195 Code/102
Memorandum by the Assistant Secretary of State (Sayre)
In the proposed code for the shipping industry, as revised for a hearing on January 31, 1934, provision is made that the “stabilization and regulation of minimum rates, fares and charges and rules and regulations to be charged and enforced in the trades of the various divisions shall be accomplished”. (Article 7, Section 1). This provision is applicable to foreign, as well as American, ships. The code therefore undertakes to provide that foreign and domestic ships carrying passengers and cargoes from American ports may be prohibited from carrying for less than minimum rates fixed under the supplemental codes. This code has not yet I believe been reduced to final form or signed by the President.
So far as I know, this is the first attempt which has been made to provide for the fixing of minimum rates for cargoes carried by foreign ships sailing from American ports. It is a new departure in policy.
Upon the publication of the proposed code, the Danish and Norwegian Governments have sent in protests claiming that the code, if enacted, would constitute a violation of their treaty rights.
I. Nature of the Problem
The heart of the problem is the fact that due to the sadly shrunken amount of international trade in the world today there are too many ships afloat and too few cargoes to pay for the operation of the existing ships. It is impossible for all of them to carry at a profit and as a result cut-throat competition is rife. Established lines find themselves menaced by non-conference ship lines and by tramp steamers which, without the overhead of the established lines, can cut rates to a point which makes competition with them by the established lines exceedingly difficult. The proposed code is an attempt largely fostered [Page 691] by the conference lines to stabilize rates at the expense of nonconference lines and tramp steamers. The stabilization of rates of established lines is highly desirable and every assistance should be given them. American ships, owing to the high cost of construction in the United States, to the operation of the Seamen’s Act,13 and to other factors, find it difficult to compete with cheaper built and more cheaply run foreign ships and, without help of some kind, must continue to run at a very serious loss. It is to be borne in mind, however, that they receive very substantial help in the form of mail subventions. The attempt to regulate minimum cargo and passenger rates on foreign ships carrying cargoes from American ports by the unilateral enactment of American law raises very serious problems of policy which should be carefully weighed before the enactment of the code.
II. Possible Violation of Treaty Eights
The Danish Government, by a note sent to the Department of State on February 12, 1934, has objected to the application of the provisions of the proposed code to Danish vessels on the ground that it would constitute a violation of the Treaty of 1826 between Denmark and the United States.14 The Danish Government contends “that the proposed shipping code, if approved, would … seem to extend in its operation outside of American jurisdiction, inasmuch as it contains provisions … which would necessarily have effect upon Danish ships engaged in trade with the United States, far beyond its boundaries. Moreover, the said provisions, if imposed upon owners of Danish vessels, without their voluntary consent, would appear not to be in accordance with rights secured by treaty and generally recognized principles of international law granting free access to ports for the purpose of international trade”.
In referring to treaty rights, the Danish Government doubtless has in mind the Treaty of 1826 between Denmark and the United States, under which most-favored-nation treatment is promised “in respect to commerce and navigation”. This provision might be regarded as extending to Danish shipping the rights of freedom of commerce and navigation secured to shipping of other countries by treaties with the United States. The Government of Norway has also objected to the proposed code on the ground that “it could hardly be compatible with the treaty (of June 5, 1928) and the principle underlying same inasmuch as it would infringe on the freedom of navigation …” The question of whether or not the proposed code would violate treaty rights presents a legal problem of some uncertainty.
[Page 692]III. Problems of Policy Involved
- (a)
- The enactment of the proposed code raises a far more serious question of commercial policy. It is the object of the code to raise and stabilize existing shipping rates on cargoes carried from American ports. If the object of the code is attained, it would seem to result in a higher cost of cargoes carried from American ports than from other ports, so that there would be the danger that cargoes could be carried more cheaply, for instance, from British ports than from American ports. In the severe competition between British cargoes and American cargoes in the Far East or in other parts of the world, the result of the proposed enactment might be to enable British shippers to undersell American shippers; and if this were the result of the enactment of the proposed code it would naturally be very much to the ultimate detriment of American shipping. It would seem, therefore, that this fundamental problem of policy should be faced and thought through before the proposed code is enacted.
- (b)
- The American Manufacturers Export Association have prepared a strong statement addressed to the Secretary of State in opposition to the proposed provision in the shipping code and state “We urge you to do everything within your power to prevent the proposals as now prepared from becoming effective. They are impracticable and dangerous to our export trade and to our national prosperity”.15 In addition to other objections, American shippers state that if the proposed code becomes effective they will direct their shipments through Canadian rather than through American ports.
- (c)
- The regulation of ocean rates on foreign as well as American ships should be accomplished by international agreement. If it were possible, the ideal method would be to secure an international agreement for the limitation of shipping charges with perhaps an allotment of shipping to various countries so as to prevent cut-throat competition caused by an excess of shipping in relation to cargo. To attempt to secure this method by unilateral legislation on the part of a single country entails a grave risk that foreign countries will resent such an enactment and will take action inimical to American shipping. Such action against American shipping might injure American shipping far more than the present cut-throat competition. If the United States undertakes to regulate minimum rates on cargoes carried from American ports, foreign countries can and probably will do the same. If they regulate the rates of cargo carried from their own ports they might undertake similarly to regulate minimum rates of cargoes carried to their ports; and if such a movement once begins it will spell the same kind of chaos in the field of international shipping which now [Page 693] exists in the field of tariff and quota regulations. Nothing could be more unfortunate than the initiation of such a movement.