1  Form of agreement.

                          Subpart B  [Reserved]

  Subpart C--Admission and Training of Midshipmen at the United States 
                         Merchant Marine Academy

310.50  Purpose.
310.51  Definitions.
310.52  General.
310.53  Nominations and vacancies.
310.54  General requirements for eligibility.
310.55  Scholastic requirements.
310.56  Physical requirements.
310.57  Application and selection of midshipmen.
310.58  Service obligation for students enrolled after April 1, 1982.
310.59  Courses of instruction.
310.60  Training on subsidized vessels.
310.61  Training on other vessels and by other facilities or agencies.
310.62  Allowances and expenses; required deposit.
310.63  Uniforms and textbooks.
310.64  Privileges.
310.65  Graduation.
310.66  Foreign students.
310.67  Academy regulations.

    Authority: 46 App. U.S.C. 1295; 49 CFR 1.66.

    Source: 46 FR 37694, July 22, 1981, unless otherwise noted.



 Subpart A--Regulations and Minimum Standards for State, Territorial or 
                Regional Maritime Academies and Colleges



Sec. 310.1  Definitions.

    For purposes of this subpart A:
    (a) The 1958 Act means the Maritime Academy Act of 1958, Pub. L. 85-
672.
    (b) Act means the Maritime Education and Training Act of 1980, Pub. 
L. 96-453.
    (c) Administration means the Maritime Administration, United States 
Department of Transportation.
    (d) Agreement means an agreement between a State, or Territorial or 
Regional maritime academy or college and the Maritime Administrator, 
Department of Transportation as authorized by the 1958 Act or the Act 
and set forth in Sec. 310.13 of this part.
    (e) Secretary means Secretary of Transportation.
    (f) Maritime Administrator means the Maritime Administrator, 
Department of Transportation.
    (g) Cadet means cadet enrolled in the United States Maritime Service 
and in good standing at a State or Territorial or Regional maritime 
academy or college meeting the requirements of the 1958 Act.
    (h) Commanding Officer means the Commanding Officer of a training 
ship furnished by the Administration.
    (i) Deputy means the Deputy Maritime Administrator, Department of 
Transportation.
    (j) Maritime Service means the United States Maritime service.
    (k) Officers means all officers and faculty employed by a State 
maritime academy or college.
    (l) Region Director means the Director of the Administration's 
region office in which a School is located or in which a training ship 
is located.
    (m) School means State or Territorial or Regional maritime academy 
or college meeting the requirements of the Act.

[[Page 235]]

    (n) Superintendent means the superintendent or president of a 
School.
    (o) Supervisor means the employee of the Administration designated 
to supervise the Federal Government's interest in a School under the 
provisions of the Act, an agreement, and this subpart.
    (p) Training ship means a vessel used for training by a school and 
furnished by the Administration to a State or Territory, and includes 
the ship itself and all its equipment, apparel, appliances, machinery 
boilers, spare and replacement parts and other property contained in it.
    (q) Midshipman means a student in good standing at a State maritime 
academy or college who has accepted midshipman status in the United 
States Naval Reserve (including the Merchant Marine Reserve, United 
States Naval Reserve) under the Act.



Sec. 310.2  Federal assistance.

    (a) The Maritime Administrator may enter into agreements with the 
present or later established schools (not more than one such school in 
each State or Territory) meeting the requirements of the Act to make 
annual payments, for not in excess of four (4) years in the case of each 
such agreement, to be used for the maintenance and support of such 
Schools. The amount of each such annual payment shall be not less than 
the amount furnished to such School for its maintenance and support by 
the State or Territory in which such academy is located or, in the case 
of a Regional maritime academy an amount equal to the amount furnished 
to such academy for its maintenance and support by all States or 
Territories, or both, cooperating to support such School, but shall not 
exceed $100,000. However, the amount shall not exceed $25,000, if such 
academy does not meet the requirements of subsection 1304(f)(2) of the 
Act.
    (b) Pursuant to the provisions of section 1304(c) of the Act, The 
Maritime Administrator, may furnish to any State or Territory of the 
United States for use as a Training Ship by a school any suitable vessel 
that is under his or her jurisdiction, obtain such vessel from any 
department or agency of the United States, or may construct and furnish 
a suitable vessel, if such vessel is not available.
    (c) The Maritime Administrator may pay to any School the amount of 
the costs of all fuel consumed by a Training Ship furnished under the 
provisions of section 1304(c)(1) of the Act while such vessel is being 
used for training purposes by such a School, if such funds have been 
appropriated and are available for that purpose.
    (d) As a condition to receiving any payments or the use of any 
Training Ship under the provisions of the Act, the school shall comply 
with the requirements of the Act and this subpart and shall agree in 
writing to conform to such requirements.
    (e) As a further condition to receiving any payments or the use of 
any Training Ship, a School shall agree that, with respect to the 
training program for merchant marine officers, consistent with 
provisions of the Act, the 1958 Act, and the Agreement, it will comply 
with the following provisions of law and implementing regulations duly 
promulgated thereunder, to the extent applicable, including, but not 
limited to: Title VI, Civil Rights Act, 1964 (42 U.S.C. 2000d); the Age 
Discrimination Act of 1975 (42 U.S.C. 6101); the Vocational 
Rehabilitation Act--section 504 (29 U.S.C. 794); and 15 CFR Part 8. Each 
school shall give assurances that it will take any and all measures 
necessary to effectuate compliance.



Sec. 310.3  Schools and courses.

    (a) Schools with Federal aid. The following schools are presently 
operating with Federal aid under the 1958 Act or the Act:

California Maritime Academy
Maine Maritime Academy
Massachusetts Maritime Academy
State University of New York Maritime College
Texas Maritime College of the Texas A&M University at Galveston
The Great Lakes Maritime Academy

    (b) General rules for operation of a School. (1) The Schools shall 
maintain adequate berthing, messing and classroom instruction facilities 
ashore, or have plans to establish same at the earliest possible time, 
unless prevented from doing so by conditions beyond the control of the 
School. During a period

[[Page 236]]

a school is implementing an approved plan, Cadets may be housed and 
instructed on a Training Ship. However, the approved plan may include 
the ongoing use of the training ship as an instructional and laboratory 
facility and for the berthing of entering class cadets for a period not 
to exceed six months for purposes of shipboard indoctrination.
    (2) The School shall arrange for the Cadet or Midshipman to take the 
United States Coast Guard original licensing examination prior to the 
date of graduation.
    (3) As a condition to receiving payments of any amount allowable by 
the 1958 Act and the Act in excess of $25,000 for any year, a School 
shall agree to admit student residents of other States to the extent of 
at least ten percent (10%) of each entering class, if such out-of-State 
students apply for admission and are otherwise qualified for such 
admission. The calculation of residents of other States shall exclude 
residents of foreign countries, but shall include residents of 
Territories and possessions of the United States (including the 
Commonwealth of Puerto Rico).
    (4) Upon the request of the Administration a school shall furnish 
such reports and estimates as may be required in the preparation of 
Federal Budget estimates.
    (5) State authorities shall prescribe and administer rules and 
regulations for the internal organization and administration of each 
School.
    (6) The Administration shall have the right to inspect shore base 
facilities at all reasonable times.
    (7) Records pertaining to a School, its officers, crew, Cadets, the 
Training Ship, and shore base, shall be maintained by each School and 
shall be available to the Supervisor upon request. A detailed record of 
applications for admissions, enrollments, reenrollments, absences with 
or without leave, hospitalizations, determinations of students not in 
good standing, disenrollments, graduations, and other data concerning 
cadets and Midshipmen shall be kept by each school for the period of 
enrollment plus one year. Copies of these records shall be furnished to 
the Supervisor upon request.
    (8) The Administration may include in any pamphlets, brochures or 
other public information materials an adequate description of each 
School giving the reader knowledge of the existence of the School, its 
purposes and where to obtain application forms and further information.
    (c) Curriculum. (1) The minimum period of training shall be three 
(3) years. For the Cadets and Midshipmen at the schools located in 
California, Maine, Massachusetts, New York and Texas at least six (6) 
months of the total time must be aboard a Training Ship in cruise 
status. A maximum of two (2) months of training time aboard commercial 
vessels of not less than 2,500 horsepower may be substituted for two (2) 
months of the specified cruise time. For the cadets at the Great Lakes 
Maritime Academy, six (6) months of the time shall be aboard Great Lakes 
commercial vessels and an additional three (3) months shall be aboard 
either a Training Ship in a cruise status or Great Lakes commercial 
vessels while underway. Cadets in training status aboard commercial 
vessels shall sign on board as cadets and shall pursue their training 
within the framework of formal sea projects prepared and monitored by 
their respective Schools.
    (2) State authorities shall prescribe and be responsible for the 
courses of instruction and general system of training and the addition 
of such reasonable maritime courses as may be prescribed by Federal 
authorities, subject to approval by the Maritime Administrator. The 
curriculum as a composite shall, as a minimum, meet the requirements set 
out in the Federal Curriculum Standards for Merchant Marine Officers 
Training Program.
    (3) Copies of the Federal Curriculum Standards for Merchant Marine 
Officers Training Program at the State maritime academies may be 
obtained from the Maritime Administration, Office of Maritime Labor and 
Training, 400 Seventh Street, SW, Washington, DC 20590.

(Sec. 204(b), Merchant Marine Act, 1936, as amended (46 U.S.C. 1114(b)); 
Pub. L. 97-31

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(August 6, 1981); 49 CFR 1.66 (46 FR 47458, Sept. 28, 1981))

[46 FR 37694, July 22, 1981, as amended at 49 FR 13365, Apr. 4, 1984]



Sec. 310.4  Training Ship.

    The Administration may furnish a Training Ship, if such is 
available, to any School. Training Ships which may be designated for use 
by a School will be delivered to the School at a location determined by 
the Administration, in condition found to be in class by the American 
Bureau of Shipping and certificated by the U.S. Coast Guard. If a 
Training Ship is not available, adequate cruising facilities shall be 
the responsibility of the State and its School. The furnishing of a 
Training Ship shall be subject to the following terms and conditions:
    (a) General provisions. (1) The State, acting through the School 
shall exercise reasonable care to safeguard the interests of the 
Administration and avoid (i) injury to any person aboard the Training 
Ship, and (ii) loss and damage of every nature with respect to the 
Training Ship. Also, the school shall have reasonable layup procedures 
during noncruise status of the Training Ship.
    (2) Excerpts from log books and reports shall be submitted as 
directed by the Supervisor.
    (3) Initial telegraphic or telephonic reports shall be made promptly 
to the Supervisor and the appropriate Region Director in the event of an 
accident causing (i) serious injury to any person, or to the Training 
Ship, or (ii) damage inflicted by the Training Ship upon any other ship 
or other property. Such reports shall be followed by complete written 
details of the occurrence.
    (4) The Supervisor shall determine whether or not the berth of the 
Training Ship at the base in its home port is suitable from the 
standpoint of safe mooring. When the Training Ship is not on cruise, the 
Commanding Officer or Superintendent shall keep the Supervisor informed 
of the location of the Training Ship and any contemplated change of 
berth.
    (5) The following notice shall be posted conspicuously aboard each 
Training Ship furnished to a State for use by a School:
    This training ship is the property of the United States of America. 
It is furnished to the State of ________ by the Department of 
Transportation, Maritime Administration, for the purpose of training 
young men and women to become officers in the merchant marine of the 
United States. Neither the State, the Commanding Officer, nor any other 
person has any right, power or authority to create, incur or permit to 
be imposed upon this vessel, any lien whatever.
    (6) No changes requiring U.S. Coast Guard approval shall be made to 
the Training Ship without the written approval of the Administration.
    (7) In the event of the termination of the use of a Training Ship by 
the State or by the Maritime Administrator, the State shall return to 
the State base port, the Training Ship and all property whatsoever owned 
by the Administration. Title to all additions, replacements, and 
renewals made by the State shall vest in the Administration without 
charge.
    (b) Termination of use. The Maritime Administrator may terminate the 
use of a Training Ship upon such reasonable notice to the State as the 
circumstances may permit in the judgment of the Maritime Administrator. 
If use of the Training Ship is terminated by the Maritime Administrator, 
the Maritime Administrator may:
    (1) Substitute another Training Ship;
    (2) Require the sharing of a Training Ship by two or more Schools; 
or
    (3) Cooperate with the School in arranging for training time aboard 
commercial vessels for its Cadets and Midshipmen.
    (c) Property aboard the Training Ship. The State shall have the 
complete use of a Training Ship as defined, subject to the following 
terms and conditions:
    (1) All property, or its equivalent furnished by the Administration, 
shall be returned to the Administration when use of the Training Ship is 
terminated. The only exceptions are: spare and replacement parts 
consumed; and losses due to ordinary wear and tear, unavoidable accident 
and perils of the sea. All other property otherwise lost or destroyed 
shall be replaced at the expense of the State.

[[Page 238]]

    (2) Administration property shall not be permanently removed from 
the Training Ship to the shore base without the prior written approval 
of the Supervisor.
    (3) The administration shall take inventories of State and Federal 
property aboard the Training Ship at such times as it deems necessary. 
The school, at its expense, shall furnish such assistance as may be 
necessary in taking such inventories.
    (d) Condition Surveys. Before a Training Ship is released to a 
School and manned by officers under State control, a condition survey 
shall be made by duly authorized representatives of the School and the 
Administration. If the Training Ship is found in order, the School 
representative shall sign a receipt for the Training Ship. Subsequently, 
after due notice to the State authorities, a condition survey may be 
made of the Training Ship whenever deemed advisable by the 
Administration, and, in any event, upon redelivery of the Training Ship 
by the State to the Administration.
    (e) Maintenance and repairs. (1) Administration payment. A Training 
Ship shall be maintained in good repair by the Secretary as provided by 
the 1958 Act and the Act. Expenses for repairs, changes and alterations, 
repairs to equipage and replacements of equipage in accordance with the 
Administration's approved allowance lists for the Training Ship (i.e. 
authorized under the Act and to the extent that funds are available), 
shall be borne by the Administration under the following terms and 
conditions:
    (i) When it is necessary to repair or drydock the Training Ship 
because of damage (except in an emergency, when on foreign cruise), the 
Commanding Officer or Superintendent shall notify the Supervisor and 
appropriate Region Director by telephone or telegraph in order to enable 
a representative of the Region Director, if available, to be present, 
when the survey of the damage is made.
    (ii) Repairs which need not be carried out during the annual 
overhaul period shall be made by the Cadets or Midshipmen, if possible, 
under the supervision of the officers. When repair material is required 
for this purpose, the Commanding Officer or Superintendent shall forward 
to the Supervisor a list of such material and estimated costs, and a 
description of the repairs to be carried out by the Cadets or 
Midshipmen. The Supervisor shall promptly advise the Commanding Officer 
or Superintendent whether or not such work comes under the heading of 
repairs, and if procurement of the material is authorized.
    (iii) Requisitions covering repairs, renewals, and betterments shall 
be prepared in quintuplicate by the heads of departments of the Training 
Ship and submitted by the Commanding Officer or Superintendent to the 
Supervisor at least forty-five (45) days before the date of the annual 
overhaul, with one copy to the Region Director.
    (iv) The State is authorized to expend not to exceed $5,000 for 
emergency repairs which become necessary while the Training Ship is on 
foreign cruise. The Adminstration shall reimburse the State upon 
submission of vouchers to, and approval by, the Maritime Administrator. 
To obtain reimbursement for emergency repairs estimated to cost in 
excess of $5,000, authorization must be obtained by the State from the 
Supervisor prior to undertaking such repairs. The Commanding Officer 
shall be responsible for all necessary filings with the United States 
Customs Service to avoid duties upon all emergency repairs performed 
outside the United States. If penalties are imposed, for non-filing or 
improper filing, they shall be solely the responsibility of the State.
    (2) State payment. Except as otherwise provided in this section, the 
State shall, at its own expense, accomplish the following:
    (i) Undertake usual preventive maintenance of the Training Ship, 
adhere to minimum levels of preventive maintenance as prescribed by the 
Administration, and keep the Training Ship clean and painted, above the 
waterline according to good maritime practices.
    (ii) Cause the Training Ship to be fumigated if required by the 
Administration and forward to the Supervisor a copy of the fumigation 
certificate.
    (iii) Pay for all consumable stores, freshwater and costs incidental 
to the operation of the Training Ship.

[[Page 239]]

    (iv) Pay for fuel of the training ship except that the 
Administration may assist in paying the cost of fuel consumed on the 
Training Ship while being used for training purposes if funds are 
appropriated and available for such purposes.
    (f) Cruises. The school shall submit the cruise itinerary of the 
Training Ship including a listing of foreign ports to be visited, for 
approval of the Supervisor at least sixty (60) days in advance of the 
date such cruise is scheduled to begin. The Supervisor shall arrange 
with the Department of State for clearance of the Training Ship to visit 
foreign ports.
    (g) Hospitalization. The School shall be responsible for all medical 
treatment and hospitalization of all persons aboard the Training Ship at 
all times, including officers and Cadets and Midshipmen. If available, 
facilities of the United States Public Health Service should be 
utilized.
    (h) Repatriation and return to home port. The School shall be 
responsible for the return to the home port of the Training Ship of all 
persons, including officers and Cadets and Midshipmen, who originally 
embarked on a training cruise from a Continental United States port and 
who are left behind, after the departure of the Training Ship from any 
port, foreign or domestic, or are to be brought home from the ship at 
any time or for any reason. The School shall be solely responsible for 
all expenses of repatriation and return to home port.



Sec. 310.5  Personnel.

    (a) Selection and appointment of Superintendent and faculty by State 
authorities. (1) The State shall select and appoint the Superintendent 
of a School in accordance with qualifications established by appropriate 
State authorities. The State shall notify the Maritime Administrator 
whenever a new Superintendent is appointed and furnished with 
appropriate background information on the appointee for informational 
purposes.
    (2) The State shall appoint faculty members in disciplines other 
than engineering and navigation on the basis of the same criteria used 
in the employment of such personnel in State-supported colleges and 
universities throughout the State. Faculty members in navigation and 
engineering courses, including steam and diesel, shall meet appropriate 
academic and practical experience standards adopted by the school and 
approved by the Administration.
    (b) Personnel for Training Ships--(1) Commanding Officer. The 
Commanding Officer shall hold a valid Master's Ocean, Unlimited Tonnage 
license including Radar Observer endorsement issued by the United States 
Coast Guard and shall have served at least two (2) years as Master, 
Chief Officer, Commanding Officer, or Executive Officer either (i) on 
oceangoing vessels under the authority of said Master's Ocean, Unlimited 
Tonnage license, or (ii) in the case of sea service as a member of the 
Uniformed Services of the United States, on ships accepted by the United 
States Coast Guard as equivalent for qualifying service for issue of a 
Master's Ocean, Unlimited Tonnage license.
    (2) Chief Engineer. The Chief Engineer must hold a valid Chief 
Engineer's (Steam) Ocean, Unlimited Horsepower license, issued by the 
United States Coast Guard and have served as Chief Engineer of an 
oceangoing steamship of comparable horsepower to that of the particular 
Training Ship.
    (3) Watch Officers. Both Deck and Engineer Watch Officers in charge 
of a watch, underway, shall hold valid Ocean, Unlimited Tonnage 
licenses, issued by the United States Coast Guard, in their particular 
field.
    (4) Radio Officers. During each training cruise the Training Ship 
shall have assigned one or more radio officers holding a valid license 
issued by the United States Coast Guard, in accordance with its 
regulations.
    (5) Licensed Engineer. When a Training Ship boiler is in operation, 
there shall be a Licensed Engineer qualified to stand the watch aboard 
at all times.
    (c) Insignia for officers and other School personnel. The State may 
furnish insignia for officers and other school personnel, other than 
officers of the United States Navy, United States

[[Page 240]]

Naval Reserve, United States Maritime Service and United States Coast 
Guard.

(Approved by the Office of Management and Budget under control number 
2133-0010)

(Sec. 204(b), Merchant Marine Act, 1936, as amended (46 U.S.C. 1114(b)); 
Pub. L. 97-31 (August 6, 1981); 49 CFR 1.66 (46 FR 47458, Sept. 28, 
1981))

[46 FR 37694 July 22, 1981, as amended at 47 FR 25530, June 14, 1982; 49 
FR 13365, Apr. 4, 1984]



Sec. 310.6  Entrance requirements.

    (a) Enrollment prior to April 1, 1982. A candidate for admission to 
a school who wishes to be considered for Federal student subsistence 
payments shall:
    (1) Be a citizen of the United States.
    (2) Be obligated to (i) complete the Naval Science curriculum (ii) 
take all necessary and positive steps to obtain a commission as ensign 
in the United States Naval Reserve, (iii) apply before graduation for 
such commission, and (iv) acc